Energy

Agency reports predict wide range of McGirt problems

January 5, 2021

Ray Carter

The Seminole Nation has indicated it plans to impose a tribal tax on oil production within its territory, representing the latest repercussion of the U.S. Supreme Court’s McGirt v. Oklahoma decision that declared a tribal reservation was never disestablished in Oklahoma.

State officials argue the Seminoles’ effort is illegal and, in a Dec. 15 post on his Facebook page, Gov. Kevin Stitt warned the Seminoles’ actions “could be just the tip of the iceberg.”

Reports issued by state agencies, running nearly 200 pages in combined length, bolster Stitt’s warning and show the McGirt decision could have wide-ranging repercussions. Among the potential impacts are a significant decline in tax collections and a lack of enforcement of state laws and regulations throughout eastern Oklahoma, covering everything from medical practices to waste management.

In McGirt v. Oklahoma, a case centered on the appeal of a convicted child rapist, the U.S. Supreme Court held that the Muscogee (Creek) Nation’s reservation was never disestablished. While the ruling applied only to Creek land and questions of criminal prosecution under the federal Major Crimes Act, its precedent and basis are expected to result in application to numerous other issues, such as taxation and regulation, and also include the land of four other tribes—the Choctaw, Chickasaw, Cherokee, and Seminole nations. The combined territory of those five tribes includes most of eastern Oklahoma, about 43 percent of Oklahoma’s total landmass, which is home to approximately 1.9 million residents.

Earlier this month, the Seminole Nation Business & Corporate Regulatory Commission sent a letter to oil producers in the tribe’s historic territory, informing them that “all operators” are required to have a permit from the tribe and pay an 8 percent “severance fee” of the gross market value.

That tribal tax on production would be levied in addition to the existing state gross production tax.

Oklahoma Attorney General Mike Hunter criticized the Seminole Nation’s actions in a letter of response.

“Sending letters to every single operator in Seminole County, regardless of whether the Seminole Nation has specific grounds for asserting jurisdiction over that operator, can be seen as an attempt to intimidate those engaging in productive economic activity within the county to pay taxes and fees that the Seminole Nation has no jurisdiction to levy,” Hunter wrote.

Gov. Kevin Stitt responded by saying, “Oklahoma, this is what I’ve been trying to warn about ever since the McGirt decision came down. This move by the Seminole Nation is reckless, will create tremendous uncertainty, and discourage businesses from investing in our state—and it could be just the tip of the iceberg. We must work together on a path forward that provides clarity, fairness, and unity for all Oklahomans.”

Stitt has created the Oklahoma Commission on Cooperative Sovereignty to explore the effects of the McGirt v. Oklahoma ruling. As part of that effort, he ordered all state agencies to provide the commission with analyses on how the ruling could impact their areas of focus.

Those analyses identified many issues—but even those extensive reviews did not anticipate the Seminole Nation’s efforts on energy-production taxes.

In its analysis, the Oklahoma Tax Commission reported that “there is little to no fiscal impact expected with respect to collections from gross production and petroleum excise taxes or ad valorem taxes.” The commission noted the Oklahoma Court of Civil Appeals has already addressed the issue of whether the state is entitled to levy gross production and petroleum excise taxes on oil and gas produced from restricted allotted Indian land.

If McGirt applies to all five tribes, the Oklahoma Tax Commission did predict a potential per-year revenue impact of $72.7 million from reduced income tax collections, and $132.2 million annually from reduced sales/use tax collections.

But the tax-and-regulatory uncertainty embodied by the Seminoles’ energy-taxation efforts were predicted by several agencies as a major negative consequence of the McGirt ruling.

“One of the biggest factors that could harm Oklahoma’s ability to compete with other states for business relocation and expansion is the uncertainty posed by McGirt,” the Oklahoma Department of Commerce analysis warned. “If large portions of the State are found to be established reservation land, it could lead to great uncertainty for businesses. This uncertainty could relate to taxation issues as previously described, or it could also lead to regulatory issues. If a business is unsure as to whether they will have to pay taxes to the State or the tribe, or both, it could lead to consideration of a competing state if there are other options for relocation or expansion. If a business is unsure as to whether state regulations, tribal regulations, or both would apply, it would seem reasonable that they would choose another location to operate where these issues would not exist.”

The Oklahoma Board of Nursing similarly warned that McGirt could reduce business creation in eastern Oklahoma, including among medical providers.

In its statement of potential impact, the board noted that “if the eventual result of the McGirt decision and relevant cases to follow is the expansion of tribal government authority in a wide range of areas, including regulation and taxation, this has the potential of discouraging medical practice/business development within the state due to the lack of certainty in these areas.”

The Oklahoma Board of Nursing noted that will be “a detriment to health care within the state.”

Environmental and Health Concerns

Numerous other issues are raised in agency reports to the Oklahoma Commission on Cooperative Sovereignty.

The Oklahoma Department of Agriculture, Food and Forestry warned that the McGirt decision could have repercussions for the agency’s regulation of animal waste at hog and poultry operations, as well as oversight of pet breeders and shelters.

Agency officials warn that at “a minimum” they will “need to determine if any of our licensees are tribal members and if they are on tribal-owned land. It potentially could create a patchwork of regulation within the state, where state-regulated facilities could be treated differently from tribal-regulated facilities.”

The Oklahoma Department of Environmental Quality (DEQ) administers air- and water-quality programs and noted in its report, “Under McGirt, DEQ’s ability to investigate criminal violations in the relevant areas could potentially be significantly impacted.” In addition, the agency warned that the court decision “may arguably also impact the DEQ’s ability to enforce past violations of the Oklahoma Environmental Code, permits, license or administrative orders issued.”

“In addition, the validity of the untold number of DEQ-issued permits to facilities/sources located in the impacted area could be called into question,” the agency report stated.

In Oklahoma, groundwater is a private-property right but stream water is legally defined as public water available for appropriation by the Oklahoma Water Resources Board (OWRB). In its report, the OWRB stated, “If the state is unable to administer the water rights program within the reservation boundaries of the Muscogee (Creek) Nation, approximately 180 groundwater permits and 235 stream water permits would be affected.”

The number of permits affected for the areas covered by all five tribes was not included in the OWRB’s report.

The Oklahoma State Department of Health (OSDH) licenses and regulates facilities and professions that include restaurants, food manufacturers, tattoo and body piercing artists, medical facilities, and long-term care facilities.

“The question that arises is whether McGirt has any impact on OSDH’s ability to license and regulate the facilities and professions that are located in the Creek Reservation, particularly if the facility or license belongs to Native American member,” the agency’s report stated.

In Tulsa County alone, which now lies in Creek Reservation territory, the agency noted it issues restaurant licenses to more than 5,000 entities.

The Oklahoma Department of Wildlife Conservation noted it manages “about 1,108,831 acres of public areas within the Five Tribes’ footprint.” Post-McGirt, agency officials said it is unclear if Oklahoma fish and wildlife laws and regulations “still apply within the jurisdictional boundaries of the Five Tribes” or if those regulations “only apply to non-members of those tribes.”

“Are tribal members exempt from our laws prohibiting the commercialization of wildlife, which could quickly take us back to the decimated populations witnessed around statehood?” the agency’s report asked.

The agency also questioned if game wardens retain the authority “to enforce against tribal members state laws prohibiting hunting/fishing without landowner consent (trespass laws) on non-tribal-member-owned lands.”

Following the McGirt ruling, the Muscogee (Creek) Nation established the Mvskoke Reservation Protection Commission to “comprehensively undertake research, analysis, and fact-finding to determine what actions and changes are necessary to develop new economic development, public safety, and social services policies that ensure a better future for tribal members and our neighbors.”

The areas to be explored included law enforcement and public safety, business and commerce, legal and regulatory matters, and general Muscogee (Creek) Nation governance.

Other tribes potentially impacted by McGirt have created similar entities.

As of publication, the Creek tribe’s website included no list of recommendations from the Mvskoke Reservation Protection Commission.