Judge backs off Kansas on gas tax

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WINNEBAGO, Neb. ? Motor fuel is on its way to three Kansas tribes and employees of HCI Distribution are back to work, thanks to a federal judge in Topeka, Kan.

U.S. District Judge Dale Saffels barred the state of Kansas from imposing any taxes, seizing any more property or pursuing criminal and civil charges against two Winnebago Tribal officials until further court actions are decided. Judge Saffels issued a temporary restraining order against the Kansas Attorney General and Department of Taxation after the tribes filed complaints in federal court.

The tribes filed for the restraining order as part of a complaint that asked the court to bar the state from further interference with the distribution of motor fuel to the Kansas tribes. The complaint also asked the judge to order the state to withdraw criminal and civil charges and return property to the Winnebago Tribe. A hearing June 12 will consider a permanent injunction against the state.

In the meantime the Winnebago Tribe will be able to work its way out of financial problems caused by the state's criminal charges, which involve $1.25 million the Kansas Department of Tax Revenue claims it owes for non-payment of fuel taxes. HCI Distribution can now temporarily transport motor fuel to the Kickapoo, Sac and Fox and Iowa Tribes of Kansas without interference from the state. The three tribes can also get back to the business of selling gasoline.

"Things are a lot better, we are selling gas and trucks are rolling," said Lance Morgan, executive director of Ho-Chunk Inc., which owns HCI Distribution. "We are not sure if we can get the two trucks they confiscated back, at least until after the June 12 hearing. We are very positive, but the tougher test will be the June 12 hearing. At least this initial order will keep us in business and keep the Kansas tribes in business."

The Winnebago Tribe managed to convince the judge that the tribe had been placed in a position of irreparable harm financially and politically by the state's actions to seize two tanker trucks and file civil and criminal charges against Morgan and Tribal Chairman John Blackhawk.

"We always knew we had a strong case and think this improves our outlook, but you can't tell what will happen in federal court. This was a first impression, a precedent setter," Morgan said.

Winnebago Tribal attorneys argued that after the state criminal charges against Morgan and Blackhawk, the business of Ho-Chunk, Inc. came to a near standstill. The company couldn't use credit cards, banks that normally were friendly to the tribe and the company wouldn't issue credit and other businesses stopped providing merchandise.

One of the most important criteria for issuing a restraining order or an order for injunctive relief is to prove irreparable harm. During the May 15 hearing the Winnebago and Kansas Tribes argued that because companies would not sell alcohol, a major component of motor fuel, to the Winnebago tribe all tribes would suffer loss of revenue. Also loss of jobs, business relationships, creditworthiness and goodwill would put the tribes in financial peril.

The state claimed that it would lose revenue from motor fuel tax that would cause harm to Kansas. It also argued that its sovereign right to enforce laws was at stake.

The court agreed with the tribes. In his written ruling, Judge Saffels stated, "The court agrees that a final order granting the relief requested could very well adversely affect the state of Kansas' sovereignty. But in terms of the standard for issuing a temporary restraining order, plaintiffs are faced with more devastating losses than the state's temporary inability to enforce its fuel tax law."

The ruling relied on a 1995 case involving the Sac and Fox Nation and the state of Missouri to justify issuing the restraining order to satisfy the public interest.

"In the same opinion, this court also stated that the public has a significant interest in assuring the viability of tribal self-government, self-sufficiency and self-determination. If the defendants are allowed to continue their current actions against plaintiffs, it is argued that services could be lost and that the viability of tribal self-government, self sufficiency and self-determination are in jeopardy," Judge Saffels wrote.

The state has been temporarily ordered to refrain from any further actions against the tribes and HCI Distribution. The real test will come, however, during action in federal court that will eventually determine whether or not the state can continue to pursue taxation of the motor fuel HCI Distribution brings into Kansas for distribution to the three tribes.

Judge Saffels said that determining whether or not the fuel is manufactured on tribal land is grounds for litigation, as is whether or not the state can tax that fuel as it is brought into the state. The Winnebago complaint could have been rejected, but Judge Saffels found enough grounds to the case to continue it in federal court.

"Without directly addressing the merits of plaintiffs' arguments, the court finds plaintiffs have shown that the issues presented are so serious, substantial, difficult and doubtful as to make them fair ground for litigation," Judge Saffels wrote. "Specifically, the court finds the issue of whether the state can tax fuel that is allegedly manufactured on tribal lands, thus adding value, and later sold to another tribe on the reservation raises a serious question for litigation. Also the court finds that whether the legal incidence of the tax falls on the Winnebago Tribe and whether the tax is assessed inside or outside Indian country is a serious question for litigation."