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Osage Nation's lawsuit over state income tax exemptions may proceed

DENVER - The Osage Nation may legally sue individual members of the Oklahoma Tax Commission in litigation that pits the state of Oklahoma against the Osage Nation in defining its tribal boundaries, the 10th Circuit Court of Appeals ruled Dec. 26.

Despite possible ''far-reaching implications on Oklahoma sovereignty,'' the three-judge panel allowed limited pursuit of an exemption from state income tax laws in contested areas of Indian country.

The Osage Nation had sued the state of Oklahoma for taxing the income of tribal members who were employed on trust land within Osage County but who did not reside on trust land in the county, located in north-central Oklahoma.

''It's a justice issue as to whether the state ever had the authority to tax our citizens,'' Jim Gray, principal chief of the Osage Nation, said in a telephone interview.

''Clearly, what we're asking for is [for the courts] to make a determination of whether the Tax Commission has the jurisdiction to tax the income of those who live and work on the reservation,'' he said. ''I'm fairly sure we will prevail.

''Our reservation was never disestablished,'' he continued, and there is a question whether tax collections ''were appropriate all these years.''

According to the Osage Nation, the present-day 2,250-square-mile Osage County remains the original Osage Indian Reservation, despite the state's argument that - with the exception of specific trust lands - the reservation lost its status in 1907 with Oklahoma statehood.

The Osage Nation argues that the reservation retains its original boundaries because its legal status has never been altered by Congress.

Gray noted that there has been ''a lot of static'' around the reservation boundaries issue, particularly among non-Indian area residents who he said were needlessly concerned. ''They think it's a black-and-white issue, and it's not.''

He pointed out that there is concurrent jurisdiction all over Indian country, where tribal governments often exist side-by-side with county and state governments.

The appellate judges said that the ''essence of this case is whether the Nation or the State of Oklahoma is the supreme sovereign with respect to Osage County or whether some form of dual sovereignty may apply.''

The appellate court's action reversed part of a lower court ruling that allowed a lawsuit against the state of Oklahoma and the Oklahoma Tax Commission, permitting instead the nation's suit to proceed against tax commission members as individuals.

Although the ruling is procedural and is not on the merits of the case, ''it does allow litigation to continue with an eye to determining whether the status of Osage Reservation lands is intact and, if so, that the state does not have the jurisdiction to collect income tax there,'' said Gary Pitchlynn of Pitchlynn and Associates, an attorney for the Osage Nation in the case.

In the short term, a ruling favorable to the tribe would ''grant relief to tribal members who have been paying income tax to the state for many years,'' he said, while ''longer term, it would go a long way to supporting the continued growth and expansion of the tribe's capabilities.''

In addition, it would ''take some responsibility off state and county governments'' in terms of providing such services as law enforcement, which has fallen to the state in recent years by default as the federal government has played an increasingly minor role.

There would be only minimal loss of income to the state and county, he said.

Most of the 44,000-plus residents of Osage County are non-Indian, he said. Of an estimated 15 percent or less of Native residents, still fewer live and work on the reservation and they constitute a ''fairly nominal number,'' so no dramatic impact on the state or county budget would be expected.

Douglas Allen, general counsel for the Oklahoma Tax Commission, was not immediately available for further information, and a member of his staff said their practice was not to comment on cases that are pending.

Phil Bacharach, press secretary for Oklahoma Gov. Brad Henry, said, ''It is the policy of our office that we do not comment on litigation that is pending.'' The governor's office is reviewing the court ruling, he said.