May 31, 1940

Menominee tribal enterprise and whether the reference to reservations includes Indian reservations.

The legislative history of the statute supplies three indications that the words "United States military or other reservations" were meant to include Indian reservations. (1) The statute in question was introduced as an amendment to the Federal Aid Highway Act of 1936 and the brief discussion surrounding it indicates that it was intended to permit the application of local sales taxes wherever they were not then collected because the sales were made on a reservation (Cong. Rec. Vol. 80, part 6, p. 6913; part 8, p. 8701). (2) In the same statute, there was a section devoted to roadways on Indian reservations indicating that attention was called in the consideration of the act to Indian reservations. (3) Moreover, when the amendment in question was introduced, the agencies enumerated did not include licensed traders and filling stations. The addition of these agencies by the conference committee indicates an intent to broaden the application of the statute, and the reference to "licensed traders" is particularly suggestive of Indian reservations. These indications, while slight, are sufficient to give ground for considering the broad language of the statute as including Indian reservations.

The language of the statute and the relevant legislative history I have reviewed distinguish this situation from that discussed in my memorandum for the Assistant Secretary of October 20, 1936, in which I held that the act of June 25, 1936 (49 Stat. 1938), extending State workmen's compensation laws over "lands and premises owned or held by the United States" did not extend Wisconsin's workmen's compensation laws over the Menominee Indian Reservation, and, in particular, over the Menominee Indian Mills. In that case I found that the language of the statute "given its ordinary meaning seems to embrace lands and property owned absolutely by the United States to the exclusion of other lands such as Indian reservations, the full beneficial ownership of which is in the Indian tribes The statute now in question significantly refers to reservations rather than to land ownership. Moreover, the argument and policy in the two cases lead to opposite conclusions in respect to the application of the statute to the Menominee mills.

* * * "9

Finally, I believe that the designation in the statute of the agencies embraced by its terms must be interpreted to include such an agency as the Menominee Indian Mills. The statute uses the term "commissary" and it is the commissary of the mills which makes the resales. Secondly, the mills cannot claim exemption from Federal and State taxes as a Federal agency and then claim not to have sufficient character as a Federal agency to be covered by the intent of this statute.

While I am of the opinion, therefore, that the act of June 16, 1936, subjects to the State gasoline tax sales made through the commissary to private persons, there remains the question whether the statute also removes the immunity from such taxes of Indians making purchases on Indian reservations. In my memorandum for the Commissioner of Indian Affairs of February 4, 1938, and my Opinion of May 8, 1940 (57 I. D. 124) I held that State sales taxes did not apply to purchases from or by Indians on Indian reservations. Although the immunity of purchases from an Indian commissary might be removed by the Federal statute, purchases made by the Indians on the reservation might nevertheless be exempt. However, I think that this would not be the proper conclusion in view of the purpose of the statute to permit State taxes of all sales on reservations not previously subjected to such taxes, and of the wording of the statute, permitting taxes to be levied "in the same manner and to the same extent" as upon sales outside the reservation. Indians making purchases of gasoline outside the reservation must pay the sales tax in the same manner as other persons.

III. APPLICATION OF STATE SALES TAX ON TOBACCO PRODUCTS

The Wisconsin laws of 1939 (chs. 433, 518) place an occupational tax on the sale or other disposition of tobacco products except in the case of sales "for shipment in interstate or foreign commerce." Manufacturers and wholesalers are required to pay the tax by purchasing and affixing State stamps on the tobacco products. The statute makes it unlawful for other than registered salesmen to sell tobacco products in the State or to purchase such products from other than licensed wholesalers. Under this law the State authorities claim from the Menominee Indian Mills several hundred dollars in taxes based on the inventory of tobacco products on hand in the mills' commissary as of the date of the passage of the act.

The Menominee Indian Mills are not liable, in my opinion, for the payment of this tax for the following reasons:

(1) The application of this tax to the mills would constitute State regulation and taxation of a Federal agency in violation of the United States Constitution. The tax could not be enforced without State interference with the operations of the mills, as the procedure for enforcement of the State act through licenses, arrests and penalties clearly indicates. The act of Congress of June 16, 1936, permitting the collection of State gasoline sales taxes on Government reservations from Government agencies is sufficient illustration of the fact that such taxes are not collectible in the absence of congressional permission.

May 31, 1940

(2) The application of this tax to the Menominee Indian Mills would constitute a regulation of trade with the Indians which is beyond the power of the State. Commerce with Indian tribes might have been included in the exceptions provided in the State law along with the exception of sales in interstate and foreign commerce, since all three such types of commerce are placed by the Constitution under the regulatory power of Congress. In my memorandum of February 4, 1938, supra, holding that State sales taxes did not apply to purchases made by or from Indians on Indian reservations, I referred to the fact that it was well established that Indians are not amenable to State laws while on their reservations unless expressly subjected to those laws by Congress. The Kansas Indians, 5 Wall. 737, 755, 756; United States v. Kagama, 118 U. S. 375; United States v. Rickert, 188 U. S. 432; United States v. Quiver, 241 U. S. 602; United States v. Hamilton, 233 Fed. 685; In re Blackbird, 109 Fed. 139; In re Lincoln, 129 Fed. 247; State v. Rufus, 237 N. W. 67.

Congress has not only not subjected the Indians to taxes in this case but has exercised its authority by granting to the Commissioner of Indian Affairs "the sole power and authority" to regulate trade with the Indians and to specify the prices at which goods shall be sold to the Indians (25 U. S. C. A., sec. 261). A sales tax placed upon sales by Indian enterprises or to Indians on the reservation or on the business of making such sales would be an interference with the regulation of trade and prices by the Commissioner. The question whether Indians should pay State sales taxes is a political question for the ultimate determination of Congress.

The conclusions reached in response to the foregoing questions may be summarized as follows:

1. The Menominee Indian Mills are liable for Federal and State sales taxes on gasoline sold to employees and the public through the commissary operated by the mills. The liability of the mills for the State tax in this instance is due to an act of Congress.

2. The Menominee Indian Mills are not liable for the Federal or State sales tax on gasoline purchased for the operations of the mills. 3. The Menominee Indian Mills are not liable for the State tax placed on tobacco products, where tobacco products are sold through the commissary of the mills, whether the products are sold to Indians or to other persons.

Approved:

OSCAR L. CHAPMAN,

Assistant Secretary.

STATE OF CALIFORNIA ET AL. v. UNITED STATES

Decided June 19, 1940

Motion for Rehearing September 18, 1940

SCHOOL LAND GRANT-MINERAL LAND-EVIDENCE-DETERMINATIVE TEST-JOINT RESOLUTION OF CONGRESS APPROVED FEBRUARY 21, 1924.

While, without more, the drilling of two dry holes on a section of public land would be persuasive evidence of the absence of oil and gas to the depth probed, circumstances showing that such drilling did not produce fair test wells dispel such persuasion.

Drilling of two holes by leading oil companies strongly indicates the opinion of experienced oil men as to the value of the section for oil.

In determining whether or not land is of mineral (oil) character, as contemplated by the public land laws, and, therefore, excepted from a grant of public land, knowledge of actual mineral content need not be shown, it being sufficient if known conditions are shown from which mineral character reasonably can be inferred.

ICKES, Secretary of the Interior:

The General Petroleum Corporation of California, Thomas A. O'Donnell, and Hamer I. Tupman have appealed from a decision of the Commissioner of the General Land Office, dated March 24, 1938. The decision affirmed a decision of the Register in favor of the United States dated February 27, 1937, in adverse proceedings brought against the State of California, the General Petroleum Corporation of California, Thomas A. O'Donnell, Hamer I. Tupman, and the Potter Oil Company, involving Sec. 16, T. 30 S., R. 23 E., M. D. M.

This proceeding was initiated December 6, 1935, pursuant to a joint resolution of Congress approved February 21, 1924 (43 Stat. 16), upon charges by the Secretary of the Interior:

(1) That Sec. 16 is mineral in character, containing valuable deposits of petroleum and natural gas.

(2) That the land was known to be mineral in character on and prior to the date of the acceptance of the plat of survey by the General Land Office, January 26, 1903, and that therefore title did not vest in the State of California under the act of March 3, 1853 (10 Stat. 244), which granted Secs. 16 and 36 in each township to the State in aid of public schools, but remained in the United States.

The contestees were duly served with notice of the filing of the charges. The General Petroleum Corporation of California, Hamer I. Tupman, and Thomas A. O'Donnell answered, denying the charges and alleging that Sec. 16 is not now mineral in character and was not known to be mineral in character on January 26, 1903. The Potter Oil Company, through its successor, the Barnsdall Oil Company, filed a disclaimer of any interest in the land. No appearance on behalf of the State of California has been made.

Hearings were held at Los Angeles, beginning March 23, 1936, before a duly commissioned notary public. The evidence submitted

June 19, 1940

consisted of the testimony of 12 witnesses, a number of exhibits, and, by stipulation between the parties, the entire record of the case of United States v. State of California et al., Sacramento Contest No. 1679 (formerly Visalia Contest No. 1645) hereinafter referred to as the "Section 36 case". The record of the proceedings was transmitted to the Register who, on February 27, 1937, entered his decision holding that the charges made by the United States had been sustained. His decision was affirmed by the Commissioner of the General Land Office on March 24, 1938. Thereupon this appeal was taken. Oral argument before the Secretary was not requested and the appeal was submitted on briefs.

The issues involved in this proceeding are substantially the same as those presented by the "Section 36 case". Section 16 and Section 36 are in the same township and both are located on the same anticlinal dome. The chief difference between the two cases is that there has been no discovery of oil or gas on Sec. 16 whereas there had been discovery on Sec. 36. Two dry holes have been drilled on Sec. 16. While, without more, the drilling of two dry holes would be persuasive of the absence of oil and gas to the depth probed, the record shows that the circumstances surrounding the drilling were such as to preclude treating either as a fair test well. The record further shows that it would take many more than two tests to prove or disprove the oil productivity of Sec. 16. Moreover, the drilling of the two holes by the General Petroleum Corporation of California and the Potter Oil Company is a strong indication of the opinion of prudent and experienced oil men as to the value of the section for oil.

The absence of a discovery of oil or gas is without particular significance for, as the Circuit Court of Appeals said in the "Section 36 case", 107 F. (2d) 414-415 (C. C. A. 9, 1939):

In the Southern Pacific case [251 U. S. 1, 40 S. Ct. 49, 64 L. Ed. 97], following the Diamond Coal & Coke Co. decision, the test was stated to be whether "the known conditions [at the time of patent] were such as reasonably to engender the belief that the lands contained oil of such quality and in such quantity as would render its extraction profitable and justify expenditures to that end." In applying such a test, rather than that of actual discovery, it is obvious that a wide field of inquiry is opened up. It was not necessary to show that appellants themselves, in 1903, believed the land to be valuable for oil, or that there was unanimity of contemporary opinion to that effect. The erection of such standards would require, in the one case, proof of fraud, and, in the

1 The "Section 36 case" was decided by the Secretary of the Interior on February 24, 1935. United States v. State of California et al., 55 I. D. 121 (1935). Thereupon, an action was filed by the United States against the Standard Oil Company of California and others to quiet title to the land involved and for an accounting for the oil and gas removed therefrom. A decree was entered in favor of the United States. United States v. Standard Oil Co. of California et al., 21 F. Supp. 645 (D. C. S. D. Calif., N. D., 1937). This decision was affirmed by the Circuit Court of Appeals. Standard Oil Co. of California et al. v. United States, 107 F. (2d) 402 (1939), certiorari denied January 29, 1940, 309 U. S. 654.