The principal question is whether a lessee of mineral rights in allotted and restricted Indian lands is immunized by the Constitution against payment of non-discriminatory state gross production taxes and state excise taxes on petroleum produced from such lands. In effect the issue is whether this Court's previous decisions in Howard v. Gipsy Oil Co., 247 U.S. 503, 38 S.Ct. 426, 62 L.Ed. 1239; Large Oil Co. v. Howard, 248 U.S. 549, 39 S.Ct. 183, 63 L.Ed. 416, and State of Oklahoma v. Barnsdall Refineries, 296 U.S. 521, 56 S.Ct. 340, 80 L.Ed. 366, invalidating such taxes as applied to like lessees, have been so undermined by later decisions, in particular Helvering v. Mountain Producers Corp., 303 U.S. 376, 58 S.Ct. 623, 83 L.Ed. 907, that they should now be overruled.
With certain exceptions, the lands from which was extracted the petroleum sought to be taxed are held in trust by the United States, pursuant to allotments made under the General Allotment Act, for various members of the Pottawatomie, Apache, Comanche, and Otoe and Missouria Tribes. All the lands are located within the State of Oklahoma and at all material times they were restricted against alienation by the Indian cestui owners without the consent of the Secretary of the Interior. He approved each of the leases now in question. The respondents Texas Company (No. 40) and Magnolia Petroleum Company (No. 41) acquired their leases before Oklahoma levied the assessments now in issue, either as original lessees or by assignment from non-Indians who were such lessees. The companies thus became owners of all right, title and interest in their respective leases, subject only to the one-eighth royalty interest reserved to the Indian lessors, and were such owners at the times of the respective assessments. It may be taken that they have operated the leases in conformity with the applicable regulations of the Department of the Interior and of the State of Oklahoma, except for the payment of the state taxes iin question.
The Oklahoma gross production tax requires payment of five per cent of the gross value of production, including royalty interests. It is imposed on every person engaged in the production in Oklahoma of petroleum, crude oil or other mineral oil, and natural gas and casinghead gas. The tax is exacted in lieu of all taxes by the state and its political subdivisions on property rights in minerals and mineral rights, producing leases, machinery used in connection with any oil or gas well, the oil and gas during the tax year in which it is produced, and any investment in any leases, minerals, or other property. The statute authorizes the state board of equalization to raise or lower the rate of tax to equate the amount payable with the amount which would be payable if the general ad valorem property tax were assessed against the property of the producers subject to taxation. The board's rate changes are subject to review by the state supreme court. In consequence of these provisions, the tax has been construed consistently by the state courts to be a tax on the lessee's property, not an occupation or excise tax.
The petroleum excise tax requires payment of one mill, formerly one-eighth of one cent, per barrel on every barrel of petroleum produced in Oklahoma. The statute was enacted first in 1933 to defray the expenses of administering the state's newly adopted proration law and has been reenacted at each subsequent session of the legislature. The tax, unlike the gross production tax, is construed by the Oklahoma Suprem Court as an excise tax on the production of oil. Barnsdall Refineries v. Oklahoma Tax Commission, 171 Okl. 145, 41 P.2d 918, affirmed, 296 U.S. 521, 56 S.Ct. 340, 80 L.Ed. 366.
In No. 40 the Oklahoma Tax Commission, petitioner here, assessed both gross production and petroleum excise taxes against the Texas Company for production, less royalties to the Indian lessors, during September, October and November, 1942. In No. 41 the commission likewise assessed both taxes, less royalties, on the Magnolia Company's production for various periods between June 1, 1942, and March 1, 1946. The orders were entered after the cases were consolidated for hearing before the commission and were thus heard by it.
In No. 40 the Texas Company paid the taxes under protest and brought suit to recover them in an Oklahoma trial court. After hearing, that court sustained the commission's demurrer to the company's amended petition and ordered it dismissed. Appeal was duly taken to the state supreme court. In No. 41, following a different statutory procedure, the Magnolia Company appealed from the assessments against it directly to that court.