When North Dakota allocates oil and gas tax revenue to constitutional funds, must the share belonging to tribes from reservation wells be counted, or only the state's own share?

Official title

GROSS PRODUCTION AND OIL EXTRACTION TAX REVENUE FROM RESERVATION WELLS (Letter Opinion 2022-L-01)

Note: the source landing-page URL repeats "Meetings That Constitute a Quorum Must Be Properly Noticed" text from a sibling opinion. The actual subject of this letter opinion is the constitutional allocation of oil and gas tax revenue under N.D. Const. art. X.

Plain-English summary

State Treasurer Thomas Beadle asked the AG how to allocate gross production and oil extraction tax revenue from reservation wells when distributing to the constitutional funds (Legacy Fund, Common Schools Trust Fund, Strategic Investment and Improvements Fund) under N.D. Const. art. X §§ 22, 24, and 26.

Under N.D.C.C. ch. 57-51.2 (enacted in 2007 after Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163 (1989)), North Dakota and the Three Affiliated Tribes, Standing Rock Sioux Tribe, and Turtle Mountain Band of Chippewa Indians negotiate a combined tribal-state tax on reservation oil and gas, then split the revenue: tribes receive 80% from trust-lands production and 20% from non-trust lands; the state receives the remainder.

The AG concluded that constitutional-fund allocations should be computed from the state's share only. Tribal-share revenue is not "state revenue" for purposes of the art. X allocations.

What this means for you

If you administer constitutional-fund allocations under N.D. Const. art. X §§ 22, 24, or 26

The opinion concludes that "revenue" in those provisions refers only to the state's share of oil production and extraction tax revenue, and that the portion of reservation-well revenue distributed directly to tribes under N.D.C.C. ch. 57-51.2 should not be included when making constitutional allocations. The opinion supports that conclusion on the plain language of the provisions, on legislative history (Rep. Weiler's statements during H.C.R. 3054), and on the practical impossibility of an interpretation that would invalidate ch. 57-51.2 entirely.

If you represent a tribal government party to a § 57-51.2 agreement

The opinion treats the tribal portion of reservation-well tax revenue as the tribe's revenue, not state revenue, and notes that the state functions as a collection mechanism on the tribe's behalf in lieu of separate tribal taxation. The opinion does not change the underlying allocation in N.D.C.C. § 57-51.2-02; it addresses only how the state's share interacts with the constitutional allocations.

If you administer the State Treasurer's revenue distribution practice

The opinion notes that the Treasurer's existing practice, depositing the total amount, paying tribal allocations under ch. 57-51.2, then allocating the state's share to constitutional funds, is consistent with the AG's interpretation and is the administrative construction the AG concludes is reasonable and entitled to deference.

Common questions

Q: Why does ch. 57-51.2 exist?
A: Cotton Petroleum (1989) held states can tax non-Indian oil and gas operators even on reservations. Combined with tribal authority, that created dual taxation suppressing development. The 2007 statute negotiates a single rate split between state and tribe.

Q: Does this opinion affect non-reservation oil and gas revenue?
A: No. Non-reservation revenue is fully state revenue and flows through art. X allocations normally.

Citations and references

Statutes and constitution:

• N.D. Const. art. X §§ 22, 24, 26
• N.D.C.C. ch. 57-51.2

Case:

• Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163 (1989)

Request and conclusion (from landing page)

January 4, 2022

Request: How should the state’s share of revenue from wells located on reservation lands be allocated?

Conclusion: The portion of the gross production and oil extraction tax revenue derived from oil and gas exploration and production within the exterior boundaries of the reservations and on trust properties outside reservation boundaries, which is distributed directly to the tribes pursuant to N.D.C.C. ch. 57-51.2, should not be included in the definition of revenue when making constitutional allocations of oil and gas revenues under N.D. Const. art. X.

Opinion 2022-L-01

Source

• Landing page: https://attorneygeneral.nd.gov/meetings-that-constitute-a-quorum-must-be-properly-noticedgross-production-and-oil-extraction-tax-revenuemeetings-that-constitute-a-quorum-must-be-properly-noticed/
• Original PDF: https://attorneygeneral.nd.gov/wp-content/uploads/2023/02/2022-L-01.pdf

Original opinion text

LETTER OPINION
2022-L-01
The Honorable Thomas Beadle
State Treasurer
600 E. Boulevard Ave Dept 120
Bismarck, ND 58505
Dear Mr. Beadle:
Thank you for your letter inquiring as to the method of distribution of gross production
and oil extraction taxes to the constitutional funds set forth in N.D. Const. art. X, §§ 22,
24, and 26. For the reasons indicated below, it is my opinion that the distributions of
gross production and oil extraction tax revenues should be allocated from the state’s
share of the aforementioned revenues. Further, that portion of the gross production and
oil extraction tax revenue derived from oil and gas exploration and production within
the exterior boundaries of the reservations and on trust properties outside reservation
boundaries (reservation wells), which is distributed directly to the tribes pursuant to
N.D.C.C. ch. 57-51.2, should not be included in the definition of revenue when making
constitutional allocations of oil and gas revenues under N.D. Const. art. X.
ANALYSIS
In 2007, the 60th Legislative Assembly enacted chapter 57-51.2 of the North Dakota
Century Code, allowing the state to enter into agreements with the tribes1 relating to
the taxation and regulation of oil and gas extraction and production on reservation
wells. This law was passed in response to a U.S. Supreme Court Case, Cotton Petroleum
Corp. v. New Mexico,2 where the Court held that states, in addition to the tribe, may
tax a “non-indian oil and gas operator” whose operations are located on a reservation.
At the time, this created the prospect for dual taxation on oil and gas produced on
reservations. The oil produced on reservation wells was taxed at a 5% rate for the tribe

1 Three Affiliated Tribes, Standing Rock Sioux Tribe, and Turtle Mountain Band of

Chippewa Indians.

2 Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163 (1989).

LETTER OPINION 2022-L-01
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Page 2
and an 11.5%3 rate for the state, which inhibited oil and gas development.4 The 2007
S.B. 2419, which created N.D.C.C. ch. 57-51.2, was enacted to allow the state and tribe
to come to an agreement on a single tax rate, and divide the tax revenue from
reservation wells among the state and the tribes to encourage the development of the
resources.5
Under N.D.C.C. ch. 57-51.2, the tax commissioner administers and enforces the state’s
oil and gas production and extraction taxes on reservation wells, and the revenue from
that taxation is allocated between the tribe and the state as follows:
5.

The allocation of revenue from oil and gas gross production and oil
extraction taxes on the reservation must be as follows:
a.
Production attributable to trust lands. The tribe must
receive eighty percent of the total revenues, and be subject
to all applicable exemptions from all oil and gas gross
production and oil extraction taxes attributable to
production from trust lands on the reservation and on trust
properties outside reservation boundaries. The state must
receive the remainder.
b.
All other production. The tribe must receive twenty percent
of the total oil and gas gross production and oil extraction
taxes collected, and be subject to all applicable exemptions,
from all production attributable to nontrust lands on the
reservation in lieu of the application of tribal fees and taxes
related to production on such lands. The state must receive
the remainder.
c.
The state's share of the oil and gas gross production tax
revenue as divided in subdivisions a and b is subject to
distribution among political subdivisions as provided in
chapter 57-51.6

3 A 5% gross production tax and a 6.5% oil extraction tax.

4 Hearing on S.B. 2419 Before the Senate Comm. on Nat. Res., 2007 N.D. Leg. (Mar. 23)

(Testimony of Steve Kelly); Hearing on S.B. 2419 Before the House Comm. on Nat.
Res., 2007 N.D. Leg. (Apr. 2) (Testimony of Steve Kelly).
5 Hearing on S.B. 2419 Before the Senate Comm. on Nat. Res., 2007 N.D. Leg. (Mar. 23)
(Testimony of Steve Kelly).
6 See N.D.C.C. § 57-51.2-02(5).

LETTER OPINION 2022-L-01
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The amount allocated to the tribes by statute is not an allocation of state money; rather,
that amount is representative of the amount payable to the tribes pursuant to the
agreement allowed under N.D.C.C. ch. 57-51.2, in lieu of the tribes levying their own oil
and gas production tax on reservation wells.
Article X of the N.D. Constitution creates four funds that are funded by oil production
or extraction taxes.7 The Resources Trust Fund was created by N.D. Const. art. X, § 22
in 1990.8 “The legislative assembly may provide by law for a percentage of revenue from
taxes imposed on the extraction or production of oil to be allocated and credited to a
special trust fund, to be known as the resources trust fund.”9 The required transfers to
the Common Schools Trust Fund and the Foundation Aid Stabilization Fund were
created by N.D. Const. art X, § 24,10 in 1994:

1. Ten percent of the revenue from oil extraction taxes from taxable oil
   produced in this state must be deposited in the common schools trust fund.
2. Ten percent of the revenue from oil extraction taxes from taxable oil
   produced in this state must be deposited in the foundation aid
   stabilization fund in the state treasury, the interest of which must be
   transferred to the state general fund on July first of each year.11
   The Legacy Fund was created by N.D. Const. art X, § 26 in 2010.12 “Thirty percent of
   total revenue derived from taxes on oil and gas production or extraction must be
   transferred by the state treasurer to a special fund in the state treasury known as the
   legacy fund.”13 All of the constitutional fund provisions make reference to payment of a
   percentage of either the “total revenue”14 or “the revenue”15 from oil production and
   extraction taxes.
   You have inquired whether the portion of the gross production and oil extraction tax
   revenue derived from reservation wells which is allocated and distributed directly to
   7 See N.D.C.C. chs. 57-51, 57-51.1.

8 H.C.R. 3022, 1989 N.D. Leg., was approved by the voters on June 12, 1990.
9 N.D. Const. art. X, § 22.

10 S.C.R. 4011, 1993 N.D. Leg., was approved by the voters on November 8, 1994.
11 N.D. Const. art X, § 24.

12 H.C.R. 3054, 2009 N.D. Leg., was approved by the voters on November 2, 2010
13 N.D. Const. art. X, § 26.
14 N.D. Const. art X, § 26.

15 N.D. Const. art X, §§ 22, 24.

LETTER OPINION 2022-L-01
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the tribes based upon agreements under N.D.C.C. ch. 57-51.2 is included in the revenue
allocated to the constitutional funds described above.
The answer to your question hinges on the definition of the word “revenue”, as it is used
in these constitutional provisions, and whether the taxes from oil production and
extraction from reservation wells allocated to the tribes are included in the word
“revenue.” The North Dakota Century Code does not specifically define “revenue.” “If
no definition to a word contained in a certain section is given, the word is to be
understood in its ordinary sense, construed according to the context in which it lies, and
interpreted to give a reasonable result.”16 “Revenue” is defined in Black’s Law
Dictionary as “1. [i]ncome from any and all sources; gross income or gross receipts. 2.
[t]he total current income of a government, however derived; esp., taxes.”17 The word
revenue, as utilized in N.D. Const. art. X, §§ 22, 24, and 26, refers to the state of North
Dakota’s portion of the oil production and extraction taxes based upon a plain reading
of the text of the constitutional provisions.
Chapter 57-51.2, N.D.C.C. was passed and contemplated as a compromise between the
tribes and the State wherein the tribe agreed not to levy an independent oil and gas
production tax on reservation wells in exchange for a portion of the state’s oil production
and extraction tax from reservation wells. The amount allocated to the tribes under
N.D.C.C. ch. 57-51.2 is akin to the state collecting the tribe’s portion of oil and gas
production taxes on reservation wells on the tribe’s behalf and then distributing it to
them.18 That portion is not the state’s revenue, but is instead the tribe’s revenue. Based
upon a reading of the plain text of the constitutional provisions and the definition of the
word “revenue,” the portion of the taxes on production and extraction of oil and gas that
is allocated to the tribes pursuant to N.D.C.C. ch. 57-51.2 is not revenue of the State of
North Dakota for the purposes of contribution to the constitutional funds established in
N.D. Const. art X, §§ 22, 24, and 26. That portion of oil production and extraction taxes
allocated to the tribes, pursuant to a tribal agreement, would be considered revenue of
the tribes, not allocatable by the North Dakota Constitution. The only revenue
contemplated to be distributed to the constitutional funds would be revenue of the State
of North Dakota.
16 Ames v. Rose Twp. Bd. Of Twp. Supervisors, 502 N.W.2d 845, 850 (N.D. 1993) (citing

N.D.C.C. §§ 1–02–02, 1-02-03; Witthauer v. Burkhart Roentgen, Inc., 467 N.W.2d 439
(N.D.1991); Westman v. N.D. Workers Comp. Bureau, 459 N.W.2d 540
(N.D.1990); Saetz v. Heiser, 240 N.W.2d 67 (N.D.1976)).
17 Black’s Law Dictionary (11th ed. 2019).
18 N.D.A.G. 2010-L-14 (citing SunBehm Gas, Inc. v. Conrad, 310 N.W.2d 766, 769 (N.D.
1981)).

LETTER OPINION 2022-L-01
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Even if the plain language of the constitutional fund provisions does not resolve the
matter, other evidence may be considered when interpreting an ambiguous
constitutional provision. “The questions must be answered, if possible, from the
language of the constitutional provisions itself but, if the language is ambiguous or the
answer doubtful, then the field of inquiry is widened and rules applicable to
construction of statutes are to be resorted to.”19
If a statute is ambiguous, the court, in determining the intention of the
legislation, may consider among other matters:

1. The object sought to be attained.
2. The circumstances under which the statute was enacted.
3. The legislative history.
4. The common law or former statutory provisions, including laws upon
   the same or similar subjects.
5. The consequences of a particular constructions.
6. The administrative construction of the statute.
7. The preamble.20
   Several of these additional considerations support the exclusion of the tribe’s portion of
   revenue from the reservation wells from the definition of “revenue” as used in the
   constitutional fund provisions.
   The legislative history related to the accompanying concurrent resolutions indicates
   that the Legislature never intended the portion of oil production and extraction taxes
   allocated to the tribes by N.D.C.C. ch. 57-51.2 to be affected by or included in the
   revenue payable to the Legacy Fund. In 2010 the voters created the legacy fund within
   N.D. Const. art. X, § 26.21 In presenting H.C.R. 3054 to the House Constitutional
   Revision Committee, Rep. Dave Weiler stated the following:
   Current law in North Dakota states of all the oil tax revenue that comes
   into the state, there’s a formula by how the money comes in. Then by
   19 Newman v. Hjelle, 133 N.W.2d 549, 556 (N.D. 1965).
   20 N.D.C.C. § 1-02-39.

21 H.C.R. 3054, 2009 N.D. Leg., was approved by the voters on November 2, 2010.

LETTER OPINION 2022-L-01
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either constitution or statute there are six different groups that get a
percentage of that oil tax revenue right off the top. That will not change.
Those groups are going to continue to get the percentage that they
received before. We are not disrupting that. That stays as current law.
Those groups will get their money before any of the other money goes into
the legacy fund.22
This legislative history supports the reading of the word “revenue” to exclude those
funds payable to the tribe from reservation wells under N.D.C.C. ch. 57-51.2. The other
constitutional funds were passed prior to 2007, when N.D.C.C. ch. 57-51.2 was enacted,
prior to the State entering into the agreements contemplated by N.D.C.C. ch. 57-51.2.
At that time, the tribes were collecting their own oil and gas production and extraction
taxes from reservation wells. Because the tax revenue representing the portion of the
oil and gas tax from reservation wells allocated to the tribe was previously directly
collected by the tribe, it is reasonable to conclude that those sections23 did not include
tribal oil and gas production tax revenue from reservation wells within the meaning of
the word “revenue.” The Legacy Fund was created in 2010, after N.D.C.C. ch. 57-51.2
was enacted, and as indicated by the legislative history, was not intended to be funded
by the revenue allocated to the tribes pursuant to N.D.C.C. ch. 57-51.2. Therefore, the
legislative history of the constitutional fund provisions supports excluding the tribal
portion of oil and gas production tax from the definition of “revenue.”
Additionally, as you point out in your request, the practical impossibility resulting from
any other interpretation also supports the conclusion that the oil production and
extraction taxes allocated to the tribes pursuant to N.D.C.C. ch. 57-51.2 were not
intended by the Legislature to be payable to the constitutional funds in N.D. Const. art.
X, §§ 22, 24, and 26.24 Based upon the information provided to my office, to interpret
N.D. Const. art. X, §§ 22, 24, and 26 to mean that “revenue” includes the entire oil
production and extraction tax produced on the reservation would practically invalidate
and render moot the entirety of N.D.C.C. ch. 57-51.2 because the constitutional funds
currently contemplate distribution of one hundred percent of the “revenue” from oil and
gas production and extraction taxes. In construing possibly conflicting statutes and
constitutional provisions, one must give effect and meaning to every provision and

22 Hearing on H.C.R. 3054 Before the House Comm. on Const. Revision, 2009 N.D. Leg.

(Feb. 26) (Statement of Rep. Weiler).

23 N.D. Const. art. X, §§ 22, 24.
24 N.D.C.C. § 1-02-39(5).

LETTER OPINION 2022-L-01
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reconcile, if possible, apparently inconsistent provisions.25 The consequences of a
statutory interpretation must be considered when determining legislative intent.26 The
sections of the North Dakota Constitution creating the constitutional funds must be
reconciled and harmonized with N.D.C.C. ch. 57-51.2 so as to avoid rendering the entire
chapter inoperative or superfluous.27 Therefore, an interpretation of the constitutional
provisions which would invalidate an entire chapter of the North Dakota Century Code
is not supportable.
Finally, the courts may also consider the administrative constructions when
determining the Legislature’s intent.28 The Supreme Court has noted:
The administrative construction of a statute by the agency administering
the law is entitled to deference if that interpretation does not contradict
clear and unambiguous statutory language. Rocky Mountain Oil & Gas
Ass’n, supra; Stutsman County, supra; see Section 1-02-39(6), N.D.C.C..
Administrative deference is an important consideration when an agency
interprets and implements a law that is complex and technical. True v.
Heitkamp, 470 N.W.2d 582 (N.D. 1991).29
The Treasurer has been distributing the gross production and oil extraction tax on these
reservation wells by depositing the total amount into the State Treasurer’s account and
then allocating to the applicable tribal nation the amount set forth in N.D.C.C. ch. 5751.2. After the tribal government is paid, the Treasurer then allocates appropriate
amounts to the constitutional funds based off the state’s share of the gross production
and oil extraction tax revenues.
In this instance, the Treasurer’s administrative construction of both the constitutional
fund provisions and N.D.C.C. ch. 57-51.2 would be entitled to deference because the
Treasurer is charged with administering the constitutional funds and making payment
under N.D.C.C. ch. 57-51.2. This interpretation does not contradict any clear and

Thompson v. Jaeger, 788 N.W.2d 586, 589 (N.D. 2010); Kelsh v. Jaeger, 641
N.W.2d.100, 105 (N.D. 2002); State ex rel. Sanstead v. Freed, 251 N.W.2d 898, 908 (N.D.
1977).
26 N.D.C.C. § 1-02-39(5); N.D.A.G. 2010-L-14.
27 See 1-02-38(2) (entire statutes are intended to be effective). See also, Indus. Cont’rs,
Inc. v. Taylor, 899 N.W.2d 680, 684 (N.D. 2017).
28 N.D.C.C. § 1-2-39(6).
29 Western Gas Res., Inc. v. Heitkamp, 489 N.W.2d 869, 872 (N.D. 1992).
25

LETTER OPINION 2022-L-01
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unambiguous language of the law.30 “[D]eference is an important consideration when
an agency interprets a law that is complex and technical such as a taxation statute.”31
Therefore, even if the language of N.D. Const. art. X, §§ 22, 24, and 26 and N.D.C.C. ch.
57-51.2 were ambiguous or unclear, the Treasurer’s administrative construction of
these provisions, which his office is charged with implementing, is reasonable and
entitled to deference.
Based upon the foregoing analysis, it is my opinion that “revenue” as utilized in N.D.
Const. art. X, §§ 22, 24, and 26, refers only to the state’s share of the revenue from oil
production and extraction taxes from reservation wells. The Treasurer should not take
into account the gross production and oil extraction tax revenue derived from oil and
gas exploration and production within the exterior boundaries of the reservations and
on trust properties outside reservation boundaries which is directly distributed to the
tribes pursuant to N.D.C.C. ch. 57-51.2 when making constitutional allocations of oil
and gas revenues under N.D. Const., art. X.
Sincerely,

Wayne Stenehjem
Attorney General
AMH
This opinion is issued pursuant to N.D.C.C. § 54-12-01. It governs the actions of public
officials until such time as the question presented is decided by the courts.32

30 Id.

31 N.D.A.G. 2010-L-14.

32 See State ex rel. Johnson v. Baker, 21 N.W.2d 355 (N.D. 1946).