Kansas seeks unpaid fuel taxes in dispute with tribe

| 9/27/2002

The Kansas Department of Revenue is seeking $1.25 million in unpaid state motor-fuel taxes from the Winnebago Tribe of Nebraska. Kansas law requires all motor fuel distributors to remit motor fuel tax on fuel delivered to retailers and wholesalers in the state.

In April, KDOR seized two tanker trucks and 8,500 gallons of fuel owned by the tribe and used to deliver fuel. The state also has filed a six-count criminal charge against John Blackhawk, Winnebago tribal chairman, and Lance Morgan, executive director of Ho-Chunk Inc. (owner of impounded trucks) for failure to pay fuel taxes from August 2001 to March 2002.

Tribal officials argue that the Kansas state fuel tax is inapplicable because the tribe is a sovereign entity selling the fuel on tribal reservations. According to the doctrine of tribal immunity, American Indians are exempt from state taxes on fuel sold on Indian reservations and tribal trust lands.

Two years ago, the Winnebago Tribe (residents of Nebraska) began distributing and selling its own fuel as HCI Distribution after it acquired bulk-transfer capabilities and fuel-blending facilities. The tribe's home state of Nebraska began raising objections when it discovered the Winnebago tribe was selling tax-free fuel to non-Indian customers.

The dispute with Nebraska over tax-free fuel sales was settled earlier this year after the tribe agreed to charge a 24-cent fuel tax, which is equivalent to the state's tax rate, to both customer bases. Then, the tribe remits a quarter of its tax collections to the state to account for the estimated 25 percent of non-Indian customers.