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Mixed-blood Ute Indians have filed a lawsuit against the Ute Indian Tribe seeking the removal of a two-year-old severance tax on oil and gas production on tribal lands.

The plaintiff, Ute Distribution Corp. or UDC, contends the tax, which is added on top of the existing state severance tax, is financially detrimental to mixed-bloods with a stake in the tribe's oil rich lands.The suit filed last month in U.S. District Court in Salt Lake City asks the court to declare "that the severance tax on all oil, gas and minerals removed or sold from lands located within the exterior boundaries of the Uintah and Ouray Reservation illegal and invalid." The 4 to 10 percent sliding scale severance tax was enacted Nov. 1, 1988, by the governing Ute Tribal Business Committee in hopes of boosting sagging tribal revenues.

UDC attorney Max Wheeler said the complaint takes the position that because of the Ute Partition Act, the tribe no longer has the sole power to impose taxes on the reservation. The Ute Partition Act of 1954 divided the Ute Indian Tribe into two groups, "mixed-bloods" and "full-bloods."

The act terminated federal supervision over mixed-bloods and devised a plan whereby the mixed-bloods, represented by UDC, would receive their pro rata share of tribal properties and assets. It also gave UDC the power to "manage jointly with the Tribal Business Committee of the full-blood members of the Ute Indian Tribe . . . all . . . assets not susceptible to equitable and practicable distribution," which assets include oil, gas and mineral rights of every kind.

"That power as it related to undivided assets, specifically on oil and gas, is now shared with the mixed-bloods, and the oil and gas severance tax was imposed without the involvement and consent of the mixed-bloods, Wheeler stated. "As a consequence, it is UDC's position that the tax is illegal and in violation of the Ute Partition Act."

UDC needed more than two years to bring the issue to court because the group had hoped the matter could be resolved through discussions with tribal leaders. "UDC has tried unsuccessfully on a number of occasions to set up meetings to discuss the impact the severance tax is having on the reservation, and each time the Business Committee has either canceled the meeting or refused to meet," according to Wheeler. "The filing of the complaint was a last resort effort by UDC to resolve a problem that mixed-bloods feel is very serious."

In the lawsuit, UDC contends the severance tax has had a detrimental effect on the willingness of oil companies to invest any substantial funds in oil and gas development on the reservation. "They can drive down the street a few miles and drill a well and be guaranteed of at least a 10 percent higher profit than if they invest those same funds on the reservation. As UDC started to accumulate statistics on oil and gas production on the reservation and the revenues being derived from royalties, it became very apparent that the oil and gas severance tax imposed by the tribe was cutting into the revenues that belong to the mixed-bloods."

Pursuant to the Ute Partition Act, the mixed-blood group is entitled to approximately 27 percent of all income derived from the undivided assets, which for the most part are oil and gas on the reservation. "The act took effect 30 years ago, so this is certainly nothing new. UDC has been distributing royalties from oil and gas to the mixed-bloods for many, many years. Lately those distributions are going down substantially as a direct result of the severance taxes," said Wheeler.

The Ute Tribe filed a motion last week in District Court to dismiss the case on the grounds that the tribe cannot be sued because of its sovereign immunity. A hearing on the motion is expected to be set within 30 days, according to Wheeler.