                             NO.    91-552

          IN THE SUPREME COURT OF THE STATE OF MONTANA




STATE OF MONTANA,
DEPARTMENT OF REVENUE,
Helena, Montana,
          Plaintiff and Appellant,


ADRIAN BIRD, a/k/a
ADRIAN and NORA BIRD,
          Defendants and Respondents.



APPEAL FROM:   District Court of the Thirteenth Judicial District,
               In and for the County of Big Horn,
               The Honorable Russell K. Fillner, Judge presiding.


COUNSEL OF RECORD:
          For Appellant:
               Hon. Marc Racicot, Attorney General; Deanne L.
               Sandholm, Assistant Attorney General, Helena,
               Montana
               David W. Woodgerd, Chief Legal Counsel, Department
               of Revenue, Helena, Montana.
          For Respondents:
               James L. Vogel, Attorney at Law, Hardin, Montana.
          For Amicus:
               Dale T. White, Fredericks, Pelcyger & Hester,
               Boulder, Colorado: for Amicus Curiae Crow Tribe of
               Indians.


                                   Submitted on Briefs:   March   5,   1992




                                   Clerk
Justice John Conway Harrison delivered the Opinion of the Ccurt.

      his is an appeal from the District Court of the Thirteenth
Judicial ~istrict,State of Montana, in and for the County of Big
Horn, the Honorable Russell K. Fillner presiding.     We affirm.
     The issue here is whether the State of Montana may impose its
income tax upon a member of the Crow Indian Tribe for income earned
directly through the mining of coal within an area adjacent to the
Crow Reservation, where the underlying mineral rights (coal) are
reserved to the Crow Tribe.    The income for which the taxes have
been levied was earned during the years 1981 through 1984 by
respondent, Adrian   Bird,    who   was   employed   as    a   miner   by
Westmoreland Resources, Inc. (Westmoreland) to mine coal at the
Sarpy Creek Mine facility.
     The Sarpy Creek Mine is on a strip of land located adjacent to
the Crow Indian Reservation in eastern Montana.           This area was
ceded by the Tribe to the United States Government, but the mineral
interests, including coal, underlying this ceded strip were, by
statute, conveyed to the Crow Indian Tribe.           The Crow Tribe
subsequently leased the coal in the ceded strip to Westmoreland
which engaged in the activity of mining the coal reserves from the
ceded strip. During the years at issue, 1981 through 1984, Adrian
Bird did not pay individual income tax on the income he derived
from employment with Westmoreland.
     On April 29, 1991, the State of Montana, Department of
Revenue, filed a complaint requesting a judgment against Adrian
Bird for unpaid income taxes plus penalties and interest thereon.
The respondents, Adrian and Nora Bird, were served with a summons
and complaint setting forth the years and the amounts owed as
follows:
       Years           -
                       Tax             Interest          Penalties
   1981-1984           $8,191.30       $5,292.06         $1,481.27
               With the total amount due: $14,964.63
       In reply to this complaint, the respondents filed a motion to
dismiss on June 24, 1991, noting that the ~istrictCourt did not
have proper jurisdiction over the Birds; that the court did not
have subject matter jurisdiction; and that the complaint failed to
state a cause of action.
       By way of historical background, we note that Westmoreland
carried out its mining operation at the Sarpy Creek Mine under a
federally-approved mineral lease entered into with the Crow Tribe
in 1972, as amended in 1974.       See Crow Tribe v . Montana (9th Cir.
1981), 650 F.2d 1104, 1107, (amended (1982), 665 F.2d 1390), cert.
denied, 459 U.S. 916 (Crow I) ; Crow Tribe v . Montana (9th Cir.
l987), 819 F.2d 895, summarily aff'd, 484 U.S. 997 (l988), (Crow

-
TI).    The Westmoreland mining operation is located within the so-
called "ceded      stripn which is an a r e a a d j a c e n t to t h e Crow
Reservation that was opened to homesteading pursuant to the Act of
April 27, 2904, Ch. 1624, 33 Stat. 352; Crow I, 650 F.2d at 1107;
Crow 11, 819 F.2d at 896; see Crow Tribe of Indians v. United
States (D. Mont. 1985), 657 F.Supp. 573, 575-79.
       The 1904 Act authorized the Secretary of the Interior to sell
lands within the ceded strip to homesteaders; and as a result of
the 1904 A c t ,   "a considerable amount of both the surface and
mineral estate" within the ceded strip was conveyedto non-Indians.
The coal mined at Westmoreland's Sarpy Creek Mine facility was not
conveyed under the 1904 Act and has always remained in Tribal trust
status. Crow I, 650 F.2d at 1107; Crow 11, 819 F.2d at 896.
       In 1958, Congress acted to restore "undisposed of ceded lands"
to the Crow Reservation. It did so in the Act of May 19, 1958, 72
Stat. 121, which provided:
       Title to the lands restored to tribal ownership by this
       Act shall be held by the United States in trust for the
       respective tribe or tribes, and such lands are hereby
       added to and made part of the existing reservations for
       such tribe or tribes.
Crow 11, 819 F.2d at 898; quoting 72 Stat. 121 (May 19, 1958).    In
Crow I and Crow 11, the Ninth Circuit Court of Appeals held that
the above-listed Act restored the previously undisposed of minerals
to the Crow Tribe, including the coal underlying the Westmoreland
lease.    Crow I, 650 F.2d at 1117; also see Crow 11, 819 F.2d at
898.
       In its order and memorandum, the District Court noted that the
question before it was whether the court had subject matter
jurisdiction. It noted that the Tribe, while it asserted that it
had ceded the surface area of the Sarpy Creek Mine facility,
retained the mineral interests which Westmoreland subsequently
leased for production purposes.
       It is the respondents' contention that the mineral interests
are a part of the Reservation as a Reservation resource and that
the individual Indian income derived solely from the Reservation
resources is not subject to individual state income tax.           In
addition, they contend, the State's right to tax a Reservation
Indian's individual income, which     is derived wholly    from a
Reservation resource, is preempted by federal law and policy since
it is within the exclusive jurisdiction of the federal government
and the Tribe itself.
     The State argues that the right to tax Mr. Bird's income is
not preempted by federal law and policy because his income was
earned from a private non-Indian company, and that the company's
operations are a non-Reservation source of income to Mr. Bird.   In
light of the foregoing, our inquiry must focus on whether the
State's attempted taxation of Adrian Bird's individual income has
been preempted.
     This Court, in LaRoque v. State (1978), 178 Mont. 315, 321,
583 P.2d 1059, 1063, quoted from Mescalero Apache Tribe v. Jones
(l973), 411 U.S. 145, 148, 93 S.Ct. 1267, 1270, 36 L.Ed.2d     114,
119, wherein the United States Supreme Court noted:
     [Albsent cession of jurisdiction or other federal
     statutes permitting it, there has been no satisfactory
     authority for taxing Indian reservation lands or Indian
     income from activities carried on within the boundaries
     of the reservation. ...
LaRome, 178 Mont. at 321, 583, P.2d at 1063.
     In McClanahan v. State Tax Commission of Arizona (1973), 411
U.S. 164, 93 S.Ct. 1257, 36 L.Ed.2d 129, the United States Supreme
Court held that "the State may not impose individual income tax on
Reservation Indians whose income is earned exclusively on the
reservation.'I    In McClanahan, the Court held       that the tax
interfered with matters which the relevant treaty and statutes left
to the exclusive province of the federal government and the 1ndian
Tribe itself.      The Court reasoned t h a t a review of the relevant
treaty and statute made it clear that the State had exceeded its
lawful authority in attempting to impose a tax.       McClanahan, 411
U.S. at 173, 93 S.Ct. at 3263, 36 L.Ed.2d at 136.

        his Court, in LaRocrue, relying on the above authorities,
addressed the issue of lrwhetheran Indian not an enrolled member of
the tribe on whose reservation he is living, may be taxed by the
State for income earned on that reservation[.]"     LaRome, 178 Mont.
at 318, 583 P.2d at 1061.      This Court concluded, after review of
the relevant statutes, that a cession to Montana jurisdiction as to
taxation of individual income had not occurred.           Further, we
concluded ''that situs of the activity is the primary factor in
determining whether state taxation jurisdiction exists      . . .   the
important factors were the coalescence of situs {reservation) and
status (Indian)    .   LaRome, 178 Mont. at 324, 583 P.2d at 1064.
      We further note that in Crow I, the ~ i n t hCircuit Court of
Appeals determined that the Tribe's mineral resources are f'a
component of the reservation land itself.'I       Crow I, 650 F. 2d at
1117.    Therefore, we are not persuaded by the State's argument that
the trial court misapplied the governing law in determining the
Sarpy Creek Mine facility is part of the Crow Reservation.
        In   the   instant case, the   respondent, Adrian    Bird, by
affidavit, stated that he was an enrolled member of the C r o w Tribe
and     resided within the boundaries of the Crow Reservation.
Further, we note that the State conceded in its brief that its
cause of action is an attempt to collect unpaid State income tax
from the respondents during the time that Adrian Bird was employed
mining coal in the ceded strip.                As previously determined, the
mineral resources on the ceded strip are part of the Reservation,
and therefore, we apply the criteria of LaRoaue, Crow I, and Crow
     to support the holding of the District Court that the State of
Montana, Department of Revenue, is without authority to impose
individual income tax on the respondent, Adrian Bird.
        Congress enacted legislation in            1958    restoring to beneficial
tribal ownership        10,260.95     acres of vacant and undisposed of lands
subject to the        1904    Act.   Act of May    19,    1958,   72   Stat.   121;   Crow
-,
I1    657     F.Supp. at      590.   The acreage restored under the             1958    Act
was reduced by        4,900     acres several months later.            Act of Aug.         14,

1958,    72   Stat.   575;    See Crow 11,   659   F.Supp. at     578.    Section      2    of
the   1958    Act provided that these lands would be held in trust for
the Crow Tribe by the United States and that they were added to and
made a part of the existing Reservation.                      Although the statute
facially restored to tribal ownership only surface lands, it was
construed in Crow I1 as also applying to undisposed of mineral
rights underlying the deeded area.                 Crow 11,   657      F.Supp. at     590.

        The decision of the District Court is affirmed.
We concur:
                                         April 15, 1992

                                  CERTIFICATE OF SERVICE

I hereby certify that the following order was sent by United States mail, prepaid, to the following
named:


Hon. Marc Racicot, Attorney General
Deanne L. Sandholm, Asst. Atty. General
215 N. Sanders, Justice Bldg.
Helena, MT 59620

Charles E. Snyder, Esq.
Ste. 325, 2720 Third Ave. No.
Billings, MT 59101


David W. Woodgerd, Legal Counsel
Department of Revenue
Mitchell Bldg.
Helena, MT 59620

James L. Vogel
Attorney at Law
P.O. Box 525
Hardin, MT 59034

Dale T. White
Fredericks, Pelcyger & Hester
1881-9th St., Ste. 216
Boulder, CO 80302


                                                     ED SMITH
                                                     CLERK OF THE SUPREME COURT
                                                     STATE OF MONTANA
