An Indian tribe could not tax utility property on its reservation, a US appeals court said.

The Crow Indian tribe imposed a 3% ad valorem tax on utility power lines running across its reservation in Montana and barred the Big Horn Electric Cooperative, which owned the lines, from passing the tax on to Crow customers.

The United States treats Indian tribes as sovereign nations with their own taxing and police powers. However, the federal courts apply the law of the states where a dispute arises. In this case, Montana law says that – absent an express treaty or federal law to the contrary – Indians have no right to apply their laws to non-Indians except in two situations. The exceptions are the tribe can regulate non-Indians who enter into “consensual” commercial relationships with Indians, and it can exercise police power over non-Indians when they are on Indian lands and engaging in conduct that threatens the tribe.

The 9th circuit court of appeals said the tax in this case did not fall into either exception. It also said the power lines ran technically over non-Indian land since the US secretary of the interior had granted the electric cooperative a right of way to run its lines over the reservation, making the area under the lines “equivalent to” non-Indian land. The court released its decision this summer.

Crow Indians make up roughly half the customers of the Big Horn cooperative.