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In a case with potentially far-reaching implications, a Denver appeals court has kept alive a lawsuit seeking to exempt many Osage Nation members from paying state income taxes.

The 10th U.S. Circuit Court of Appeals returned the lawsuit to a federal judge in Tulsa. However, a state Tax Commission attorney said a trial probably still is years away.

The lawsuit, filed by the Osage Nation in 2001, seeks income tax exemption under a federal law that prohibits such taxes on tribal members who live in "Indian country.” Indian country includes reservations, dependent Indian communities or trust land.

Osage officials maintain that the tribe never surrendered its 1.5-million-acre reservation. Additionally, Congress never changed the reservation's legal status, not even when Oklahoma became a state in 1907, the tribe claims.

State officials say the reservation was incorporated into Oklahoma at statehood and therefore lost its legal status.

In its ruling last week, the appeals court twice noted that the eventual outcome of the lawsuit may alter Oklahoma's sovereignty.

"A ruling in favor of the Nation on the merits could affect more than the state's ability to collect income tax. The Nation might be able to foreclose Oklahoma from exercising sovereignty over Osage County in myriad other ways,” 10th Circuit Judge Terrence L. O'Brien wrote in a footnote.

Osage officials have sought for years to exert jurisdiction over Osage County, even though most county residents aren't American Indian.

Earlier this year, a tribal bill proposed to create and regulate environmental standards for the entire county. A tribal legislator shelved her own proposal amid vehement opposition from non-Indian residents.

Also this year, the tribe told a state agriculture inspector he couldn't conduct inspections in a tribal grocery store, even though it isn't on trust land.

Osage Principal Chief Jim Gray said the taxation lawsuit should be taken at face value and not as an attempt for the tribe to control the state's largest county.

"Right now, the focus of this case is just on income taxes. As far as any other far-reaching implications, I don't know that it's fair to go down that road. I'd prefer to focus on the case at hand,” Gray said.

The eventual outcome would affect only a few thousand people "at most,” Gray said.