Policy Basics: Taxes in Indian Country Part 1: Individual ... · consist of vehicle registration,...
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Policy Basics: Taxes in Indian Country Part 1: Individual Tribal Members July 2017 www.MontanaBudget.org Taxes in Indian Country Few people understand the nuances of how taxes work in Indian Country. As a result, taxation authority in Indian Country has been one of the most litigated issues between tribes, states, and local governments. Furthermore, there is much misinformation and many missed opportunities for innovative and mutually beneficial inter-governmental collaborations that respect tribal sovereignty. This is the first in a series of policy basics reports on taxes in Indian Country. Part 1 provides a brief overview of the taxes that individual Indians in Montana pay. Part 2 focuses on tribal governments and the taxes they pay and assess. It delves deeper into the critical role taxes play in creating a reliable revenue stream to support government services and operations. Part 2 also reviews the state-tribal revenue sharing agreements made between the seven reservation governments and the Montana Departments of Revenue and Transportation. Revenue sharing agreements can provide governments with some level of certainty concerning the division of revenue while safeguarding against costly litigation, making them an effective, if temporary, solution to the ongoing taxation competitions between sovereigns. Taxes and Tribal Members: What Taxes do Individual Tribal Members Pay? According to the U.S. constitution’s supremacy clause, the constitution, federal laws, and treaties override conflicting state laws. Additionally, a variety of U.S. Supreme Court rulings have recognized the absolute power of Congress to regulate Indian affairs and property. This means that in most instances state and local governments cannot tax tribal members, tribal governments, or their property. 1 However, tribal members living off their own reservation—as well as non-Indians residing on reservations—are subject to all state and local tax laws. Income Taxes Generally, individual tribal members are subject to federal income taxes. The exception to this is income derived directly from allotted trust lands or treaty fishing rights. 2 Allotted trust land is reservation land owned by an individual tribal member (and not the tribe) and held in trust by the federal government. 3 Treaty fishing rights are subsistence rights secured to tribes by treaty. 4 Any income received from the reinvestment of payments originally from allotted trust land or treaty fishing-related activities is subject to federal income tax. 5 Tribal members are also subject to state income taxes if they live or work off the reservation where they are enrolled. 6 In 2010, thirty-nine percent of American Indians resided off- reservation in Montana. 7 Many more Americans Indians residing on their reservation work off the reservation in nearby communities.
Transcript of Policy Basics: Taxes in Indian Country Part 1: Individual ... · consist of vehicle registration,...
PolicyBasics:TaxesinIndianCountryPart1:IndividualTribalMembers
July2017
www.MontanaBudget.org
TaxesinIndianCountryFewpeopleunderstandthenuancesofhowtaxesworkinIndianCountry.Asaresult,taxationauthorityinIndianCountryhasbeenoneofthemostlitigatedissuesbetweentribes,states,andlocalgovernments.Furthermore,thereismuchmisinformationandmanymissedopportunitiesforinnovativeandmutuallybeneficialinter-governmentalcollaborationsthatrespecttribalsovereignty.ThisisthefirstinaseriesofpolicybasicsreportsontaxesinIndianCountry.Part1providesabriefoverviewofthetaxesthatindividualIndiansinMontanapay.Part2focusesontribalgovernmentsandthetaxestheypayandassess.Itdelvesdeeperintothecriticalroletaxesplayincreatingareliablerevenuestreamtosupportgovernmentservicesandoperations.Part2alsoreviewsthestate-tribalrevenuesharingagreementsmadebetweenthesevenreservationgovernmentsandtheMontanaDepartmentsofRevenueandTransportation.Revenuesharingagreementscanprovidegovernmentswithsomelevelofcertaintyconcerningthedivisionofrevenuewhilesafeguardingagainstcostlylitigation,makingthemaneffective,iftemporary,solutiontotheongoingtaxationcompetitionsbetweensovereigns.TaxesandTribalMembers:WhatTaxesdoIndividualTribalMembersPay?AccordingtotheU.S.constitution’ssupremacyclause,theconstitution,federallaws,andtreatiesoverrideconflictingstatelaws.Additionally,avarietyofU.S.SupremeCourtrulingshaverecognizedtheabsolutepowerofCongresstoregulateIndianaffairsandproperty.Thismeansthatinmostinstancesstateandlocalgovernmentscannottaxtribalmembers,tribalgovernments,ortheirproperty.1However,tribalmemberslivingofftheirownreservation—aswellasnon-Indiansresidingonreservations—aresubjecttoallstateandlocaltaxlaws.IncomeTaxesGenerally,individualtribalmembersaresubjecttofederalincometaxes.Theexceptiontothisisincomederiveddirectlyfromallottedtrustlandsortreatyfishingrights.2Allottedtrustlandisreservationlandownedbyanindividualtribalmember(andnotthetribe)andheldintrustbythefederalgovernment.3Treatyfishingrightsaresubsistencerightssecuredtotribesbytreaty.4Anyincomereceivedfromthereinvestmentofpaymentsoriginallyfromallottedtrustlandortreatyfishing-relatedactivitiesissubjecttofederalincometax.5Tribalmembersarealsosubjecttostateincometaxesiftheyliveorworkoffthereservationwheretheyareenrolled.6In2010,thirty-ninepercentofAmericanIndiansresidedoff-reservationinMontana.7ManymoreAmericansIndiansresidingontheirreservationworkoffthereservationinnearbycommunities.
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FICATaxesRegardlessofwheretheyworkorlive,AmericanIndiansmustalsopayintosocialsecurityandMedicare,referredtoasFederalInsuranceContributionsAct,orFICA,taxes.Employers,includingtribalgovernments,arerequiredtowithholdFICAtaxesfromtheiremployees’wages.8Theexceptioniswagespaidtotribalmembersfortreatyfishing-relatedactivities.Thisexemption,however,correspondstoreducedbenefitsunderthesefederalprograms.9PropertyTaxesTribalmembersmustalsopaystateandlocalpropertytaxesontheirprivatelyownedlandheldinfeesimplestatus,eveniftheirpropertyislocatedontheirreservation.10Alltriballandsandanyindividualallotmentsheldintrustbythefederalgovernmentarenotsubjecttopropertytaxassessmentsbecausefederallawprohibitsstateandlocalgovernmentsfromtaxingtriballands.11Tohelpoffsetthelossofpropertytaxesthatsupportlocalpublicschools,districtslocatedonreservationsandotherfederallandscanapplyforfederalImpactAid,alsoknownasTitleVIIfunds.12ThroughImpactAid,seventy-onepublicschoolsinMontanareceivednearly$55millioninfederalaidin2016.Fifty-nineoftheseschoolswerelocatedonornearreservationsandreceivedalmost$54million.13HotelOccupancyTaxesTribalmembersstayinginanovernightlodgingfacilitylocatedonthereservationwheretheyareenrolledareexemptfrompayingthestatebedtax.14MotorVehicleTaxesAsarule,tribalmembersaresubjecttoallstatemotorvehicletaxesiftheyliveoffthereservationwheretheyareenrolled.Consistentwithfederallawandcourtrulings,tribalmembersresidingontheirownreservationareexemptfrompayingaportionofstatemotorvehicletaxes,includingthenewvehiclesalestax,personalpropertytax,oranyaddedcountytaxoptions.Regardlessofresidency,alltribalmembersmustpayvehicleregistrationfeesthatconsistofvehicleregistration,vehicledisposal,weedcontrol,countymotorvehiclecomputer,andwhereapplicable,thegrossvehicleweightfees.15ExciseTaxesonAlcohol,Tobacco,andFuelExcisetaxesareindirecttaxespaidbyconsumerswhentheypurchasecertaingoodsorengageincertainactivities.Ingeneral,excisetaxesare“prepaid”byproducersandwholesalerswhopassthetaxontoconsumersbyincludingitinthesalepriceoftheitem.16
ThetitletoreservationtrustlandisheldbythefederalgovernmentonbehalfofanindividualIndianlandownerortribe.
Privatelyownedreservationlandisheldinastatusknownasfeesimple.
Ownersoffeesimplelandholdthefulltitletotheirproperty,whichissubjecttoallstateandlocallaws,regulations,codes,andtaxation.
Source:BureauofIndianAffairsFrequentlyAskedQuestions(2017)
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Tribalandstategovernmentshaveeachassertedtheirrighttocollectexcisetaxesonreservations,leadingtoyearsofcostlylitigationandtension.Asaresult,thestateofMontanaandthesevenreservationtribalgovernmentshavenegotiatedavarietyofrevenuesharingagreementsforexcisetaxesonalcohol,tobacco,andfuel(andinonceinstanceoilandnaturalgastaxes).17Thegoaloftheseagreementsisto“preventthepossibilityofdualtaxationbygovernmentswhilepromotingstate,local,andtribaleconomicdevelopment.”18InMontana,thestatecollectsalltaxesonalcohol,tobacco,andfuelsoldonthereservationsandthenreturnstoeachreservationtribalgovernmentaportionofthetax.Theportionoftaxrevenueremittedtotribalgovernmentsisdeterminedbymultiplyingthenumberofenrolledtribalmemberslivingonthereservationbythepercapitataxreceiptsstatewideforeachtax.19AmericanIndians,likeothercitizensofMontana,payexcise(orsales)taxesonalcohol,tobacco,andfuelthattheypurchase.ThesingleexceptionismembersoftheConfederatedSalishandKootenaiTribes(CSKT),whodonotpaythestatetaxoncigarettestheypurchaseontheFlatheadReservation.20Becauseofthis,theCSKTgovernmentdoesnotreceiveashareofthisparticulartaxfromthestate;instead,theyreceivealimitednumberoftax-freecigarettesaccordingtoquotassetbyMontanalaw.However,anysalesabovethequotaaretaxed.21In2016,tribalgovernmentsderivedmorethan$5.7millionfromalcoholandtobaccotaxsharingagreementswiththeDepartmentofRevenueand$5.2millionfromfueltaxsharingagreementswiththeDepartmentofTransportation.22Youcanlearnmoreaboutthestate-tribalrevenuesharingagreementsinPart2ofthisMBPCPolicyBasicsseries.ThetablebelowprovidesavisualsnapshotofthetaxesthatAmericanIndians(AIs)inMontanapay.Theyes-noanswerspaintaclearpictureofwhatinrealityisacomplexstatutoryissuethatisstillbeingworkedoutbetweengovernments,Congress,andthecourts.
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1U.S.Constitution,Article6,Clause2;LoneWolfv.Hitchcock,187U.S.553(1903).OklahomaTaxCommissionv.ChickasawNation,515U.S.450,458(1995);OklahomaTaxCommissionv.Sac&FoxNation,508U.S.114,126(1993);Moev.ConfederatedSalish&KootenaiTribes,425U.S.463,475(1976);LummiIndianTribev.WhatcomCounty,5F.3d1355,1357(9thCir.1993);StandingRockSiouxTribev.Janklow,103F.Supp.2d1146,1153-54(D.S.D.2000).2U.S.InternalRevenueService,“EmploymentTaxforIndianTribalGovernments.”https://www.irs.gov/pub/irs-pdf/p4268.pdf;YuleKim,“FederalTaxationofIndianTribesandMembers,”CongressionalResearch,October26,2007,http://congressionalresearch.com/RL34220/document.php?study=Federal+Taxation+of+Indian+Tribes+and+Members3BureauofIndianAffairs,“FrequentlyAskedQuestions.”https://www.bia.gov/FAQs/.4U.S.Code,Title26,SubtitleF,Chapter80,SubchapterC,Section7873,“IncomederivedbyIndiansfromexerciseoffishingrights.“https://www.law.cornell.edu/uscode/text/26/7873.5U.S.InternalRevenueService,“TribesandFishingRights-RelatedActivities.”https://www.irs.gov/government-entities/indian-tribal-governments/tribes-and-fishing-rights-related-activities.6BureauofIndianAffairs,“FrequentlyAskedQuestions.”https://www.bia.gov/FAQs/.7"Montana’sNativeAmericanPopulationsOn&OffReservations,"MontanaDepartmentofCommerce.2012.Onfilewithauthor.8YuleKim,“FederalTaxationofIndianTribesandMembers,”CongressionalResearch,October26,2007,http://congressionalresearch.com/RL34220/document.php?study=Federal+Taxation+of+Indian+Tribes+and+Members.9U.S.InternalRevenueService,“TribesandFishingRights-RelatedActivities.”https://www.irs.gov/government-entities/indian-tribal-governments/tribes-and-fishing-rights-related-activities.10BureauofIndianAffairs,“FrequentlyAskedQuestions.”https://www.bia.gov/FAQs/.SeealsoCountyofYakimav.ConfederatedTribesandBandsoftheYakimaIndianNation(1992).11CountyofYakimav.ConfederatedTribesandBandsoftheYakimaIndianNation,502U.S.251(1992).12U.S.DepartmentofEducationOfficeofElementaryandSecondaryEducation,AboutImpactAid.”https://www2.ed.gov/about/offices/list/oese/impactaid/whatisia.html#2.13“MontanaSchoolDistrictsReceivingImpactAid,”MontanaOfficeofPublicInstruction.2016.Onfilewithauthor.14MontanaDepartmentofRevenue,“LodgingFacilityUseandSalesTaxes:LodgingTaxGuide.”https://revenue.mt.gov/Portals/9/businesses/taxes/Lodging%20Facilities_Sales/Lodging%20-%20Lodging%20Guide.pdf.15JosephP.Mazurek,“48Op.Att’yGen.No.24.”https://dojmt.gov/wp-content/uploads/2000/01/48-024.pdf.16U.S.InternalRevenueService,“ExciseTax.”https://www.irs.gov/businesses/small-businesses-self-employed/excise-tax.17AndrewHuff,“State-TribalRevenueSharingMemorandumtoState-TribalInterimRelationscommittee,”October18,2015.http://leg.mt.gov/content/Committees/Interim/2015-2016/State-Tribal-Relations/Meetings/Oct-2015/huff-memo.pdf18MontanaCodeAnnotated18-11-101(3).http://leg.mt.gov/bills/mca/18/11/18-11-101.htm.19AndrewHuff,“State-TribalRevenueSharingMemorandumtoState-TribalInterimRelationscommittee,”October18,2015.http://leg.mt.gov/content/Committees/Interim/2015-2016/State-Tribal-Relations/Meetings/Oct-2015/huff-memo.pdf20Moev.Salish&KootenaiTribes,425U.S.463(1976).https://supreme.justia.com/cases/federal/us/425/463/case.html.21MontanaCodeAnnotated16-11-111.http://www.leg.mt.gov/bills/mca/title_0160/chapter_0110/part_0010/section_0110/0160-0110-0010-0110.html.22MontanaGovernor’sOfficeofIndianAffairs,“PartnersinBuildingaStrongerMontana:2016State-TribalRelationsReport.”https://tribalnations.mt.gov/Portals/34/TribalAffairs_AR_2016bWEB.pdf.
