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.