September 24, John Dossett, General Counsel National Congress of American Indians

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1 September 24, 2012 John Dossett, General Counsel National Congress of American Indians

2 1. IRS Taxation of General Welfare Programs Provided by Tribal Governments 2. Tribal Tax Exempt Bond Financing 3. State Taxation of Improvements to Tribal Trust Land 4. Tobacco Tax PACT Act and STOP Act 5. Trust Resource Per Capita Payments

3 National Tax Reform: Payroll tax cut expires; Bush tax cuts expire; federal budget sequestration Accelerated Depreciation; Indian Employment Tax Credit Energy Tax Credits; New Markets Tax Credit Tribal Pension Plans Government vs. Commercial Streamlined Sales Tax!

4 IRS on audit campaign of all Indian tribes. General Welfare Doctrine government benefits to address need not taxable IRS working from assumption that tribal programs are disguised per capita payments. Treasury Dept. working to provide guidance. The tribe, as a sovereign nation, should be given deference as to what constitutes an educational, health, or cultural program and/or benefit, and community needs should not be limited to financial needs.

5 Tax Exempt Bonds an often untapped source of financing for Indian tribes. Essential government function test should be eliminated treated the same as state and local governments. Federal loan guarantees should be available to back tribal bonds on the market Treasury issued a very positive report to Congress in December. NCAI Urging Congress to Include in Tax Reform Legislation Allocation of $2 billion in Tribal Economic Development Bonds from Recovery Act

6 State taxation of the non Indian interests of tribal economic development projects has hindered growth in various industries, most notably, energy & resource development Our Position: All activities occurring on leased rights ofways and trust land should fall within the tribe s tax jurisdiction BIA Amending Part 162 Leasing Regulations Probate Regulations Problematic

7 Smuggling Tobacco Prevention Act pending in Congress Creates an electronic Track and Trace system of collecting state taxes at the manufacturer. Would require federal license for all manufactures & wholesalers. Current bill does not include tribal taxation authority within its scope. Good News: Tribes changed the direction of bill

8 Payments derived from trust resources not taxable IRS says Squire v. Capoeman (1956) applies only to allotted land 1957 Solicitor s Opinion Per Capita Act of U.S.C. 117 Treaties exclusive use and benefit

9 Funds distributed under sections 117a to 117c of this title shall not be liable for the payment of previously contracted obligations except as may be provided by the governing body of the tribe and distributions of such funds shall be subject to the provisions of section 7 of the Act of October 19, 1973 (87 Stat. 466), as amended [25 U.S.C. 1407]. 25 USC 1407 None of the funds shall be subject to Federal or State income taxes

10 States have a tax problem Supreme Court in 1992 (Quill v. North Dakota) states cannot collect sales taxes on out of state retailers because 7,000 state and local taxes Internet states will lose 400 billion in revenue on remote sales in ten years States need streamlined uniform sales taxes and Congress to authorize remote sales tax

11 The member states agree to require sellers to source the sale of a product in accordance with the following provisions. a. When the product is received by the purchaser at a business location of the seller, the sale is sourced to that business location. b. When the product is not received by the purchaser at a business location of the seller, the sale is sourced to the location where receipt by the purchaser occurs the location indicated by instructions for delivery.

12 States agree to tax sales the same way: Face to Face Transaction the jurisdiction of the seller gets the tax Long Distance Transaction the jurisdiction of the buyer gets the tax

13 Tribal Governments have authority to collect sales and use taxes on transactions within reservations. Tribal motor fuel and tobacco taxes are common. More tribes are implementing retail sales taxes and retail development is increasing significantly on many reservations. Tribal members make purchases from remote sellers.

14 Tribe may collect tax when product is received by any purchaser on tribal land. (Colville) For products without reservation generated value, state may collect the tax when the product is received by a non tribal member on tribal land. Dual Taxation. (Moe, Colville) State may not collect tax when product is received on tribal land by tribal member. (Moe, Chickasaw, Warren Trading Post)

15 Difficult to administer tax rules based on membership status within SSTP geographical tax sourcing rules. SSTP could unlawfully collect taxes on remote sales to tribal members. Pourier v. South Dakota Dept. of Revenue (2003) State forced to refund motor fuel tax on sales to tribal members. SSTP and Congressional proposals do not consider collection of tribal sales taxes or problem of dual taxation with non members.

16 Some tribes are interested in having the same opportunities as states to participate in the SSTP and collect tribal taxes. Some tribes would like to ensure that existing tax laws are not violated. NCAI Resolution supports including tribal option to participate in SSTP. Section 5 of Main Street Fairness Act (H.R. 34 from 110 th Congress) includes voluntary tribal participation in Streamlined Sales and Use Tax Agreement and provisions to protect existing tax immunities

17 Significant chance for enactment because of federal budget and effect on state budgets H.R would include Indian country within the definition of state states would collect tax on remote sales in Indian country S In discussion to include tribal opportunity to be a Member States in new version of legislation and protect tax status of tribes

18 The Congress shall have power To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;