Native Americans Do Pay Taxes
Taxation can be a divisive issue between tribes and surrounding states
The fraught relationship between the United States government and Native American tribes has led to recurring conflict and confusion over the issue of taxation.
The United States tax code distinguishes between the terms “Native American” and “Native American tribe.” Adding the word "tribe" differentiates between an individual and a sovereign entity. As a sovereign entity, a tribe governs itself. It’s effectively an independent nation, even though it's located on American soil.
Native American tribes aren't obligated to pay taxes to the U.S. government, but the same rule doesn't apply to tribe members.
Native Americans and Federal Income Tax
Native American tribe members have been granted U.S. citizenship since 1924, and they must pay taxes on their incomes. But there are some exceptions, just as there are for other citizens.
Native Americans don’t pay taxes on sources of income that derive from government benefits. This income must represent “general welfare” payments provided for by a governmental program, such as Welfare or Supplemental Security Income. Payments can't be made in exchange for services of any kind. They become taxable if they are. American Indians who have earned income must pay federal income tax.
Native Americans do not receive financial assistance from the federal government based solely on the fact that they are Native Americans.
The Debate Over State Sales Taxes
As sovereign nations, tribes are exempt from collecting sales taxes imposed at the state level, just as they’re exempt from paying income taxes to the Internal Revenue Service. As a result, If you purchase goods or services on tribal land, there might be a sales tax or there might not be.
As sovereign entities, tribes are entitled to impose their own sales taxes on their own grounds, taxing not only their tribe members but anyone else who passes through as well. Not all 573 recognized Native American tribes impose taxes, but some do.
This enables tribes to sell things like tobacco and gasoline much cheaper than that convenience store or gas station across the tribal territorial line, particularly in states that have "extra" gasoline and tobacco taxes over and above their regular sales tax.
To take advantage of this, many non-Indian consumers cross over onto tribal lands to make these purchases. Many states take the position that this cheats them out of sales tax revenues.
More than 200 tribal nations operate casinos on tribal land. The non-Native customers who patronize these casinos often buy gas and tobacco while they’re there.
Tribal Casinos and State Taxes
In the past decades, the most significant revenues on Native American lands come from their casinos, which has prompted federal legislation.
The Supreme Court ruled in 1987 that tribes could run gaming establishments on their own lands without interference by state governments. Then, in 1988, the U.S. government passed the Indian Gaming Regulatory Act (IGRA) to nail down some regulations and guidelines for this practice, charging the National Indian Gaming Commission with oversight.
These gaming operations are typically owned and operated by their tribes, which do not have to pay federal or state income tax on their revenues, including those generated by gaming.
Native Americans employed by the casinos must pay income taxes on their earnings, and if the tribes transfer or distribute any of their gaming revenues to tribe members, these “per capita” payments are subject to federal income tax as well.
Many states exempt any payments that come from an individual's own tribe from state income tax, including distributed gaming revenues.
Tax Disputes Between Native Tribes and States
At least one state—New York—has revised its tax code to allow it to levy sales taxes on tobacco products sold on Seneca and Cayuga tribal lands. The state can’t impose the tax on tribe members who purchase there, but it takes the position that it can tax non-members who buy tobacco products on these reservations. A federal U.S. District Court judge agreed in January 2018.
In Nebraska, the Winnebago tribe makes its own tobacco products. The production facility was the subject of a raid by the Bureau of Alcohol, Tobacco and Firearms (ATF) on January 20, 2018, based on the terms of the Contraband Cigarette Trafficking Act (CCTA). The raid was intended to gather documents and information relating to the distribution and taxation of Winnebago tobacco products.
The federal government took the position that the CCTA mandated that the Winnebago tribe must turn these records over. The tribe disagreed, stating that it wasn't subject to federal law, and it refused to turn over the documentation, resulting in the raid.
In July 2018, the District of Columbia District Court of Appeals ruled that tribal businesses must indeed comply with federal laws. Two Winnebago tribal corporations sued the state of Nebraska in December 2018 for instigating the ATF action and investigation. The lawsuit was allowed to proceed and was still being litigated in 2019.
State Income Tax for Tribes and Individuals
Most states tax Native Americans on income earned off their reservations, although money earned from their tribes is typically tax-exempt at the state level. Some states, such as California, require that Native American taxpayers meet certain requirements to qualify for exemptions, such as living in a recognized Indian country.
Native Americans in California who are active-duty or retired military do not have to meet the same residency requirements to qualify for tax exemptions.
Tribes are exempt from state income taxes because they’re sovereign—they’re not technically part of the states that abut their reservation lands. The IGRA prohibits states from levying income taxes on the tribes themselves, but tribes are free to negotiate their own contracts with their surrounding states to allow taxation of the gaming institutions themselves.
When Do Native Americans and Native American Tribes Pay Taxes?
- Native American tribes are not subject to state or federal income taxes.
- Tribes can and do set their own sales taxes for products purchased from them on their lands.
- Native Americans must pay federal income tax on their personal incomes.
- The general rule in most states is that income is tax-exempt when a Native American individual earns it on tribal lands. Tribe members working jobs off tribal lands are subject to state and local taxes on income there.
- Individual Native Americans who receive per capita gaming distributions from their tribe must pay federal tax on this income.
- Some states do not tax per capita gaming revenue distributed to tribal members, though others do.
U.S. Bureau of Indian Affairs. "Frequently Asked Questions." Accessed April 22, 2020.
U.S. Internal Revenue Service. "ITG FAQ #4 Answer: What Are the Tax Implications of Being a Federally Recognized Tribe?" Accessed April 22, 2020.
U.S. Bureau of Indian Affairs. "History of BIA." Accessed April 22, 2020.
U.S. Internal Revenue Service. "H.R.3043 - Tribal General Welfare Exclusion Act of 2014." Accessed April 22, 2020.
Joint Committee on Taxation. "Overview of Federal Tax Provisions Relating to Native American Tribes and Their Members," Page 3. Accessed April 22, 2020.
Joint Committee on Taxation. "Overview of Federal Tax Provisions Relating to Native American Tribes and Their Members," Page 7. Accessed April 22, 2020.
National Indian Gaming Commission. "2017 Indian Gaming Revenues Increase 3.9% to $32.4 Billion." Accessed April 22, 2020.
National Indian Gaming Commission. "Indian Gaming Regulatory Act." Accessed April 22, 2020.
State of California Franchise Tax Board. "When You Can Be Tax-Exempt: Native Americans." Accessed April 23, 2020.
New York State Senate. "Section 471-E: Taxes Imposed on Qualified Reservations." Accessed April 22, 2020.
United States Court of Appeals District of Columbia Circuit. "United States Court of Appeals for the District of Columbia Circuit: Ho-Chunk, Inc., Et Al., Appellants V. Jeff Sessions, in His Official Capacity, Et Al., Appellees." Accessed April 22, 2020.
Indianz.com. "Winnebago Tribe Still Fighting Back a Year After Raid on Reservation." Accessed April 22, 2020.