The fraught relationship between the United States government and Native American tribes has led to recurring conflict and confusion over the issue of taxation. Put simply, Native Americans do pay taxes, but there are some quirks when it comes to the way the U.S. tax code treats Native Americans.
Here's what you need to know about how taxes apply to Native American tribes and individuals.
- 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 usually pay federal income tax on their personal incomes.
- Income may be tax-exempt at the state and local levels when a Native American individual earns it on tribal lands.
- Individual Native Americans who receive per capita gaming distributions from their tribe must pay federal tax on that income.
Differentiating Between Tribes and Individuals
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 within the borders of the U.S. federal government.
Native American tribes aren't obligated to pay taxes to the U.S. government, but the same rule doesn't apply to tribe members. When a tribe, as an entity, earns income, that income is not taxable. However, when a tribe distributes those profits among its members, those members may be individually taxed for those distributions.
Native Americans and Federal Income Tax
Native American tribe members have been granted U.S. citizenship since 1924, and as citizens, they must pay taxes on their incomes. There are some exceptions, just as there are for any type of citizen.
For example, 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 Supplemental Security Income.
However, when payments are made in exchange for services of any kind, they become taxable forms of earned income. Native Americans 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. As with any citizen, they receive assistance based on need, such as in instances of physical disability.
How State Sales Taxes Apply
As sovereign nations, tribes have certain protections from state governments, including the imposition of sales taxes. States can't force tribes to collect sales taxes, and tribes can choose to impose their own sales tax (though not all tribes do). As a result, If you purchase goods or services on tribal land, there may or may not be a sales tax.
This enables tribes to sell things like tobacco and gasoline much cheaper than competitors across the tribal territorial line, particularly in states that have significant gasoline and tobacco taxes.
At least one state—New York—has revised its tax code to allow it to levy sales taxes on tobacco products sold on tribal lands. The state can’t impose the tax on tribe members who purchase these products on their own tribal lands, but it takes the position that it can tax non-tribal members who buy tobacco products on these reservations.
Tribal Casinos and State Taxes
In 1987, the U.S. Supreme Court ruled that tribes could run gaming establishments on their own lands without interference by state governments. Then, in 1988, Congress passed the Indian Gaming Regulatory Act (IGRA), which created the National Indian Gaming Commission and charged it with overseeing casino regulations on tribal lands.
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.
While these casinos are often exempt from federal taxes, Native Americans employed by the casinos must pay federal income taxes on their earnings. If the tribes transfer or distribute any of their gaming revenues to their members, these “per capita” payments are subject to federal income tax, as well.
While federal taxes apply to individual earnings and payments, some states exempt any payments that come from an individual's own tribe from state income tax, including distributed gaming revenues. California is an example, though individuals must meet a set of conditions (such as living on tribal lands) to qualify for the exemption.
Frequently Asked Questions (FAQs)
What percentage Native American do you have to be to get benefits?
Eligibility for benefits is determined not by a person's specific Native American blood percentage but their membership in a federally recognized Native American tribe. The U.S. government defines that as a "government-to-government relationship and a special trust relationship with the United States." Each recognized tribe has its own agreement with the U.S. government and associated set of benefits.
Do Native Americans pay estate taxes when they die?
Native Americans do not have to pay estate taxes for any property that's owned in a trust of the United States government. However, any land or property owned outside of the trust will be subject to standard estate taxes.