Tribal Gas Tax Exemption Under Fire

Erik Smith/ Washington State Wire

A group representing nontribal gas station owners says the tribes get an unfair tax break that lets them beat the competition on price. Under compacts with 16 tribes, Washington state gives them a 75 percent discount from state gas taxes. There are 51 tribal gas stations in Washington, where fuel prices are consistently 7 to 12 cents a gallon less than at other stations due in part to the tax rebate. If tribes were to pay the full amount, the state would reap an additional $30 million a year to fix highways.

In 2007, the Legislature passed a law allowing Gregoire to make fuel-tax compacts with the tribes. When they buy fuel, the tribes pay the full wholesale price, including 38 cents a gallon tax upfront. The state sends them a rebate check for 75 percent of the tax.

The Automotive United Trades Organization (AUTO), which represents nontribal service stations, is suing the state. AUTO argues that the existing compacts violate the state constitution, because the 18th Amendment requires gas taxes be used only for highway purposes. The state counters that, based on court rulings, it would collect no fuel tax at all from tribes if it weren't for the compacts. Tribes are required to use the tax rebates for transportation, and often do, but details of how the money is spent are exempt from public disclosure.

"No one but the tribes know, and they will not let anyone look at their books," said Tim Hamilton, a former Grays Harbor-area station owner and executive director of AUTO. The Puyallup Tribe voluntarily posts a description of its road projects and some cost information on its website. Audit reports by the tribes are typically provided to the Department of Licensing, but those cannot be reviewed by the public or lawmakers.

IRS Announces Updated Indian Gaming Regulatory Act Trust Guidance

The IRS announced the publication of Revenue Procedure 2011-56, which provides Indian Gaming Regulatory Act (IGRA) trust guidance. Under IGRA, an Indian tribe may make per capita payments to tribal members from gaming revenues if the interests of minors and other legally incompetent persons who are entitled to receive the per capita payments are protected and preserved. Indian tribes frequently use trusts to maintain and preserve the minor and incompetent members’ interests (IGRA trusts).

In 2003, the IRS released Revenue Procedure 2003-14, which provided safe harbor requirements for IGRA trusts. IGRA trusts meeting these requirements are treated as tribally-owned grantor trusts, and the per capita payments or trust earnings are not included in the beneficiaries’ incomes until actually or constructively received.

In addition to providing a safe harbor, Revenue Procedure 2003-14 sought public comments on the safe harbor requirements. After receiving and considering numerous comments, the IRS published Revenue Procedure 2011-56.  The revenue procedure:

  • clarifies that an IGRA trust must be an ordinary trust (pursuant to 26 C.F.R. §301.7701-4(a)) for federal tax law purposes
  • clarifies that trustees may make staggered distributions to beneficiaries at different ages or upon the occurrence of specific events rather than distributing all the trust assets when the beneficiary attains a specified age
  • eliminates the references to federal and local trust law, as the validity of trusts is governed by state or tribal law
  • broadens the class of survivors who may inherit a beneficiary’s trust interest
  • modifies the trustee discretion provisions for making health and welfare distributions

Revenue Procedure 2011-56 supersedes Revenue Procedure 2003-14.

For more information, click HERE.


Washington State Seeks $11m In Gas Taxes From Yakama Nation

A new legal challenge has flared up from a controversial revenue-sharing agreement between Washington State and Tribes located therein – the state claims the Yakama Nation owes more than $11 million in taxes from gasoline sales revenue.

Pursuant to a consent decree in federal court, the state and the Nation split gas tax revenue, with 75 percent of sales from reservation gas stations going to the Nation. The Yakama Nation is credited up front when fuel is purchased wholesale, based on calculations of its member population and gallons of fuel delivered to reservation stations. The Nation’s members are exempt from the state's gas tax for fuel sold on Tribal lands, but the Nation is required to keep records and audit fuel sales from eight stations and submit the information to the state. The Department of Licensing asserts the Nation failed to submit audit reports in 2007, 2008, and 2009 that are required to differentiate sales to its members from sales to non-members.

After requesting the audit reports, the Department notified the Nation in March that it would request the up-front gas tax money be repaid. "DOL is unable to verify, due to lack of audit reports...that the Yakama Nation has used any gallons of fuel sold or distributed to the Tribe in the manner described in (the agreement)," the letter said. "The Yakama Nation is then subject to the state's taxes on all fuel delivered to the reservation under the Consent Decree."

A meeting with the Nation has been scheduled for June 13.

Tribal Gas Tax Refunds Challenged

The Automotive United Trades Organization (AUTO) in Washington state has filed a lawsuit seeking to end state sales tax reimbursements to Tribal gas stations.  The refunds are based on agreements Governor Christine Gregoire signed with the state’s Tribes in 2007. The agreements refund 75 percent of state taxes collected on fuel sold at Tribal stations -- approximately 28 cents per gallon. The agreements provide that the reimbursed monies are to be used by the Tribes for police and transportation services, but allow Tribes to decide how the money is spent on those services. The state Attorney General’s office has said: "By providing the Tribes with 75 percent of the tax revenues collected on the fuel sales from the tribally owned and operated stations but limiting their use to 'highway-related purposes,' the state provides funding for road and highway projects that might not otherwise be pursued ... "

AUTO Executive Director Tim Hamilton says non-Tribal stations are being undercut by the refund payments to Tribes, which amount to approximately $35 million. "It just guts us," he said. The AUTO lawsuit seeks to have the state licensing department halt any more payments to the Tribes, but does not seek monetary damages beyond a potential request for attorney's fees. "We're not going after the sovereignty of the Tribe, and we're not going after the state's right," Hamilton said, but the group is challenging the state’s ability to redistribute taxes to Tribal stations.

Should Tribes Be Allowed To Tax Trust Lands?

(Photo courtesy of Martha Lou Perritti)

In nearly every jurisdiction throughout the United States, local governments derive a significant portion of their operating revenue from property taxes.  The money land owners pay in property taxes goes to fund basic infrastructure such as roads and schools and services such as police and fire protection.

There is however one jurisdiction within which the local government cannot collect property taxes: Tribal lands held in federal trust.

Tribal governments cannot impose property taxes on reservation land that has been taken into trust by the federal government, which is typically most if not all of the land owned by Tribal members within the bounds of a reservation.  Tribes are thus deprived of the benefit of countless millions of dollars in revenue that would normally be available to any other municipality.  With poverty and sub-standard facilities still endemic on reservations throughout America, there is a sad irony in the fact that the place where property taxes could do the most good are the only places they cannot be collected and put back into the community.

The denial of taxing authority to Tribes also has another negative impact on Native Communities, this time in the context of the national consciousness.  In order to make up for unavailable property tax revenue, many Tribes utilize alternative income sources such as casino gaming and discounted tobacco products to finance basic services within their reservations.  Since in most states these offerings are only available within the sovereign territory of a Tribe, many Americans hold an ill-informed view that Native Americans enjoy "special privileges", and that other benefits and services to Tribes should therefore be curtailed.  The lack of understanding of why these alternative revenue sources are necessary could perhaps be overcome by touring the decrepit infrastructure with which many Tribal Communities continue to be saddled, but such ventures by non-Natives are far from routine.

There's no insurmountable obstacle to allowing Tribes to tax land within their jurisdictions.  The federal government could enter into taxing agreements with Tribes that would allow for collection of some form of property tax, which Tribes could help structure so as to increase revenue without placing an undue financial burden on Tribal members.  Numerous models for such agreements already exist, in the form of retail sales tax compacts between state and Tribal governments for business activities occurring on reservations.

IRS Ruling Provides Good News For Tribal Energy Bonds

Reservation Energy Projects - Oneida Tribe of Indians

A recent Private Letter Ruling by the IRS has held that for certain purposes related to government finance, Native American Tribes are to be treated like states. This allows Tribes to issue financially-attractive tax exempt bonds to finance projects related to “essential government functions”. Normally, commercial or industrial activity by Tribes is not considered an “essential” function of Tribal government, thereby precluding the issuance of tax exempt bonds for such activities. However, the IRS ruling states that an exemption to this rule exists for utilities “if the activity provides substantially all of its service on (a) tribe’s reservation. A utility-type activity includes the furnishing or sale of electrical energy, gas, water, or sewage disposal services.”

Stating that “we find the ownership, operation, and financing with proceeds of tax-exempt bonds of the facilities of municipal power utilities to be both sufficiently prevalent and sufficiently longstanding among state and local governments to be considered customarily performed by state and local governments.” Since Tribes and states are treated the same by the IRS in this context, the IRS held that Tribal utility projects may be financed with tax-exempt bonds when they are “not a commercial activity, (are) indistinguishable from public works projects...focus on benefits to local citizens, and are not in competition with other businesses.” The ruling also allows for some energy generated by Tribal projects to be sold to off-reservation users, so long as “the electrical power generated by (the Tribe) will be used to service the local population with only minimal amounts of power sold to customers in the immediate vicinity of the Reservation that are not adequately served by other power providers.”

At a time when interest in and opportunities for generating renewable energy on Tribal Lands are beginning to soar, the ability of Tribes to finance such projects with desirable tax-exempt investment vehicles will help raise necessary capital even in the current economic climate.

A Tax On The Checkerboard

Fractionation of Pine Ridge Reservation (

The exterior boundaries of Tribal reservations are usually fairly well defined, and provide a delineation for when one is leaving state land and entering “Indian Country”. However, the ownership and control of land within the bounds of the reservation is often far less clear. Through previous federal policies such as allotment and termination, much Native land was alienated from Tribal ownership. As a result, ownership maps of present-day reservations often resemble a “checkerboard”, with plots of non-Native-owned land interspersed with Tribal trust lands.

For many Tribes, reacquiring the land within reservation boundaries is both an economic and cultural imperative, and Tribal leaders seek creative legal and business methods of eliminating the checkerboard. The Tulalip Tribes in Washington are presently considering a unique economic tool in this regard: imposing a tax on sales of land by Tribal members to non-Natives. The Tulalip Grassroots Committee, an organization of Tribal members, has proposed a 17 percent tax on the land value on real estate transactions to discourage Tribal members from selling land to non-Native buyers. "We believe the reservation is sacred and we wanted to make sure that not as much land goes out of trust status," states Tulalip Chairman Mel Sheldon.

With real estate prices plummeting nationwide in the tumult of the current economic crisis, Tribes with cash are positioned to more quickly eliminate checkerboard spaces within reservations. While a tax such as that proposed by Tulalip may help reduce alienation of Tribal lands, there is also risk of alienating the surrounding business community by raising a new barrier to transactions on reservations. Balancing the interests of internal cohesiveness and positive external relations will become increasingly important as Tribes navigate through the current nationwide economic crisis.

Tribes' "Special Privileges" Under Attack In Oklahoma

"It is simply unfair..."  Rep. David Dank

Assailing what he calls “special privileges that give (Native Americans) unique advantages” and declaring “It’s time for our Legislature to restore sanity to Oklahoma’s dealings with the Tribes”, Oklahoma state Representative David Dank has introduced three bills before the state Congress: 1) a constitutional amendment to give private businesses the same right to make corporate campaign contributions as Tribes; 2) a second amendment requiring compacts between Tribes and state government be ratified by the state Legislature; and 3) a bill giving private businesses located close to competing Tribal stores the same sales tax exemptions as the Native-owned businesses. Dank outlines his plan and purpose in an article in this week’s Oklahoman newspaper.

Dank’s reasoning is based on his view that:

Tribes collect no sales taxes on items sold from their grocery and convenience stores, or other Tribal businesses. They collect about half of normal tobacco taxes from Indian smoke shop sales. Tribal businesses pay no property taxes, the state receives little or nothing from Tribal auto tags, and Tribes, unlike private businesses, are free to make millions in corporate campaign contributions.

Meanwhile, the Tribes reap millions from a state-issued monopoly on casino gambling in Oklahoma because of a 15-year compact that cannot be altered.

These are tax exemptions and breaks that siphon tens of millions of dollars each year from local school districts, city and county governments and our state treasury. Non-Tribal citizens and businesses are being taxed to make up those losses. In some cases, non-Tribal businesses are being driven into bankruptcy by the unfair competition made possible by these special privileges.

Dank’s article neglects to mention some other ways in which Native American Tribes are “special”. Unlike every other municipality in the country, and despite being recognized by the US government as sovereign, Tribal governments are not allowed to levy property taxes on the Tribe’s own land. This state of affairs deprives Tribes of untold millions in revenues each year that other municipalities use for roads, police, and other civic services. For Tribes fortunate enough to be located near population centers or interstate highways, gaming revenue is but a partial substitute for the lack of taxing authority, as illustrated by the endemic poverty and substandard infrastructure on reservations.

The private sector of Oklahoma’s economy also reflects a “special” place for Native Americans. As he laments the Tribes’ “special financial privileges” that “cost state and local governments millions and damages competing private businesses”, Dank omits the fact that Native American and Alaska Native householders in Oklahoma had a median income 18.1 percent less than the median level for all households, and an overall decline in median income of 24.2 percent since the year 2000 – the biggest drop of any demographic group in the state. Meanwhile, the Caucasian demographic in Oklahoma has realized a 42.8 percent increase in household income level since the year 2005.

Special indeed.