Wednesday, August 11, 2010

First Americans

Sales and use taxes for Native Americans (the laws usually use the term "Indians" and I prefer "First Americans") are another of those highly variable taxing policies. This is also an issue that doesn't exist in all states. If the state has no tribal reservations, then there probably won't be any laws.

There are four overriding factors that lawmakers have to watch for in states with reservations: politics, the US Constitution, Federal treaties with the tribes, and tribal sovereignty.

The rules break down into a few different components, which I'll generalize here.

Sales to the tribal organization itself
These are generally exempt. Sometimes it's only if the delivery point is actually on the reservation; and other times the delivery point is irrelevant. For example, if a tribal organization calls up an electronics store and has them deliver a computer to the reservation, and the store bills the tribal organization directly, then that sale would be exempt pretty much everywhere.

But if someone went to Best Buy and picked it up, even though it was billed to the organization, then it would be taxable unless the state gave a more general exemption to the tribe.

Sales to individual First Americans
Generally, the exemptions are most common for transactions involving the tribal organization itself, not to individual members. Their purchases are taxable, particularly when they are off of the reservation. However, usually sales from a store on the reservation to a member of the tribe who will use it on the reservation are exempt.

Sales on reservations to people who are not First Americans
These are usually taxable. There have been some court cases involving cigarette sales, so this can get messy.

Some states make a deal with the tribes
Since the tribal organizations need a way of collecting taxes too, a few states will actually form agreements where sales and use taxes will get collected, even on the reservation, and they'll come up with some sort of revenue sharing formula.

Finally, in doing the research for this, I noticed that, as the rules get more complex, loopholes become a problem. There was a case where a tribe was determined to be, essentially, "selling" sales tax exemptions. Everybody lost when the court got hold of this one. If you think you've found a cool little loophole, talk to an an expert who can guide you. The state already knows about most of these; and just because you think you've discovered a neat trick doesn't mean it will work (it probably won't).

The Sales Tax Guy

See the disclaimer - this is for education only. Research these issues thoroughly before making decisions. Remember: there are details we haven't discussed, and every state is different. Here's more information

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