Online Collection Gives U.S. Indians Ways to Get Revenue: Taxes

Indian reservations are close to being put on a more equal tax footing with states.

The Senate added language to the Internet sales tax bill that passed yesterday that would expand the plan’s reach to the nation’s 566 federally recognized Native American tribes, which would have authority to compel off-reservation retailers to collect tribal taxes on web-based purchases.

Helping tribes collect sales tax revenue may help reduce their reliance on federal aid, John Dossett, general counsel for the National Congress of American Indians, told Bloomberg BNA. The world of Indian taxation is complicated, and only 30 or so tribes impose a general sales tax right now, he said.

“It is hugely important that tribes develop non-federal sources for government operating revenue,” Dossett said.

U.S. states have been pressing Congress without success to change the law -- which prevented states from applying sales taxes to transactions with sellers that lacked a physical presence in their states -- since the late 1990s, during the early days of the Internet retailing business. States say they are missing out on $23 billion a year in sales tax. Inc., which is expanding its distribution network and its physical presence in more states, supported the bill. EBay Inc. opposed it and has attempted to rally its users.

Under the legislation, which passed yesterday by a 69-27 vote in the Senate and now goes to the House of Representatives, a tribal member who lives on a reservation would be expected to pay sales tax to an online retailer, based on the rate in his or her jurisdiction.

Tribal Immunity

Sales taxes are more complicated for Indians than for others. A tribal member who buys an item at an off-reservation store and has it delivered to the reservation, for instance, may not be subject to sales tax because of the immunity to which tribes are entitled as sovereign nations, according to lawyers who specialize in Indian law. Rules vary from state to state.

How the two issues -- collection of tribal tax, and collection of state taxes from tribal members -- interact under the Marketplace Fairness Act isn’t entirely clear, said Kathleen Nilles, a tax attorney who specializes in Native American tribe law at Holland and Knight, a Washington law firm.

The language in the legislation, which Nilles helped advocate on behalf of the National Congress of American Indians, is one piece of tribes’ long effort to gain more recognition as the equivalent of states for tax purposes, she told BNA.

Development Projects

Other elements include gaining more ability to issue tax-exempt debt to pay for development projects such as hotels, an issue raised by tribes in letters to the House Ways and Means Committee’s working groups on tax reform.

Although some large tribes, such as the Navajo Nation, levy sales taxes, many do not because of the risk of tribal taxes being charged on top of state sales taxes, Nilles said. She said the bill eliminates such dual taxation by clarifying that tribes are on equal footing with states.

The original proposal recognized U.S. territories as states. A Senate aide to one of the bill’s sponsors said that in the process of revising the bill over recent years, the tribes had been left out.

As with states and territories, tribes would have to meet the bill’s tax simplification rules or join the Streamlined Sales and Use Tax Agreement to gain the collection authority in the bill.

Collection Complicated

If a tribe doesn’t meet those requirements, it doesn’t have to and can instead work with its state to have its goods and services incorporated into the uniform tax base for that state, the Senate aide said.

Adding reservations to the bill makes proper sales tax collection all the more complicated for remote sellers, Steve DelBianco, executive director of the NetChoice Coalition, which opposed the measure, told BNA last week.

He complained that tribes, as well as 46 states that have a sales tax, would still be free to set most of their own rules, tax holidays, and definitions for sales taxes, which is a challenge for software producers developing programs that can seamlessly calculate the correct rate for all jurisdictions on any given day.

The Senate bill is S.743.

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