Entitlement Share Payments are annual state payments to local governments to provide “replacement” funding for lost revenue due to legislative action that restructured the collection and administration of various taxes and fees in the state of Montana.
-Source: Montana Code Annotated 15-1-121
Through treaties, tribes ceded control of millions of acres of their homelands to the U.S. in exchange for compensation that oftentimes included annuities, medical services, education, and housing, among other things.
Other Impacts to Tribes Related to Federal Payroll Tax Issues
The Pension Protection Act of 2006 established that tribal government retirement plans did not qualify as “government” plans unless one hundred percent of tribal employees are engaged in essential government functions. Because numerous tribes rely heavily on their natural resources and tribal business ventures to produce government revenue, they tend to have employees engaged in seemingly commercial activities. As a result, retirement plans for those employees are governed by the same laws and Internal Revenue Service (IRS) codes as employer-sponsored plans in the private sector.I Thus, tribal governments may be forced to administer two separate employee retirement plans—one for workers performing essential government functions and another for those performing commercial activities—resulting in increased costs for the tribe.
IRS section 457 provides an exception allowing certain state and local governments and non-profit employers to create deferred compensation plans for their employees engaged in commercial activities. Tribal governments, however, are not recognized as eligible governments and cannot sponsor a 457 governmental plan.II In the end, many tribes elect to offer their employees 401(k) retirement savings plans, which often yield less than traditional pension plans partly because management and investment fees are higher, and partly because professional managers of pooled pension funds tend to get higher returns than employees who manage their own 401(k) plans.III These limitations can put tribes at a disadvantage when it comes to attracting and keeping qualified employees, to whom a job with good benefits and a secure retirement income is important.
Furthermore, although the IRS acknowledges that tribal members employed to serve as council representatives are in fact tribal employees whose wages are subject to federal income tax assessments, they also hold the contradictory view that tribal council member service is not “employment” for FICA withholding purposes. Thus, tribal council members must pay federal income taxes on their wages (which they can have voluntarily withheld by the tribe), but they cannot contribute to or receive social security and Medicare benefits in relation to their service on the council.IV A bill currently before Congress (S. 1309/H.R. 2860) seeks to remedy this situation by allowing tribal councils to enter into agreements with the Commissioner of Social Security to obtain social security coverage for their service to their tribal nations.
Reservation | % Trust Land (Tribal & Individual) | % Fee Land |
Blackfeet | 63 | 36 |
Crow | 68 | 32 |
Flathead | 56 | 32 |
Fort Belknap | 97 | 3 |
Fort Peck | 46 | 54 |
Northern Cheyenne | 99 | 1 |
Rocky Boy’s | 100 | 0 |
Use taxes are sales taxes on out-of-state purchases that would have been subject to a state sales tax had they been made in-state. While retailers submit sales taxes to state revenue departments, residents are required to track and submit use taxes.
Additional Dangers of Dual Taxation
States that choose to levy taxes on non-Indians in Indian Country regardless of the existence of a tribal tax system effectively undermine the tribal tax, putting tribes in a difficult position. Tribes must choose between foregoing their tax and the oftentimes much-needed revenue or imposing their tax and potentially driving both people and businesses from their reservations.
Dual taxation also limits a tribe’s ability to offer tax incentives, as the tribal tax immunity could never fall below the existing state tax, thus, offering no added incentive for doing business on-reservation.
[1] Merrion v. Jicarilla Apache Tribe, 455 U.S. 130 (1982).
[2] A coalition of tribes and intertribal organizations has been working for: federal preemption of all state taxes on reservations; tribal tax parity with states; excise tax exemption and the elimination of the “essential government function” test for tribes; tax exempt bonds including private activity bonds; tribal employee benefit and pension plans (and the elimination of the commercial versus governmental distinction); tribally funded and controlled charities (which need to be classified as public charities, like state-funded ones); treatment as states for purposes of federal streamlined sales tax legislation. (National Congress of American Indians, “Current Tax Needs In Indian Country.” http://www.ncai.org/initiatives/partnerships-initiatives/ncai-tax-initiative/NCAI_Tax_Reform_Briefing_Paper.doc.; See also the National Congress of American Indians Intertribal Tax Initiative website for additional information: http://www.ncai.org/initiatives/partnerships-initiatives/ncai-tax-initiative/ncai.)
[3] Montana Budget and Policy Center, “Policy Basics: Taxes in Indian Country, Part 1: Individual Tribal Members,” July 2017. http://www.montanabudget.org/wp-content/uploads/2017/07/Policy-Basics-Indian-Country-Taxes-Part-1-FINAL.pdf.
[4] U.S. Joint Committee on Taxation Staff, “Overview of Federal Tax Provisions Relating to Native American Tribes and Their Members,” July 22, 2008. http://www.jct.gov/x-61-08.pdf.
[5] U.S. Joint Committee on Taxation Staff, “Overview of Federal Tax Provisions Relating to Native American Tribes and Their Members,” July 22, 2008. http://www.jct.gov/x-61-08.pdf.
[6] F. Michael Willis, “The Power to Tax Economic Activity in Indian Country,” Natural resources & Environment, Vol. 28, No.4, Spring 2014. http://www.hsdwlaw.com/system/files/articles/NRE_v28n04_feat02_Willis.pdf.
[7] U.S. Government, “U.S. Government Services and Information.” https://www.usa.gov/topics.
[8] U.S. Office of Management and Budget, “Budget of the U.S. Government: A Foundation for American Greatness, Fiscal Year 2018.” https://templatelab.com/budget-fy2018/
[9] National Priorities Project, “Federal Revenue: Where Does the Money Come From: Federal Budget 101.” https://www.nationalpriorities.org/budget-basics/federal-budget-101/revenues/#endnotes.
[10] Center of Budget and Policy Priorities, “Policy Basics: Where Do Our State Tax Dollars Go?” https://www.cbpp.org/research/state-budget-and-tax/policy-basics-where-do-our-state-tax-dollars-go. U.S. Internal Revenue Service, “Publication 963 (Rev. 11-2014): Federal State Reference Guide.” November 2013. https://www.irs.gov/pub/irs-pdf/p963.pdf.
[11] “Montana Legislative Budget Analysis: 2019 Biennium,” http://leg.mt.gov/content/Publications/fiscal/Budget-Books/2019/Budget-Analysis/Volume-1/0Volume1.pdf.
[12] U.S. White House, “State & Local Government.” https://www.whitehouse.gov/1600/state-and-local-government. U.S. Internal Revenue Service, “Publication 963 (Rev. 11-2014): Federal State Reference Guide.” November 2013. https://www.irs.gov/pub/irs-pdf/p963.pdf.
[13] U.S. Department of the Treasury, “Economics of Taxation.” https://www.treasury.gov/resource-center/faqs/Taxes/Pages/economics.aspx.
[14] Montana Department of Revenue, “Biennial Report,” July 1, 2014-June 30, 2016, p. 14. https://revenue.mt.gov/Portals/9/publications/biennial_reports/2014-2016/2016-Biennial-Report-Complete.pdf.
[15] Montana Department of Revenue, “Biennial Report,” July 1, 2014-June 30, 2016, p. 356. https://revenue.mt.gov/Portals/9/publications/biennial_reports/2014-2016/2016-Biennial-Report-Complete.pdf.
[16] Kelly S. Croman and Jonathan B. Taylor, “Why Beggar Thy Indian Neighbor?: The Case for Tribal Primacy in Taxation in Indian Country.” Native Nations Institution, The Arizona Board of Regents, and the Harvard Project on American Indian Economic Development. 2016. http://nni.arizona.edu/application/files/8914/6254/9090/2016_Croman_why_beggar_thy_Indian_neighbor.pdf.
[17] National Congress of American Indians, “Indian Nations in the United States.” http://www.ncai.org/about-tribes/indians_101.pdf.
[18] F. Michael Willis, “The Power to Tax Economic Activity in Indian Country,” Natural resources & Environment, Vol. 28, No.4, Spring 2014. https://www.americanbar.org/publications/natural_resources_environment/2013-14/spring/the_power_tax_economic_activity_indian_country.html.
[19] “Partners in Building a Stronger Montana: 2016 State-Tribal Relations Report,” Montana Governor’s Office of Indian Affairs, September 2016. https://tribalnations.mt.gov/Portals/34/TribalAffairs_AR_2016bWEB.pdf; Montana Department of Revenue, “Biennial Report,” July 1, 2014-June 30, 2016. https://revenue.mt.gov/Portals/9/publications/biennial_reports/2014-2016/2016-Biennial-Report-Complete.pdf; Montana Department of Transportation, “2016 Fact Book,” https://www.mdt.mt.gov/publications/docs/brochures/factbook.pdf.
[20] The category “various” includes: Monies received from small, oftentimes non-recurring, competitive federal and state grant programs and private sources. The category “fiduciary” includes: Revenue that comes from assets held by an entity in a trustee capacity or as an agent for individuals, other governments, and/or other funds such as a pension or the student activity accounts held by school districts. Montana Department of Commerce, “Economic Contributions of Reservations to the State of Montana, 2003-2009.” http://www.ceic.mt.gov/Documents/Miscellaneous/FinalEconomicContributionsNarrative2.pdf.
[21] Montana Department of Commerce, “Economic Contributions of Reservations to the State of Montana, 2003-2009.” http://www.ceic.mt.gov/Documents/Miscellaneous/FinalEconomicContributionsNarrative2.pdf.
[22] Laura Davis, “Testimony of Laura Davis, Associate Deputy Secretary, U.S. Department of the Interior, Before the House Natural Resources Committee on H.R. 4347, the Department of the Interior Tribal Self-Governance Act,” June 9, 2010. https://www.doi.gov/ocl/hearings/111/DOITribalSelfGovernance_060910.
[23] Laura Davis, “Testimony of Laura Davis, Associate Deputy Secretary, U.S. Department of the Interior, Before the House Natural Resources Committee on H.R. 4347, the Department of the Interior Tribal Self-Governance Act,” June 9, 2010. https://www.doi.gov/ocl/hearings/111/DOITribalSelfGovernance_060910; Kelly S. Croman and Jonathan B. Taylor, “Why Beggar Thy Indian Neighbor?: The Case for Tribal Primacy in Taxation in Indian Country.” Native Nations Institution, The Arizona Board of Regents, and the Harvard Project on American Indian Economic Development. 2016. http://nni.arizona.edu/application/files/8914/6254/9090/2016_Croman_why_beggar_thy_Indian_neighbor.pdf.
[24] U.S. Constitution, Article 6, Clause 2; Oklahoma Tax Commission v. Chickasaw Nation, 515 U.S. 450, 458 (1995); Oklahoma Tax Commission v. Sac & Fox Nation, 508 U.S. 114, 126 (1993); Moe v. Confederated Salish & Kootenai Tribes, 425 U.S. 463, 475 (1976); Lummi Indian Tribe v. Whatcom County, 5 F.3d 1355, 1357 (9th Cir. 1993); Standing Rock Sioux Tribe v. Janklow, 103 F. Supp. 2d 1146, 1153-54 (D.S.D. 2000); Montana v. Blackfeet Tribe, 471 U. S. 759, 764 (1985).
[25] U.S. Internal Revenue Service, “Revenue Ruling 94-16.” https://www.irs.gov/pub/irs-tege/rr94_16.pdf.
[26] U.S. Internal Revenue Service, “Revenue Ruling 94-16.” https://www.irs.gov/pub/irs-tege/rr94_16.pdf.
[27] County of Yakima v. Confederated Tribes and Bands of Yakima Nation, 502 U.S. 251 (1992).
[28] U.S. Internal Revenue Service, “Employment Tax for Indian Tribal Governments.” https://www.irs.gov/pub/irs-pdf/p4268.pdf.
[29] U.S. Internal Revenue Service, “Employment Tax for Indian Tribal Governments.” https://www.irs.gov/pub/irs-pdf/p4268.pdf.
[30] Yule Kim, “Federal Taxation of Indian Tribes and Members,” Congressional Research, October 26, 2007, http://congressionalresearch.com/RL34220/document.php?study=Federal+Taxation+of+Indian+Tribes+and+Members. The exception for tribal government obligations for FUTA and FICA is on wages paid to tribal member employees for treaty fishing rights-related activities secured by that particular tribe and exercised specifically within that tribe’s waters. The fishing entity must also meet one hundred percent tribal ownership criteria. (U.S. Internal Revenue Service, “Employment Tax for Indian Tribal Governments.” https://www.irs.gov/pub/irs-pdf/p4268.pdf.)
[31] U.S. Internal Revenue Service, “Indian Tribal Governments: Frequently Asked Question #2.” https://www.irs.gov/government-entities/indian-tribal-governments/itg-faq-2-answer-how-are-indian-tribes-like-state-and-local-governments-when-it-comes-to-excise-taxes.
[32] U.S. Internal Revenue Service, “Revenue Ruling: Application of Excise Taxes to Indian Tribal Governments,” December 27, 1994. https://www.irs.gov/pub/irs-tege/revenue_ruling_94-81.pdf.
[33] U.S. Internal Revenue Service, “Revenue Ruling: Application of Excise Taxes to Indian Tribal Governments,” December 27, 1994. https://www.irs.gov/pub/irs-tege/revenue_ruling_94-81.pdf.
[34] William C. Canby, Jr., American Indian Law in a Nutshell, 3rd ed. (St. Paul, MN: West Group, 1998).
[35] Montana v. United States, 450 U.S. 544 (1981).
[36] U.S. Constitution, Article 6, Clause 2; Lone Wolf v. Hitchcock, 187 U.S. 553 (1903). Oklahoma Tax Commission v. Chickasaw Nation, 515 U.S. 450, 458 (1995); Oklahoma Tax Commission v. Sac & Fox Nation, 508 U.S. 114, 126 (1993); Moe v. Confederated Salish & Kootenai Tribes, 425 U.S. 463, 475 (1976); Lummi Indian Tribe v. Whatcom County, 5 F.3d 1355, 1357 (9th Cir. 1993); Standing Rock Sioux Tribe v. Janklow, 103 F. Supp. 2d 1146, 1153-54 (D.S.D. 2000).
[37] County of Yakima v. Confederated Tribes and Bands of the Yakima Nation, 502 U.S. 251 (1992).
[38] Washington v. Confederated Tribes, 447 U.S. 134 (1980).
[39] Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163 (1989).
[40] U.S. Census, 2011-2015 American Community Survey 5-Year Estimates, “Poverty Status in the Past 12 Months by Sex and Age(American Indian and Alaska Native Along).” https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ACS_15_5YR_B17001C&prodType=table.
[41] Kids Count Data Center, “Children in poverty by race and ethnicity: 2015, 2016.” http://datacenter.kidscount.org/data/tables/44-children-in-poverty-by-race-and-ethnicity?loc=1&loct=1#detailed/1/any/false/870,573/10,11,9,12,1,185,13/324,323.
[42] U.S. Census, 2011-2015 American Community Survey 5-Year Estimates, “My Tribal Area” for each reservation in Montana. https://www.census.gov/tribal/?utm_medium=email.
[43] Montana Department of Labor and Industry, Reservation Profiles. October 11, 2013. http://lmi.mt.gov/Publications/PublicationsContainer/category/reservation-profiles.
[44] National Congress of American Indians, “Taxation.” http://www.ncai.org/policy-issues/tribal-governance/taxation.
[45] Montana Legislative Services & Margery Hunter Brown Indian Law Clinic, Tribal Nations in Montana: A Handbook for Legislators. Revised October 2016. http://leg.mt.gov/content/For-Legislators/Publications/tribal-nations-handbook-october2016.pdf.
[46] County of Yakima v. Confederated Tribes and Bands of Yakima Nation, 502 U.S. 251 (1992).
[47] Montana v. United States, 450 U.S. 544 (1981); Atkinson Trading Co. v. Shirley, 523 U.S. 645 (2001).
[48] Bob Anez, “KwaTaqNuk resort: State sues to collect lodging tax,” Missoulian. October 10, 2000. http://missoulian.com/uncategorized/kwataqnuk-resort-state-sues-to-collect-lodging-tax/article_78fc53ff-a047-5dcd-ba85-207692b08879.html; John Stromnes, “State drops tax suit vs. resort,” Missoulian, October 22, 2002. http://missoulian.com/state-drops-tax-suit-vs-resort/article_57eada10-e480-5333-8868-b2d7aa1860a1.html.
[49] Montana v. United States, 450 U.S. 544 (1981); Atkinson Trading Co. v. Shirley, 523 U.S. 645 (2001). See also James R. Bellis, “Tribal Hotel Occupancy Taxes,” 2008. http://www.lawseminars.com/materials/08TRIBTWA/tribtwa%20m%20Bellis_B_2-5.pdf.
[50] Rob Roy Smith, “The Tribal Tax Man Cometh—Recent Developments in Indian Taxation Law,” The Advocate, January 2005. http://www.msaj.com/papers/taxman.pdf.
[51] See Northwestern Energy, “Community Works: 2017 Report.” http://www.northwesternenergy.com/docs/default-source/documents/community/community_report.pdf.
[52] Montana v. Blackfeet Tribe of Indians, 471 U.S. 759 (1985).
[53] Crow Tribe v. Montana (1987), 819 F.2d 895 (9th Cir. 1987), summ. aff'd, 484 U.S. 997 (1988).
[54] Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134 (1980).
[55] U.S. Department of the Interior: Indian Affairs, “Frequently Asked Questions.” https://www.bia.gov/frequently-asked-questions; See also Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134 (1980).
[56] Oklahoma Tax Commission v. Citizen Band of Potawatomi Indian Tribe of Oklahoma, 498 U.S. 505 (1991); Moe v. Confederated Salish and Kootenai Tribes. 425 U.S. 463, 475 (1976); Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134 (1980).
[57] Moe v. Confederated Salish and Kootenai Tribes.425 U.S. 463, 475 (1976); Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134 (1980).
[58] Oklahoma Tax Commission v. Citizen Band of Potawatomi Indian Tribe of Oklahoma, 498 U.S. 505 (1991).
[59] Andrew Huff, “Memorandum Re. State-Tribal Revenue Sharing,” October 18, 2015. http://leg.mt.gov/content/Committees/Interim/2015-2016/State-Tribal-Relations/Meetings/Oct-2015/huff-memo.pdf.
[60] Andrew Huff, “State-Tribal Revenue Sharing Memorandum to State-Tribal Interim Relations committee,” October 18, 2015. http://leg.mt.gov/content/Committees/Interim/2015-2016/State-Tribal-Relations/Meetings/Oct-2015/huff-memo.pdf
[61] Montana Legislative Services Staff, “Legal Underpinning of State-Tribal Tax Agreements,” 2015. http://leg.mt.gov/content/Committees/Interim/2015-2016/State-Tribal-Relations/Meetings/Oct-2015/legal-underpinnings.pdf.
[62] Montana Legislative Services Staff, “Legal Underpinning of State-Tribal Tax Agreements,” 2015. http://leg.mt.gov/content/Committees/Interim/2015-2016/State-Tribal-Relations/Meetings/Oct-2015/legal-underpinnings.pdf.
[63] Montana Department of Revenue, “Biennial Report,” July 1, 2014-June 30, 2016. https://revenue.mt.gov/Portals/9/publications/biennial_reports/2014-2016/2016-Biennial-Report-Complete.pdf.
[64] Montana Legislative Services Staff, “Legal Underpinning of State-Tribal Tax Agreements,” 2015. http://leg.mt.gov/content/Committees/Interim/2015-2016/State-Tribal-Relations/Meetings/Oct-2015/legal-underpinnings.pdf.
[65] Andrew Huff, “State-Tribal Revenue Sharing Memorandum to State-Tribal Interim Relations committee,” October 18, 2015. http://leg.mt.gov/content/Committees/Interim/2015-2016/State-Tribal-Relations/Meetings/Oct-2015/huff-memo.pdf; See also “Confederated Salish and Kootenai Tribes-Montana Alcoholic Beverages Tax Agreement,” September 29, 2014. https://revenue.mt.gov/Portals/9/individuals/tribe_state_agreements/SalishKootenai-AlcoholicBeverages-TaxAgreement.pdf.
[66] Montana Legislative Services Staff, “Legal Underpinning of State-Tribal Tax Agreements,” 2015. http://leg.mt.gov/content/Committees/Interim/2015-2016/State-Tribal-Relations/Meetings/Oct-2015/legal-underpinnings.pdf.
[67] Fort Peck Tribes and State of Montana Oil and Natural Gas Production Tax Agreement,” March 28, 2008. https://revenue.mt.gov/Portals/9/individuals/tribe_state_agreements/Fort_Peck_Oil_Gas_Agreement.pdf.
[68] Montana Department of Revenue, “Biennial Report,” July 1, 2014-June 30, 2016. https://revenue.mt.gov/Portals/9/publications/biennial_reports/2014-2016/2016-Biennial-Report-Complete.pdf.
[69] Montana Department of Transportation, “2016 Fact Book.” https://www.mdt.mt.gov/publications/docs/brochures/factbook.pdf; Montana Governor’s Office of Indian Affairs, “Partners in Building a Stronger Montana: 2016 State-Tribal Relations Report.” https://tribalnations.mt.gov/Portals/34/TribalAffairs_AR_2016bWEB.pdf.
[70] Montana Department of Revenue, “Biennial Report,” July 1, 2014-June 30, 2016. https://revenue.mt.gov/Portals/9/publications/biennial_reports/2014-2016/2016-Biennial-Report-Complete.pdf.
[71] Anthony S. Broadman, “Know Your Enemy: Local Taxation and Tax Agreements in Indian Country.” Seattle University American Indian Law Journal. http://digitalcommons.law.seattleu.edu/ailj/vol0/iss1/1/.
[72] Kelly S. Croman and Jonathan B. Taylor, “Why Beggar Thy Indian Neighbor?: The Case for Tribal Primacy in Taxation in Indian Country.” Native Nations Institution, The Arizona Board of Regents, and the Harvard Project on American Indian Economic Development. 2016. http://nni.arizona.edu/application/files/8914/6254/9090/2016_Croman_why_beggar_thy_Indian_neighbor.pdf.
[73] Matt Volz, “Crow, Montana settle dispute over taxing coal owned by tribe.” Great Falls Tribune. October 21, 2016. http://www.greatfallstribune.com/story/news/2016/10/21/crow-montana-settle-dispute-taxing-coal-owned-tribe/92512322/.
[74] Bradley W. Joondeph, “The Meaning of Fair Apportionment and the Prohibition on Extraterritorial State Taxation.” Fordham Law Review. Vol. 71, Iss. 2, Art. 3 (2002). http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=3852&context=flr.
Endnotes for “Other Impacts to Tribes Related to Federal Payroll Tax Issues,” page 7:
I Jill Cornfield, “Understanding Tribal Government Retirement Plans,” March 25, 2016. http://www.plansponsor.com/understanding-tribal-government-retirement-plans/?p=1
II U.S. Internal Revenue Service, “IRC 457(b) Deferred Compensation Plans.” https://www.irs.gov/retirement-plans/irc-457b-deferred-compensation-plans.
III Teresa Ghilarducci, “401(k)s: A Bad Deal for Taxpayers.” http://teresaghilarducci.org/blog/177-401ks-a-bad-deal-for-tax-payers.
IV U.S. Internal Revenue Service, “Employment Tax for Indian Tribal Governments.” https://www.irs.gov/pub/irs-pdf/p4268.pdf.
V U.S. Senate Bill 1309, June 7, 2017. https://www.congress.gov/bill/115th-congress/senate-bill/1309/text; U.S. House Resolution 2860, June 8, 2017. https://www.congress.gov/bill/115th-congress/house-bill/2860/text?q=%7B%22search%22%3A%5B%22Tribal+Social+Security+Fairness+Act%22%5D%7D&r=1.
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