Posted by Dennis Jao

Do Native Americans Pay Taxes?

Do Native Americans Pay Taxes?

The tense relationship between the U.S. government and Native American tribes has led to recurring disputes and confusion over tax issues. Native Americans do pay taxes, but some quirks about how the tax code treats Native Americans.


The main points to note

  • Income may be exempt from local and state taxes if earned by a Native American on tribal lands.

  • Native American tribes are not subject to local, state or federal income tax.

  • Native Americans generally pay federal personal income tax.

  • Native Americans who receive per capita gambling distributions from their tribe must pay federal taxes on that income.

  • Tribes can set their own sales taxes for the products they buy on their land.

Here are the things you need to know about how taxes are applied to Native American tribes and individuals.


What distinguishes tribes and individuals

The U.S. tax code differentiates between the terms "Native American" and "Native American tribe." The addition of the word "tribe" distinguishes between an individual and a sovereign entity. As a sovereign entity, a tribe is ruled. Despite being inhabited within the borders of the federal government of the United States, it is an independent nation.

Native American tribes are not required to pay taxes to the U.S. government, but the same rule does not apply to tribal members. When a tribe earns income, that income is not taxable. However, when a tribe distributes these earnings among its members, those members may be individually taxed on those distributions.


Native American and Federal Income Tax

Members of Native American tribes have been granted U.S. citizenship since 1924 and, as citizens, must pay income taxes. There are a few exceptions, as they exist for any citizen.

For example, Native Americans do not pay taxes on sources of income from government grants. These revenues must be "general welfare" payments provided by a government program, such as additional security revenues.

However, when payments are offered in exchange for any service, they become taxable forms of labor income. Native Americans who earn income are obligated to pay federal income tax.

Native Americans do not get financial assistance from the federal government just because they are Native Americans. Like any citizen, they receive the necessary assistance, as in the case of a physical handicap.


How State Sales Tax Apply

As sovereign nations, tribes enjoy certain protections against state governments, including the imposition of sales taxes. States cannot force tribes to collect sales taxes, and tribes can choose to impose their sales taxes (although not all tribes do). As a result, whether you are purchasing goods or services on tribal land, you may or may not have to pay sales tax on tribal land. 

This allows tribes to sell products like tobacco and gasoline much cheaper than their competitors through tribal territorial lines, especially in states with significant gasoline and tobacco taxes.

At least one state, New York, has revised its tax code to allow taxes on the sale of tobacco products sold on tribal lands. The state cannot levy taxes on tribal members who purchase these products on their tribal lands but take the position of taxing non-tribal members who buy tobacco products on these reserves.


State taxes and tribal casinos 

The Supreme Court in 1987 ruled that tribes could operate gambling units on their lands without the intervention of state governments. Then, in 1988, the government passed India's Gambling Regulation Act (IGRA). This law created the National Indian Gaming Commission and made it responsible for overseeing the regulations of tribal casinos.

These gambling operations are generally owned and operated by their tribes, who do not have to pay state or federal taxes on their income, including that generated from gambling.

Although these casinos are often exempt from federal taxes, Native Americans employed in the casinos must pay federal taxes on winnings. If tribes transfer or distribute a portion of their gambling income to tribal members, these "per capita" payments are also subject to federal income tax.

Although federal taxes apply to individual income and payments, some states exempt all payments from a person's tribe from state tax, including distributed gambling income. California is an example of such a state, although individuals must meet several circumstances (such as living on tribal land) to be eligible for the exemption.


FOR MORE INFORMATION OR TO SEE HOW WE CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CONTACT Dennis Jao BY CLICKING THE BLUE TAB ON THIS PAGE.


THANKS FOR VISITING.

Dennis Jao
Contact Member