Tribes, Feds Clash Over Taxes Bill Would Require Agreements Over Land, Sales Tax Issues

Indian tribes and some Republicans in Congress are clashing over land, taxes and pride as they debate a bill that would change the way some tribes sell tobacco, gas and liquor.

Rep. George Nethercutt, R-Wash., calls the legislation an issue of fairness.

“The bill makes sure that states will not continue losing tax revenue on the same products that businesses on non-tribal lands are paying taxes on,” Nethercutt, a co-sponsor, said.

But some tribal officials in the Inland Northwest say the bill would impose an unfair burden on them and anyone who sets up a business on new tribal lands.

The bill would give state and local governments an “absolute veto power over tribal projects on trust lands. Such authority is unheralded,” Samuel M. Penney, chairman of the Nez Perce Tribal Executive Committee, told the Senate Indian Affairs Committee.

“It would impose limits on the tribes’ inherent right to make economic decisions for their people,” he said.

The legislation, drafted by Rep. Ernest Istook, R-Okla., would require tribes and local officials to reach agreement on whether taxes can be imposed on non-Indians making retail purchases on new land going into federal trusts for the tribes. Without an agreement, new land could not be placed in trust.

Currently when land is placed in federal trust, state and local governments lose the ability to require non-Indians to pay taxes on products such as food, liquor, tobacco and gas. Most tribal jurisdictions don’t tax such purchases.

The law doesn’t affect land already in trust. The question is whether states and local governments who already lose millions in tax revenue each year will have a way to keep from losing even more.

More than 8,000 acres in Washington and more than 14,000 acres in Idaho are in the process of being placed in federal trust and may be affected by the bill, Istook’s office said.

Washington state’s cigarette tax loss alone is $63 million on land already in trusts, according to figures from the Bureau of Alcohol, Tobacco and Firearms. Non-Indians who buy cigarettes on the reservation can be subject to paying taxes, but if the tribes don’t collect them, the requirement is hard to enforce.

In separate legislation, Istook wants to give the bureau an extra $8 million for a crackdown on cigarette tax evasion. But the trusts bill is an attempt to address the problem by restricting the land transfers.

“This (tax evasion) is afflicting states nationwide and robbing the funds needed for schools, roads, highways and public safety,” said Istook.

Rep. Doc Hastings, R-Wash., another co-sponsor of the bill, said requiring state, local and tribal governments to come to agreement on the payment of sales tax by non-Indians is not a violation of tribal sovereignty.

“Tribal trust land is not intended as a means for non-tribal members to avoid state and local taxes, or to give one small business an unfair advantage over its competitors,” Hastings said.

Spokane tribal authorities are concerned the legislation would cut into their revenues, create accounting nightmares and make it harder to attract businesses to their lands.

The tribes are still trying to overcome problems created 110 years ago by a law which took millions of acres of land away from their ownership, said Dave Lundgren, attorney for the Spokane tribe.

Penney said that this bill would “directly conflict” with the 63-year-old Indian Reorganization Act which was enacted to reverse some of the effects of the earlier law.

“Certainly, a state-controlled business would not be required to obtain the tribe’s permission if the roles were reversed,” he said.

Lundgren also believes that requiring businesses to identify each patron as Indian or non-Indian - that is, taxable or tax exempt - would slow sales.

The freedom from state and local taxes can be enough incentive for a business owner to open a store on tribal land. The law could remove that incentive.

“It is a serious infringement on tribal sovereignty,” Lundgren said.