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Department of Finance Revenue and Taxation Division 2 Exempt Status of Natives / First Nations

Department of Finance Revenue and Taxation Division 3 Legal Origins The United States of America The United States of America Sovereignty of Indian Reservations from state authority upheld as a basic tenet of US Code of law. I.e. all lands or interests in land acquired by the United States for an Indian or Indian tribe is sovereign from state tax unless there is clear congressional authorization to the contrary.

Department of Finance Revenue and Taxation Division 4 Legal Origins Canada Exempt status of Natives protected under Section 87 of Canada’s Indian Act. Exempt status of Natives protected under Section 87 of Canada’s Indian Act. This legislation is applied based upon the interpretation of the Supreme Court of Canada which is as follows: This legislation is applied based upon the interpretation of the Supreme Court of Canada which is as follows: –All goods either purchased on reserve land or delivered to reserve land are exempt from tax (federal and provincial)

Department of Finance Revenue and Taxation Division 5 Implications for Taxing Authorities: State Level State Level Provincial Level Provincial Level

Department of Finance Revenue and Taxation Division 6 State Level States have no authority to impose tax on Indians/Tribal members States have no authority to impose tax on Indians/Tribal members In addition, lands placed in trust by the Bureau of Indian Affairs fall outside state jurisdiction In addition, lands placed in trust by the Bureau of Indian Affairs fall outside state jurisdiction Tribal members are taking advantage of exempt status through increased commercial activity (retail) Tribal members are taking advantage of exempt status through increased commercial activity (retail)Continued…

Department of Finance Revenue and Taxation Division 7 State Level Commercial establishments are under no legal obligation to collect taxes from Tribal members Commercial establishments are under no legal obligation to collect taxes from Tribal members There is a legal obligation to collect from non-Tribal members – the reality, many are not There is a legal obligation to collect from non-Tribal members – the reality, many are not –Exceptions: Tax collection agreements, tax compacts, treaties, etc.

Department of Finance Revenue and Taxation Division 8 Provincial Level Obligation to ensure that Natives receive the exemption Obligation to ensure that Natives receive the exemption Administrative arrangements vary from province to province Administrative arrangements vary from province to province Sales to non-Natives must include all applicable taxes Sales to non-Natives must include all applicable taxes

Department of Finance Revenue and Taxation Division 9 Natives and IFTA R820 under Article VIII states that: R820 under Article VIII states that: All motor fuel acquired that is normally subject to consumption tax is taxable unless proof to the contrary is provided by the licencee. The licencee must report all fuel placed in the supply tank of a qualified motor vehicle as taxable on the IFTA tax return. Continued….

Department of Finance Revenue and Taxation Division 10 Natives and IFTA Background: Background: U.S. Experience Canadian Experience

Department of Finance Revenue and Taxation Division 11 Background – U.S. Experience Proliferation of commercial establishments on reserves and/or trust lands Proliferation of commercial establishments on reserves and/or trust lands Large fuel stops for traveling public Large fuel stops for traveling public Ability to manipulate prices Ability to manipulate prices Misleading non-tribal purchasers Misleading non-tribal purchasers…Continued

Department of Finance Revenue and Taxation Division 12 Background - U.S. Experience Truckers are purchasing fuel from Native operated outlets Truckers are purchasing fuel from Native operated outlets Often, truckers may not be aware that they are purchasing tax exempt fuel Often, truckers may not be aware that they are purchasing tax exempt fuel Claim tax paid purchases on returns Claim tax paid purchases on returns Base jurisdictions process the returns Base jurisdictions process the returns Funds are transmitted on the assumption that all purchases made in the jurisdictions of travel were taxed at the respective rates Funds are transmitted on the assumption that all purchases made in the jurisdictions of travel were taxed at the respective rates

Department of Finance Revenue and Taxation Division 13 What Are the Issues? Jurisdictions Jurisdictions –Revenue Losses »Tribal based retailers Example: Idaho case »Incorrect distribution of revenues on IFTA returns Example: H igh intra-state (reserve) purchases with low intra-state travel results in a net transfer of funds –Inability to correct the IFTA loss outside of the audit process Truckers –May be subject to large assessments upon audit

Department of Finance Revenue and Taxation Division 14 Background – Canadian Experience Increased involvement in the retailing of fuel through gas bars, truck stops, etc. by Native Bands Increased involvement in the retailing of fuel through gas bars, truck stops, etc. by Native Bands Exempt sales by Natives are restricted to Native peoples Exempt sales by Natives are restricted to Native peoples Loss of tax revenue due to exempt sales to non-Native truckers is not a problem Loss of tax revenue due to exempt sales to non-Native truckers is not a problem

Department of Finance Revenue and Taxation Division 15 Potential Problem An independent Native trucker (1 truck) buys the fuel for his qualified vehicle on a reserve (NB) where he is eligible for exemption. The Native then travels into Maine where he consumes the fuel purchased tax exempt. …Continued

Department of Finance Revenue and Taxation Division 16 Potential Problem Upon filing the return, the Native may do one of two things: 1. Report all travel as exempt on basis of exempt status, or 2. Report all travel as tax paid to avoid any further questioning …Continued

Department of Finance Revenue and Taxation Division 17 Potential Problem If the Native reports all travel as exempt on basis of exempt status: NB would be obligated to recognize the exemption for NB consumption, but would have to decide an action for the travel in Maine. NB would be obligated as per terms of the agreement to transfer the funds to Maine to account for the consumption, which would result in a net loss to NB. Would there be any grounds upon which to recover this from the Native? NB would be obligated to recognize the exemption for NB consumption, but would have to decide an action for the travel in Maine. NB would be obligated as per terms of the agreement to transfer the funds to Maine to account for the consumption, which would result in a net loss to NB. Would there be any grounds upon which to recover this from the Native?…Continued

Department of Finance Revenue and Taxation Division 18 Potential Problem If the Native reports all travel as tax paid to avoid any further questioning: NB would process the return in the standard manner and make the necessary transfers, which would create a revenue loss for NB. This could only be detected in the event that the Native was audited.

19 Questions and /or Final Comments