Piecing Together the State-Tribal Tax Puzzle

Judy Zelio
April 2005

Introduction

Citizens receive a myriad of services for their tax dollars. In addition to schools, governments provide public services that range from nursing homes to street lights, from trash collection to law enforcement, from roads to national defense. Federal, tribal, state and local governments recognize the necessity of taxes as the main source of funding for services, even though taxation may be an unpopular topic. All levels of government have collaborated and cooperated in sorting out tax jurisdictional questions in order to ensure that citizens receive the services they need.

Tribal governments have the authority to collect taxes on transactions that occur on tribal lands. Some tribes collect sales, excise or severance taxes. Some tribal governments also receive revenues from tribal gaming operations. Unlike state and local governments, Indian tribal governments do not, as a rule, levy income or property taxes on their reservations.

The main source in the United States for federal revenue is the personal income tax. Individual American Indians and Alaska Natives and their businesses pay federal income tax just like all other Americans, except for income received directly from treaty or trust resources such as fish, timber or livestock.

State tax collections come mostly from personal income and consumption (sales) taxes. Tribal citizens who work or live outside tribal lands generally are subject to state income, sales and other taxes. Tribal members who reside on and derive their income from federally recognized tribal lands or treaty resources are not liable for state income taxes.

Towns, counties and school districts depend heavily on property taxes. State and local governments may levy real estate taxes on most property owned by non-Indians within reservation boundaries. Land owned by individual Indian people also may be subject to property taxation. Land held in trust for tribes by the federal government cannot be taxed at the state and local levels. Land owned by the tribes in fee status is taxed unless state laws exempt these properties.

In general, governments do not tax one another, although in some states governments pay sales tax on their purchases. In some instances, tribes contribute funds to other governments in exchange for services such as streets and public safety. Tribes, like other governments, pay certain federal obligations, such as social security, worker's compensation and unemployment taxes. Tribal government revenues are not taxable by state governments.

Tribal Revenues

Income from natural resources, tribal businesses, and sales and excise taxes is most often the only non-federal revenue source for tribes. Tribal taxes usually are imposed on non-Indians who engage in economic activity on Indian lands (often natural resource extraction) or who purchase products such as tobacco products and gasoline. Tribal government gaming is more like a state-run lottery than a commercial for-profit business [note 1]. Gaming, although not the economic panacea envisioned by some, has generated significant revenue for a few tribes, especially those situated in high-population areas.

Tribes use their revenues for the same purposes that other governments do—to provide education, roads, health, public safety and care for elders and the poor.

State Taxing Jurisdiction

Outlined below are the current conditions under which states generally can and cannot impose taxes on tribal members or on tribal lands. Numerous U.S. Supreme Court cases have clarified tax jurisdictional questions over the years, but new decisions can change the tax landscape.

Income taxes. An income tax is generally calculated as a percent of income and may include wages, salary, capital gains and dividends. States cannot tax the income of tribal members who live and work on their tribe's reservation. States can tax the income of tribal members who live and work off tribal lands. States can impose taxes on the income of Indian individuals who are not members of the tribe on whose reservation they work and reside. States also can tax non-Indians' income that is earned on tribal land and the income of non-Indian businesses that operate on tribal lands.

Sales taxes. A sales tax is generally calculated as a percentage of the price of an item and then added to the price. Indian individuals are liable for state sales taxes on transactions conducted off Indian lands, unless a state chooses to exempt tribal members from this obligation. States cannot tax sales to and by tribal members when the transactions occur on tribal or trust lands. However, state sales taxes apply to purchases by non-Indians on tribal lands. Federal courts have ruled that tribal governments are obligated to help collect validly imposed state taxes.

The Streamlined Sales Tax Project (SSTP), a multi-state effort to convince Congress to allow states to tax Internet and catalog purchases, has garnered considerable support from states. Concerns have arisen, though, that the SSTP does not consider the role of tribal tax jurisdictions. As currently envisioned, the proposed legislation would exclude tribal governments from the stream of revenue collected from sales taxes, even when the sales take place on Indian lands. The National Congress of American Indians (NCAI) has stated that tribal governments should have the same opportunities to collect taxes as other jurisdictions. NCAI has been in communication with NCSL on this topic.

Excise taxes. An excise tax is generally a flat amount added to the price of a product such as tobacco, alcohol or motor fuel. Indian individuals are liable for state excise taxes on these products when they purchase them outside tribal lands, unless a state exempts tribal members from this obligation. The U.S. Supreme Court has held that state governments can collect excise taxes on sales to non-tribal citizens that occur on tribal lands, as long as the tax does not fall directly on the tribal government. Non-Indians are obligated to pay these taxes, and states and tribes have developed a variety of methods for collecting them. Intergovernmental agreements or pre-taxing at the wholesale level are two of the existing mechanisms.

Severance taxes. A severance tax is levied on the value of a resource removed from the earth. For example, a coal severance tax is a percentage of the value per ton of mined coal. An oil severance tax can be a percentage of the value of a barrel of oil or a dollar amount per barrel. A natural gas severance tax is levied as a percent of the value of the gas per cubic foot at the wellhead. Severance taxes also can be applied to resources such as timber or fish. A few states, particularly in the West, depend heavily on severance taxes for revenue. Some tribal lands, again in the West, have significant natural resources, and those tribes also levy tribal severance taxes. In some cases, both states and tribes levy the tax on the same producers.

Some tribal land generates leasing fees when non-Indians or the federal government are allowed to tap it for business purposes such as grazing or natural resource extraction. Both tribal governments and individual tribal members may receive lease money in payment for the use of their lands. These payments may have created the unfounded perception that all Indians receive regular allowances. There are many oil, natural gas and coal leases on tribal lands in the western United States, and some tribes levy leasehold or possessory interest taxes on these leases.

Property taxes. State and local governments have the legal right to levy real estate taxes on most property owned by non-Indians within reservation boundaries. Land owned by individual Indian people also may be subject to property taxation under some circumstances. Washington has passed legislation to exempt tribal fee property from taxes if the land is used for essential governmental purposes.

Some states and local governments have asserted their right to tax property when it is owned in fee or acquired by tribes or Indian individuals. In one instance, La Plata County, Colorado, and the Southern Ute Tribe disagreed in protracted litigation over the county's efforts to tax tribal properties not held in trust by the federal government. The eventual outcome was a tax compact involving the tribe, the county and the state that furthered "the individual and mutual interests of the parties" [note 2]. Under terms of their 1996 compact, the state and county agreed not to seek to tax any tribal non-trust property. Property includes both real property and mineral lease interests and applies to both ad valorem and severance taxes. Terms of the compact apply only to the Southern Ute Tribe, not to non-Indians who operate on the reservation. In recognition of the state and county relinquishment of taxing efforts, the tribe agreed to make annual voluntary payments of approximately one-third of the value of taxes that would have been collected if the property was not tribally owned.

How Do State Taxes Affect Indian Tribes and Individuals?

Complex rules regarding state taxation and Native American lands and individuals have been the source of many misunderstandings. Outside the boundaries of a reservation, tribal members are subject to the same state tax laws that apply to everyone else unless a federal law or treaty confers a special immunity or a state grants exemptions. States have some powers to tax on reservations, but these powers are limited by congressional authority over Indian matters, particularly when Indian economic interests are affected. The U.S. Supreme Court has held that state governments can collect excise taxes on sales to non-members that occur on tribal lands, as long as the tax does not fall directly on tribal governments. This rule is difficult to administer because it depends on the identity of the purchaser instead of on the jurisdiction where the transaction occurs.

The legal right of tribal governments to conduct business free of state taxation, the right of tribal members to make tax-free purchases, and the obligation of non-Indians to pay taxes on their purchases has led both to litigation and to negotiation, since states and tribes each have the right to tax non-Indians on tribal lands. These rights sometimes can result in a double burden of taxation.

Tribes in some instances have said that a tribal tax upon an activity should preempt a state from taxing the same activity. If the tribal tax has regulatory purposes that are hindered by a state tax, the state tax may be invalid if it interferes with tribal self-government. However, the U.S. Supreme Court has ruled that the mere existence of a tribal tax does not invalidate a state tax, even when the result is double taxation [note 3]. To help resolve these problems, tribes and states can attempt to improve both parties' ability to collect taxes through increased enforcement efforts. In some situations, states may give up their claims to tax in favor of the tribal tax in order to support tribal economic development, similar to tax exemptions given to private businesses.

Together, many tribes and states have taken steps to resolve the contradictions in tax laws that cause misunderstandings.

Tax Agreements between Tribal and State Governments

The administration of state and tribal taxes on tribal lands has caused misunderstanding over the years, but it also has proven to be a fertile ground for states and tribes to reach compacts and agreements. Nearly every state that has Indian lands within its borders has reached some type of tax agreement with the tribes [note 4]. State and tribal governments have examined tax issues together, approaching them from economic perspectives rather than purely legal ones, and often find their overall interests are served by agreeing to cooperate.

A tax agreement is an arrangement between two governments that addresses specific jurisdictional issues in taxation. Such agreements require government-to-government discussions between tribal and state officials. The discussions allow state and tribal leaders to talk directly and specifically about revenue needs; economic development objectives; and the practical, political and economic concerns that arise from tax conflicts. This approach, unlike litigation, enables the tribe and the state, not a court, to decide whether results are satisfactory [note 5].

Tax agreements usually recognize the mutual respect that exists between states and tribes. They provide for confidentiality and do not require that either states or tribes waive their sovereignty. Generally, written notice by either party may terminate an agreement.

States negotiate separate agreements with each tribal government. The executive branch usually takes the lead on behalf of the state in such negotiations. If a tax conflict is to be resolved, both the tribe and the state must assent to the terms of any agreement. Agreements may not be possible with all tribes within a state's borders. Each state also must consider whether it is necessary for the legislature to enact an enabling statute before such agreements are completed.

A state may find value in ensuring that all citizens comply with tax laws, regardless of who receives the revenue. There also can be value in reducing the competitive disadvantages faced by nontribal retailers who compete with tribal retailers, even though the state may not receive the tax revenues. A tax-sharing arrangement that provides the tribal government with a portion of the proceeds from sales to nontribal members may benefit all [note 6].

Benefits of Tax Arrangements

Depending on the type of arrangement, both states and tribes have found benefits in cooperative tax arrangements that may result in:

• Predictable revenues for both tribe and state,
• Economic advantages for tribes and local governments,
• More equality for tribal and nontribal sellers,
• Non-Indian purchasers meeting their tax obligations,
• An end to expensive and time-consuming litigation,
• New or expanded programs and services, and
• More amicable relations among Indian and non-Indian neighbors.

Predictable Revenues

As Harley Duncan, executive director of the Federation of Tax Administrators has noted, a tribal government must need a stable source of revenue that an agreement can help provide. Otherwise, there is no reason for a tribe to agree to increase the price of goods and services sold by the tribe or its agents by adding a tax. Tribal and state governments both can count on receiving regular revenues under a cooperative agreement. For instance, tribes in Wisconsin maintain written agreements with the state under which they file a quarterly claim for refunds of taxes that are collected before delivery to tribal lands. The refund formula provides refunds of 70 percent of taxes paid on all cigarette purchases, plus 30 percent of taxes paid by enrolled resident members [note 7].

Economic Advantages

The economic value of tax protections for tribes, tribal members and those who conduct business with them is important. New Mexico taxpayers who are liable for the severance tax on coal severed from tribal land are eligible for credit for a portion of similar taxes paid to a tribal government on that coal. This credit, adopted by the 2001 Legislature, was the result of collaborative efforts by the state of New Mexico, the Navajo Nation, and coal and utility companies. New Mexico imposes severance taxes, conservation taxes, resource excise taxes and property taxes on coal. The Navajo Nation imposes a business activity tax, a possessory interest tax and royalties. Enactment of the tax credit reduced tax liability for coal producers, saving $8.9 million in state taxes and $2.85 million in Navajo Nation taxes for one producer. The tax credit reduced the price of coal, allowing more efficient generation of electricity [note 8].

Retailer Equality

Businesses located near tribal lands can be at a competitive disadvantage when tribal retailers sell products state-tax-free, making the tribal prices lower than those of nontribal retailers. On the other hand, tribes and Indian individuals cannot obtain the bulk purchase advantages of large corporations such as Costco or Wal-Mart. In some areas where tax agreements are in place, this disadvantage has been ameliorated or lessened, even where the tribe is disadvantaged. In Washington, for instance, the governor is authorized to enter into cigarette-only sales tax contracts that provide for tribal cigarette taxes and stamps in lieu of the state tax. Eleven tribes already have entered into such agreements. Tribes agree that their taxes will be equal to 100 percent of combined state and local taxes three years after enactment of the contract [note 9]. The arrangement has support from tribes, the governor and the retail industry.

In New Mexico, legislation has authorized the state's Taxation and Revenue Department to enter into agreements with certain pueblos to collect any gross receipts taxes imposed by the pueblos. If a pueblo grants a 25 percent credit against its tax, the state will grant a 75 percent credit again state and local gross receipts tax due from taxpayers who are subject to both taxes. Taxpayers pay the same tax they would under state and local taxes alone. The state has entered into gross receipts tax cooperating agreements with the pueblos of Santa Clara, Santa Ana, Laguna, Sandia and Nambe.

Meeting Tax Obligations

Even though states may have the right to impose taxes on Indian lands under certain conditions, the collection of those taxes can be problematic. Non-Indian buyers are supposed to pay state taxes on their purchases, but when they buy in establishments in Indian country, they seldom do so unless Indian retailers keep records of purchasers or collect the state taxes due. One approach to minimizing these requirements is taken by tribes and the state of Oregon. Under written agreements, tribes agree to sell only stamped cigarettes. Taxes are precollected by distributors, and the state annually refunds tribes a dollar amount based on membership per capita plus consumption [note 10]. The precollection of taxes by distributors ensures that non-Indians' obligation to pay the taxes is covered, and the tribal members' rights to exemptions are protected.

End to Litigation

Courts can clarify murky jurisdictional issues. Under some circumstances, lawsuits are more appropriate than attempting to work out differences in other ways. Perhaps the major objection to litigation, however, is that a court decision always results in a winner and a loser. In addition, most court decisions often can be applied only to specific situations. Court decisions—seldom predictable—may encourage ongoing, expensive litigation, and states and tribes have better uses for their funds. In a precedent-setting example, the Winnebago Tribe of Nebraska and state officials ended a gas tax dispute with a compact in which the tribe and state agreed to a revenue-sharing process, with the tribe collecting 75 percent of taxes from reservation-based gasoline sales. The tribe sends a quarterly check to the state of Nebraska for the state's 25 percent share of the revenue.

Expanded Services

Tax agreements can provide new revenues, which offer the opportunity to meet the needs of expanding services and programs. Tribes in Oklahoma, for example, are exempt from tax on fuel used exclusively in motor vehicles on state roads and highways. Some tribes have agreed to collect these taxes and receive a percentage of the collections [note 11]. Tribal governments agree to use the money for highway and bridge construction, health, education, corrections and law enforcement. Non-contracting tribal members may apply to the state for refunds of fuel taxes [note 12].

Amicable Relations

Creative agreements sometimes are the most productive of good relationships. A Mercedes Benz dealer franchise on Reno-Sparks Indian Colony land in Nevada was the focus of a 2004 rearrangement of an existing state-tribal tax agreement. Under the agreement, the tribe keeps sales tax revenue on cars sold by Mercedes as long as the tribal tax rate is equal to the nontribal tax rate. The new agreement provides that state and local governments will receive use tax revenues on Mercedes' vehicle leases—about one-quarter of the vehicle sales. The Mercedes building, which is on county property tax rolls, sits on former agricultural land that was purchased by the tribe and is no longer taxed [note 13]. In this arrangement, all parties benefit.

Specific Tax Arrangements

State-tribal tax arrangements endeavor not only to address issues of competition, but also to generate revenues. They can be formal or informal, and include such approaches as dividing tax revenues, levying only tribal taxes, or providing state tax refunds to tribal members. Many include administrative features. They may have formulas that provide for quotas and refunds. They may exempt certain entities or individuals.

Multi-Tax Arrangements. Tribes and the state of Michigan have created a comprehensive agreement plan that addresses a broad range of tax issues. Members of the Grand Traverse Band of Ottawa and Chippewa Indians, for example, can register for state tax exemption certificates that allow them to purchase significantly expensive items such as cars tax-free. Those purchases are registered with the Michigan secretary of state. Tribal members living in designated "agreement areas" also can file for an annual refund of state income taxes withheld from their paychecks. In exchange for the tax breaks, tribal enterprises collect state sales and use taxes from nontribal members and nonresident tribal members on the first $5 million of annual gross receipts. One-third of the taxes collected go to the state. After the first $5 million in receipts, the tribe retains half the tax it collects and sends the other half to the state.

Motor Fuel Taxes. Many states and tribes have adopted approaches to fuel taxation on Indian lands, as figure 1 demonstrates. Most arrangements attempt to ensure that tribal governments and tribal members are not taxed by the state, often through a refund of taxes to tribal governments or individual members. Most refund procedures use tribal population figures and estimates of fuel use provided by tribal governments. Some states estimate the amount of fuel sold that has not been subject to the state tax; many do not.

Figure 1. States with Tribal Fuel Tax Exemptions or Fuel Tax Refund Arrangements

Source: Federation of Tax Administrators, Motor Fuel Tax Survey of Native American Issues, 1999.

A few arrangements provide for tribes and states to share the proceeds of fuel that is taxed on Indian land. The Pueblo of Nambe and the Pueblo of Santo Domingo, for example, recently entered into gasoline tax sharing agreements with the state of New Mexico. The agreement with the Pueblo of Nambe permits a tribal distributor owned by the pueblo to receive 40 percent of the gasoline tax revenue paid on 2.5 million gallons per month. In exchange, the tribal distributor cannot distribute gasoline for resale outside the boundaries of the reservation or pueblo land grant. The distributor also cannot claim the deduction to which it otherwise would be entitled under Sec. 7-13-4 NMSA 1978, which is the provision whereby the state refunds taxes on gasoline sold to tribal members.

The following examples demonstrate the variety of fuel tax approaches [note 14].

• When tribal members purchase fuel for use in Indian country, the state of Iowa issues tax refunds. Refunds are issued to tribes as a convenience to members, although Indian individuals can apply for a refund permit and receive a refund directly from the state.
• Louisiana exempts tribes and tribal members from gasoline and motor fuel taxes. Under compacts with two of the four tribes in Louisiana, tribes do not collect Louisiana tax but instead collect a tribal tax equal to the state's rate. Tribal governments keep the tax revenue.
• Minnesota has tax collection agreements in place with tribes. A portion of the tax is refunded to each tribal government under formulas specific to each tribe.
• Six of the seven tribal governments in Montana have agreements for gasoline tax revenue sharing. The state does not exempt Indians from fuel taxes.
• Oregon's Department of Transportation may enter into agreements with tribes to refund motor vehicle fuel (gasoline) taxes to tribal governments.
• Washington considers fuel sales on reservations to be subject to the state fuel tax unless an agreement exists between the state and tribe. Tax collection agreements with the Yakama Nation, the Lummi Indian Nation, the Skokomish Indian Tribe and the Colville Confederated Tribes provide for refunds to tribal governments on taxed fuel sales. The state does not refund fuel taxes to individual tribal members.
• Wisconsin does not impose fuel excise taxes on Native Americans if the fuel is delivered to them on the tribal reservation, unless the fuel is purchased for resale to non-Indians. Gasoline and clear diesel fuel are purchased tax-paid, and the state issues 100 percent refunds to tribal governments on sales to resident tribal members.
• Wyoming provides a fuel tax refund process for tribal governments.

Cigarette and Tobacco Taxes. Cigarette prices include a federal excise tax and a state excise tax. Although Indian retailers include the federal excise tax on all sales, their price usually does not include the state excise tax. Unless the Indian retailer and/or the tribal government agree to keep prices close to those offered off-reservation, Indian retailers hold a competitive advantage. Government revenue losses to tax-free sales of cigarettes are said to be significant in some states. Lost revenue can affect the ability of state governments to provide services.

Cigarette sales on tribal lands to tribal members are exempt from state excise taxes. However, federal courts have found that cigarette sales to non-Indians are not exempt from state taxation unless a specific exemption is granted. The courts also have ruled that tribes are obligated to help collect the state taxes due on sales to non-Indians.

States have addressed state-tribal tobacco tax issues through both legislation and regulations. States and tribes, as figure 2 shows, employ varied arrangements for cigarette and tobacco tax collection.

Figure 2. State-Tribal Tobacco Sales Tax Collection Agreements

Source: National Conference of State Legislatures; state revenue departments, 2004.

The tribe collects a tax and remits a portion to the state.

Example: Tribes in Oklahoma may choose to enter into tax compacts with the state. Under such compacts, they make negotiated payments in lieu of taxes, usually equal to 25 percent of state excise taxes due. Additional allowances are made for tribal members' usage. For tribes that have no tax compacts, cigarette sales are taxed 75 percent of all state taxes [note 15].

The tribe collects a tax and keeps the proceeds.

Example: The Yakama Nation and the state of Washington have signed a cigarette taxation agreement under which the Yakama Nation will impose a tax on purchases by non-Indians equal to the combined state cigarette and sales tax. In exchange, the state will not impose its tax on cigarette purchases by non-Indians from reservation smokeshops. It is the 12th such agreement the state has reached with Indian tribes since negotiations began in 2001. Revenue from the tax supports the Yakama Nation's government services.

The state collects a tax, usually through the wholesaler or distributor, and automatically sends a portion of the collection to the tribe.

Example: Tribes have written agreements with the state of Minnesota under which they agree to purchase cigarettes from licensed distributors, who collect the applicable taxes The state refunds a portion of the tax collections on a per capita basis ($30 to $40) annually [note 16].

The state collects a tax, usually through the wholesaler or distributor, and a refund is requested.

Example: Montana Indian reservations have quotas of tax-free cigarettes, and taxes are precollected on all cigarettes that enter tribal lands. Cigarette wholesalers apply for refunds or credits on tribal sales [note 17].

The tribe and state agree to collect similar taxes.

Example: Four tribal entities have entered into tax agreements with South Dakota: the Cheyenne River Sioux, the Oglala Sioux, the Rosebud Sioux and the Pine Ridge Reservation. The collection agreements provide for the state to administer and collect both the state sales taxes and parallel tribal taxes identical to the state taxes. The state and tribes agree to a split of the collections on each reservation.

Some states have chosen to exempt all parties from state tax obligations on the sale of cigarettes on Indian lands.

Examples: Florida (FS 210.05(5), Nevada (NRS 370.515 and R 370.210), and New Mexico (NMSA 7-12-4) exempt sales on tribal lands from state tax obligations.

Tribal Casino Revenues

Revenues from gaming have helped some tribes achieve economic success. The Indian Gaming Regulatory Act (IGRA) of 1988 specifies that states may not tax tribal gaming revenues. Tribes can agree to share a limited portion of their gaming proceeds with state and local governments, however, subject to approval by the secretary of the Interior.  In Arizona, California, Connecticut, Michigan, New Mexico, New York and Wisconsin, some tribal governments have agreed to share casino revenues with the state, often in exchange for the exclusive right to conduct such gaming. 

The following table outlines the FY 2004–FY 2005 funds states expect to receive under such revenue sharing arrangements.

The most well-known tribal casino is Foxwoods, operated by the Mashantucket Pequot Tribe near Ledyard, Conn. A 1989 Pequot agreement with Connecticut specified the tribe's willingness to give the state either $100 million or 25 percent of its net revenues annually, whichever was greater, as long as nontribal casinos were not permitted in the state. An agreement with a second tribe, the Mohegan, was reached in 1996. Connecticut's general fund garnered $405 million in FY 2004 from the two tribal casinos; local governments received $85 million of the total.

Arizona voters in 2002 approved an initiative directing the governor to enter into compacts that allow tribal slot machines and card and table games. Tribes share revenue on a sliding scale of between 1 percent and 8 percent of net win (amount wagered less payouts). Cities, towns and counties receive 12 percent of the tribes' total annual contribution, with the remainder going to the Arizona Benefits Fund. The fund allocates the money—$34.8 million in FY 2004—for state regulatory and administrative costs, treatment of problem gambling, instructional improvement funds to school districts, trauma emergency services, tourism, and wildlife conservation. If state law changes to allow anyone other than Indian tribes to offer slot machines or other gambling that is currently prohibited off reservations, tribal obligations to make contributions to the state are reduced and limits on slot machines, tables and gaming facilities are voided.

More than half of California's 107 federally recognized Indian tribes and rancherias (reservations) reached agreements with Governor Gray Davis in September 1999 for casino-style gaming, and the Legislature approved them. Under the compacts, tribes make payments totaling more than $130 million annually to two state accounts. The use of these funds is restricted to specific purposes. The California Gambling Control Commission is the primary regulator of the tribal compacts for the state; its activities are funded from tribal payments of approximately $13 million annually. Governor Arnold Schwarzenegger signed new compacts in August 2004 that are expected to generate an additional $200 million for the state annually.

A 1993 court order in Michigan led to agreement with seven tribes operating 14 casinos that they would pay the state 8 percent of their net casino revenues. When those tribes lost the exclusive right to conduct electronic gaming within state borders, they stopped state payments. New compacts with other tribes, however, provide revenue sharing to both state and local governments. Tribal contributions to the Michigan Strategic Fund approached $15 million in FY 2004. Local governments, which receive 2 percent of tribal gaming revenues to help defray costs associated with the establishments, received $17 million in FY 2004.

New Mexico reached agreements providing for a maximum of 8 percent of slot machine proceeds with 11 of 12 tribes and pueblos. A total of $34.7 million in revenues to the state's general fund was projected for FY 2004, with the possibility of an additional $24 million in back payments from the Mescalero Apache Tribe.

New York's governor has signed and the Legislature has authorized compacts with the Seneca Nation and the Saint Regis Mohawk Tribe. The Seneca agreement provides for an initial 18 percent state share of net drop (money dropped into machines, after payout but before expenses), capped in later years at 25 percent. According to the New York State Racing and Wagering Board, the state expects to receive $50 million in 2005-2006. Anticipated revenues from the Mohawk compact arrangement and other tribal operations in New York have not been made public.

In Wisconsin, existing compacts were amended between 1998 and 1999 to begin providing tribal payments of approximately 7.6 percent of net revenues to the state. The funds were allocated to approximately 50 state accounts, many of which benefited tribes. Compacts were further amended in 2003 to increase the revenue sharing amounts. A May 2004 Wisconsin Supreme Court decision, however, struck down key portions of the newly amended compacts, throwing into question more than $100 million in FY 2005 revenue-sharing payments anticipated by the state.

Conclusion

Adequate revenues are essential to the operation of government, the delivery of services, and the development of infrastructure. Rather than compete for revenue from the same sources—either non-Indian businesses operating on Indian lands or transactions between non-Indians and tribal businesses—a growing number of states and tribes have chosen to negotiate agreements and arrangements that can serve the financial interests of all affected parties. In nonadversarial environments, they have discussed revenue needs and economic concerns, thus forgoing expensive and time-consuming litigation.

Notes

1. Susan Johnson, Susan, Jeanne Kaufmann, John Dossett and Sarah Hicks. Government to Government: Understanding State and Tribal Governments. (Washington, DC: National Conference of State Legislatures and National Congress of American Indians, 2000).
2. Title 24, Art. 61, Colorado Revised Statutes: Taxation Compact between The Southern Ute Indian Tribe, La Plata County and the State of Colorado.
3. Washington vs Confederated Tribes of Colville Indian Reservation, 447 U.S. 134 (1980) and Cotton Petroleum Corporation vs. New Mexico, 490 U.S. 163 (1989).
4. Susan Johnson, Jeanne Kaufmann, John Dossett and Sarah Hicks. Government to Government: Models of Cooperation Between States and Tribes. (Washington, DC: National Conference of State Legislatures and National Congress of American Indians, 2002).
5. Douglas B.L. Endreson. Resolving Tribal-State Conflicts. (Washington, D.C.: National Indian Policy Center, June 1991).
6. Harley Duncan. "Issues in State-Tribal Taxation." Bulletin B-232, Nov. 21, 1991. Federation of Tax Administrators, Washington, D.C.
7. Sec. 139.323.
8. Minutes of the Third Meeting of the Revenue Stabilization and Tax Policy Committee, New Mexico Legislature, Aug. 23-25, 2004, Ruidoso, New Mexico.
9. Ch. 235, Secs. 2-6 (2002); WAC 458-20-192.
10. Ch. 323, Sec. 401; Sec. 615.
11. Oklahoma Statute, Title 68, Section 500.63.
12. Oklahoma Statute, Title 68, Section 500.10.
13. Associated Press story in the Las Vegas SUN, April 6, 2004.
14. Motor Fuel Tax Section, "Survey of Native American Issues" (Washington, DC: Federation of Tax Administrators, 1999).
15. Title 68.
16. Sec. 270.60(2).
17. Sec. 16-11-111.

Posted March 2005. Updated maps to include Missouri as a state with a federally recognized tribe, April 2005.
Email statetax-info@ncsl.org for more information.