Federal Regulation:25 C.F.R. 162.017

& The Questions It Raises OverTaxation On Indian

Reservations

By:Jennifer C. Klein, Deputy County CounselSonoma County Counsel’s Office

May 30, 2013

CSAC-HLT Committee Presentation

Federal Regulation Adopted December 5, 2013 Effective January 4, 2013 Attempt to prohibit certain state and local

taxes and fees imposed on Leased Indian Land for:◦ “Permanent Improvements”◦ “Activities”◦ “Leasehold or Possessory Interest”

25 CFR 162.017Overview

“Indian Land” means land held in trust or restricted status for a tribe or individual Indian. Essentially “reservation” land.

In general, state and local governments do not have “civil regulatory” jurisdiction (i.e. land use) on Indian land, but do have “criminal prohibitory” jurisdiction (i.e. assaults).

25 CFR 162.017“On-Reservation”

The Regulation Covers the Following…

◦ “Permanent Improvements” Buildings, other permanent structures

◦ “Activities” Sales, business activity, other transactions Delivery of water, electricity, other services

◦ “Leasehold or Possessory Interest” Non-tribal concession at tribal casino (i.e. restaurant) Non-tribal use and possession of exempt tribal land.

…When on Leased Tribal Land

§ 162.017 What taxes apply to leases approved under this part?

25 CFR 162.017Text of the Provision

(a) Subject only to applicable Federal law, permanent improvements on the leased land, without regard to ownership of those improvements, are not subject to any fee, tax, assessment, levy, or other charge imposed by any State or political subdivision of a State. Improvements may be subject to taxation by the Indian tribe with jurisdiction.

25 CFR 162.017Text

(b) Subject only to applicable Federal law, activities under a lease conducted on the leased premises are not subject to any fee, tax, assessment, levy, or other charge (e.g., business use, privilege, public utility, excise, gross revenue taxes) imposed by any State or political subdivision of a State. Activities may be subject to taxation by the Indian tribe with jurisdiction.

25 CFR 162.017Text

(c) Subject only to applicable Federal law, the leasehold or possessory interest is not subject to any fee, tax, assessment, levy, or other charge imposed by any State or political subdivision of a State. Leasehold or possessory interests may be subject to taxation by the Indian tribe with jurisdiction.

25 CFR 162.017Text

Existing Law:◦ Concept of Preemption

◦ Balancing Test from U.S. Supreme Court Cotton Petroleum v. New Mexico (1989) White Mountain Apache v. Bracker (1980)

◦ Federal Statute: 25 USC Section 398c.

25 CFR 162.017“Subject to Applicable Federal Law…”

General Financial Impact?◦ How much is County collecting in fees and taxes? ◦ Now? ◦ In the future? ◦ Any casinos under construction? Expansion?

25 CFR 162.017Gathering Info on Potential Impacts

◦ Think broadly: sales tax, property tax, assessment, fees, other charges?

◦ What services or infrastructure are supported by those taxes and fees?

◦ Impacts to those services or infrastructure?

◦ Some jurisdictions will have more or less “lease Indian Land” falling under this regulation.

25 CFR 162.017Potential Impacts

Other Considerations:◦ Unfair competitive advantage enjoyed by those

who operate on leased Indian lands – particularly if Tribe does not impose equivalent tribal tax or fee.

25 CFR 162.017Potential Impacts

Other Considerations:◦ Timing of Impacts may vary depending on the

type of tax or fee. Possessory Interest taxes determined based on

possession on January 1st of any given year. Sales taxes – date of transaction Water, utility delivery – potentially on going Other?

25 CFR 162.017Potential Impacts

Desert Water Agency v. Dept. of Interior, BIA◦ Suit filed March 29, 2013◦ DWA argues regulation either doesn’t apply to

DWA or that the law is invalid because it conflicts with authorizing statute, 25 USC sec. 398c.

◦ Feds have 60 days to respond.◦ Test Case

25 CFR 162.017Current CA Lawsuits:

Identify potential impacts for each county or taxing authority

Talk to Assessor and Tax Collector Collecting information concerning on

reservation activities may already be a challenge; information may be incomplete

Develop legal strategy for responding to regulation with County Counsel

Consider coordinating response with state or other affected public entities.

25 CFR 162.017Next Steps:

The End

Thank you

25 CFR 162.017