Tax cases involving Native Americans are complex, highly fact-intensive, and if required, a court must weigh the competing interests of the tribe, the federal government, and the state to determine if the tax stands or falls.
There are instances in which a court, in order to reach the correct result, must examine the original treaty document between the tribe and the United States, all of which were executed well over a century ago.
Indeed, Congress ended treaty making in 1871, when it passed a rider in a Native American appropriations bill, stating that “no Indian nation or tribe . . . shall be acknowledged or recognized as an independent nation, tribe, or power with whom the United States may contract by treaty . . .”
Since then, Native American affairs have been regulated through federal legislation which, unlike treaty making, does not require the consent of the tribe or tribes involved.
The fundamental rule governing state taxation regarding Native Americans is simple enough. Without express congressional authorization, a state is powerless to tax Native American reservation lands, enrolled members of the tribe which occupies that land (whether income or excise taxes), and income derived from the land, whether retained by the tribe or distributed to individuals.
Whether a state tax is valid depends upon the person or entity that bears the legal incidence of the tax. Regarding excise taxes, a state tax is per se invalid if the legal incidence falls on the tribe or tribal members. If, however, the legal incidence of the excise tax falls on a non-Native contractor, the tax stands.
One other source of state tax preemption should be mentioned: the Indian Trader statutes. The first statute was enacted in 1790 and reenacted periodically by successive Congresses until it was made permanent in 1834.
Today, the law requires non-Native persons and businesses to obtain a license from the Bureau of Indian Affairs before entering into commercial relations with the tribes. The Supreme Court has ruledthat a state cannot impose tax on revenues earned by a non-Native trader operating on tribal lands because such traders are federally licensed and subject to extensive federal regulations.
However, a state can require a non-Native trader to collect and remit cigarette taxes from non-tribal member purchasers.
Beyond this fundamental rule and the Indian Trader statutes, the tax waters become deep and murky, partly because U.S. Supreme Court precedent in this area has been anything but clear. Thus, probing further into the permutations and nuances of the law is far beyond the scope of this article.