Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction.
(a) Under federal
law the state may not tax Indians or Indian tribes in Indian country. In some
instances the state's authority to impose tax on a nonmember doing business in
Indian country with an Indian or an Indian tribe is also preempted by federal
law. This rule only addresses those taxes administered by the department of
revenue (department).
(b) The rules
of construction used in analyzing the application of tax laws to Indians and
nonmembers doing business with Indians are:
(i) Treaties are to be construed in the sense
in which they would naturally have been understood by the Indians;
and
(ii) Statutes are to be
construed liberally in favor of the Indians, with ambiguous provisions
interpreted to their benefit.
(c) This rule reflects the harmonizing of
federal law, Washington state tax law, and the policies and objectives of the
Centennial Accord and the Millennium Agreement. It is consistent with the
mission of the department of revenue, which is to achieve equity and fairness
in the application of the law.
(d)
It is the department's policy and practice to work with individual tribes on a
government-to-government basis to discuss and resolve areas of mutual
concern.
(2)
Definitions. The following definitions apply throughout this rule:
(a) "Indian" means a person on the tribal
rolls of an Indian tribe. A person on the tribal rolls is also known as an
"enrolled member" or a "member" or an "enrolled person" or an "enrollee" or a
"tribal member."
(b) "Indian
country" has the same meaning as given in 18 U.S.C. 1151 and means:
(i) All land within the limits of any Indian
reservation under the jurisdiction of the United States government,
notwithstanding the issuance of any patent, and, including rights of way
running through the reservation;
(ii) All dependent Indian communities within
the borders of the United States whether within the original or subsequently
acquired territory thereof, and whether within or without the limits of a
state; and
(iii) All Indian
allotments, the Indian titles to which have not been extinguished, including
rights of way running through the same.
(c) "Indian tribe" means an Indian nation,
tribe, band, community, or other entity recognized as an "Indian tribe" by the
United States Department of the Interior. The phrase "federally recognized
Indian tribe" and the term "tribe" have the same meaning as "Indian
tribe."
(d) "Indian reservation"
means all lands, notwithstanding the issuance of any patent, within the
exterior boundaries of areas set aside by the United States for the use and
occupancy of Indian tribes by treaty, law, or executive order and that are
areas currently recognized as "Indian reservations" by the United States
Department of the Interior. The term includes lands within the exterior
boundaries of the reservation owned by non-Indians as well as land owned by
Indians and Indian tribes and it includes any land that has been designated
"reservation" by federal act.
(e)
"Nonmember" means a person not on the tribal rolls of the Indian
tribe.
(f) "State sales and use
tax" includes local sales and use tax.
(3)
Federally recognized Indian
tribes. As of the effective date of this rule there are twenty-eight
federally recognized Indian tribes in the state of Washington. You may contact
the governor's office of Indian affairs for an up-to-date list of federally
recognized Indian tribes in the state of Washington at its web site,
www.goia.wa.gov or at:
Governor's Office of Indian Affairs 531 15th Ave. S.E.
P.O. Box 40909
Olympia, WA 98504-0909 360-753-2411
(4)
Recordkeeping. Taxpayers are
required to maintain appropriate records on the tax exempt status of
transactions. For example, in the case of the refuse collection tax, the refuse
collection company must substantiate the tax-exempt status of its customers.
This could be done, for example, one of two ways. The tribe can provide the
refuse collection company with a list of all of the tribal members living in
Indian country or the individual members can provide exemption certificates to
the company. A buyer's retail sales tax exemption certificate that can be used
for this purpose is located on the department's web site (www.dor.wa.gov/forms/other.htm) or
may be obtained by contacting the department. The company must then keep the
list or the certificates in its files as proof of the tax exempt status of the
tribe and its members. Individual businesses may contact the department to
determine how best to keep records for specific situations.
(5)
Enrolled Indians in Indian country.
Generally. The state may not tax Indians or Indian tribes in Indian
country. For the purposes of this rule, the term "Indian" includes only those
persons who are enrolled with the tribe upon whose territory the activity takes
place and does not include Indians who are members of other tribes. An enrolled
member's spouse is considered an "Indian" for purposes of this rule if this
treatment does not conflict with tribal law. This exclusion from tax includes
all taxes (e.g., B&O tax, public utility tax, retail sales tax, use tax,
cigarette tax). If the incidence of the tax falls on an Indian or a tribe, the
tax is not imposed if the activity takes place in Indian country or the
activity is treaty fishing rights related activity (see subsection (6)(b) of
this rule). "Incidence" means upon whom the tax falls. For example, the
incidence of the retail sales tax is on the buyer.
(a)
(i)
Retail sales tax - tangible personal property - delivery
threshold. Retail sales tax is not imposed on sales to Indians if the
tangible personal property is delivered to the member or tribe in Indian
country or if the sale takes place in Indian country. For example, if the sale
to the member takes place at a store located on a reservation, the transaction
is automatically exempt from sales tax and there is no reason to establish
"delivery."
(ii)
Retail sales
tax - services. The retail sales tax is not imposed if the retail
service (e.g., construction services) is performed for the member or tribe in
Indian country. In the case of a retail service that is performed both on and
off Indian country, only the portion of the contract that relates to work done
in Indian country is excluded from tax. The work done for a tribe or Indian
outside of Indian country, for example road work that extends outside of Indian
country, is subject to retail sales tax.
(b)
Use tax. Use tax is not
imposed when tangible personal property is acquired in Indian country by an
Indian or the tribe for at least partial use in Indian country. For purposes of
this rule, acquisition in Indian country creates a presumption that the
property is acquired for partial use in Indian country.
(c)
Tax collection. Generally,
sales to persons other than Indians are subject to the retail sales tax
irrespective of where in this state delivery or rendition of services takes
place. Sellers are required to collect and remit to the state the retail sales
tax upon each taxable sale made by them to nonmembers in Indian country. A
tribe and the department may enter into an agreement covering the collection of
state tax by tribal members or the tribe. (See also the discussion regarding
preemption of tax in subsection (7) of this rule.)
In order to substantiate the tax-exempt status of a retail sale
to a person who is a tribal member, unless the purchaser is personally known to
the seller as a member, the seller must require presentation of a tribal
membership card or other suitable identification of the purchaser as an
enrollee of the Indian tribe. A tribe and the department may enter into an
agreement covering identification of enrolled members, in which case the terms
of the agreement govern.
A person's tax status under the Revenue Act does not change
simply because he or she is making a tax-exempt sale to a tribe or tribal
member. For example, a person building a home for a nonmember/consumer is
entitled to purchase subcontractor services and materials to be incorporated
into the home at wholesale. See
RCW
82.04.050. A person building a home for a
tribal member/consumer in Indian country is similarly entitled to purchase
these services and materials at wholesale. The fact that the constructing of
the home for the tribal member/consumer is exempt from retail sales tax has no
impact on the taxability of the purchases of materials, and the materials
continue to be purchased for resale.
(d)
Corporations or other entities
owned by Indians. A state chartered corporation comprised solely of
Indians is not subject to tax on business conducted in Indian country if all of
the owners of the corporation are enrolled members of the tribe except as
otherwise provided in this section. The corporation is subject to tax on
business conducted outside of Indian country, subject to the exception for
treaty fishery activity as explained later in this rule. Similarly,
partnerships or other entities comprised solely of enrolled members of a tribe
are not subject to tax on business conducted in Indian country. In the event
that the composition includes a family member who is not a member of the tribe,
for instance a business comprised of a mother who is a member of the Chehalis
Tribe and her son who is a member of the Squaxin Island Tribe, together doing
business on the Chehalis reservation, the business will be considered as
satisfying the "comprised solely" criteria if at least half of the owners are
enrolled members of the tribe.
(6)
Indians outside Indian
country.
(a)
Generally.
Except for treaty fishery activity, Indians conducting business outside of
Indian country are generally subject to tax (e.g., the B&O, the public
utility tax, retail sales tax). Indians or Indian tribes who conduct business
outside Indian country must register with the department as required by
RCW
82.32.030. (See also WAC
458-20-101 for more registration
information.)
(b)
Treaty
fishery - preemption. For the purpose of this rule, "treaty fishery"
means the fishing and shellfish rights preserved in a tribe's treaty, a federal
executive order, or an act of Congress. It includes activities such as
harvesting, processing, transporting, or selling, as well as activities such as
management and enforcement.
(i)
Indians
- B&O tax. The gross income directly derived from treaty fishing
rights related activity is not subject to state tax. This exclusion from tax is
limited to those businesses wholly owned and operated by Indians/tribe who have
treaty fishing rights. If a business wholly owned and operated by Indians/tribe
deals with both treaty and nontreaty fish, this exclusion from tax is limited
to the business attributable to the treaty fish. "Wholly owned and operated"
includes entities that meet the qualifications under
26 U.S.C.
7873, which requires that:
(A) Such entity is engaged in a fishing
rights-related activity of such tribe;
(B) All of the equity interests in the entity
are owned by qualified Indian tribes, members of such tribes, or their
spouses;
(C) Except as provided in
the code of federal regulations, in the case of an entity which engages to any
extent in any substantial processing or transporting of fish, ninety percent or
more of the annual gross receipts of the entity is derived from fishing
rights-related activities of one or more qualified Indian tribes each of which
owns at least ten percent of the equity interests in the entity; and
(D) Substantially all of the management
functions of the entity are performed by members of qualified Indian
tribes.
(ii)
Indians - sales and use tax. The retail sales tax and use tax do
not apply to the services or tangible personal property for use in the treaty
fishery, regardless of where delivery of the item or performance of the service
occurs. Gear, such as boats, motors, nets, and clothing, purchased or used by
Indians in the treaty fishery is not subject to sales or use tax. Likewise,
retail services in respect to property used in the treaty fishery, such as boat
or engine repair, are not subject to sales tax.
(iii)
Sales to nonmembers.
Treaty fish and shellfish sold by members of the tribe are not subject to sales
tax or use tax, regardless of where the sale takes place due to the sales and
use tax exemption for food products.
(iv)
Government-to-government
agreement. A tribe and the department may enter into an agreement
covering the treaty fishery and taxable activities of enrolled members, in
which case the terms of the agreement govern.
(7)
Nonmembers in Indian country -
preemption of state tax. Generally, a nonenrolled person doing business
in Indian country is subject to tax. Unless specifically described as preempted
by this rule, the department will review transactions on a case-by-case basis
to determine whether tax applies. A nonmember who is not taxable on the basis
of preemption should refer to WAC
458-20-101 (tax registration) to
determine whether the person must register with the department.
(a)
Preemption of tax on nonmembers -
gaming. Gaming by Indian tribes is regulated by the federal Indian
Gaming Regulatory Act. Nonmembers who operate or manage gaming operations for
Indian tribes are not subject to tax for business conducted in Indian country.
This exclusion from tax applies to taxes imposed on income attributable to the
business activity (e.g., the B&O tax), and to sales and use tax on the
property used in Indian country to conduct the activity. Sales tax will apply
if delivery of property is taken outside of Indian country.
Nonmembers who purchase tangible personal property at a gaming
facility are subject to retail sales or use tax, unless:
(i) The item is preempted based on the
outcome of the balancing test. For example, depending on the relative state,
tribal, and federal interests, tax on food at restaurants or lounges owned and
operated by the tribe or a tribal member or sales of member arts and crafts at
gift shops might be preempted. See the balancing test discussion in subsection
(c) below; or
(ii) The item is
purchased for use in the gaming activity at the facility, such as bingo cards
or daubers.
(b)
Preemption of B&O and public utility tax - sales of tangible personal
property or provision of services by nonmembers in Indian country. As
explained in this subsection, income from sales in Indian country of tangible
personal property to, and from the performance of services in Indian country
for, tribes and tribal members is not subject to B&O (chapter 82.04 RCW) or public utility tax
(chapters
82.16 and
54.28 RCW). The taxpayer is
responsible for maintaining suitable records so that the taxpayer and the
department can distinguish between taxable and nontaxable activities.
(i)
Sales of tangible personal
property. Income from sales of tangible personal property to the tribe
or to tribal members is not subject to B&O tax if the tangible personal
property is delivered to the buyer in Indian country and if:
(A) The property is located in Indian country
at the time of sale; or
(B) The
seller has a branch office, outlet, or place of business in Indian country that
is used to receive the order or distribute the property; or
(C) The sale of the property is solicited by
the seller while the seller is in Indian country.
(ii)
Provision of services.
Income from the performance of services in Indian country for the tribe or for
tribal members is not subject to the B&O or public utility tax. Services
performed outside of Indian country are subject to tax. In those instances
where services are performed both on and off of Indian country, the activity is
subject to state tax to the extent that services are substantially performed
outside of Indian country.
(A) It will be
presumed that a professional service (e.g., accounting, legal, or dental) is
substantially performed outside of Indian country if twenty-five percent or
more of the time taken to perform the service occurs outside of Indian country.
The portion of income subject to state tax is determined by multiplying the
gross receipts from the activity by the quotient of time spent outside of
Indian country performing the service divided by total time spent performing
the service.
For example, an accountant with an office outside of Indian
country provides accounting services to a tribal member. The accountant
performs some of the work at the office and some work at the business of the
tribal member in Indian country. If at least twenty-five percent of the time
performing the work is spent outside of Indian country, the services are
substantially performed outside of Indian country and therefore a portion is
subject to state tax. As explained above, the accountant must maintain suitable
records to distinguish between taxable and nontaxable income in order to
provide for a reasonable approximation of the amount of gross income subject to
B&O tax. In this case, suitable records could be a log of the time and
location of the services performed for the tribal matter by the accountant, his
or her employees, and any contractors hired by the accountant.
(B) For services subject to the
retailing and/or wholesaling B&O tax (e.g., building, installing,
improving, or repairing structures or tangible personal property), the portion
of income relative to services actually performed outside of Indian country is
subject to state tax.
For example, a contractor enters into a contract with a tribe
to install a sewer line that extends off reservation. Only the income
attributable to the installation of the portion of the sewer line off
reservation is subject to state tax.
(C) For public utility services under
chapters
82.16 and
54.28 RCW it will be presumed that
the service is provided where the customer receives the service.
(c)
Preemption of
tax on nonmembers - balancing test - value generated on the reservation.
In certain instances state sales and use tax may be preempted on nonmembers who
purchase goods or services from a tribe or tribal members in Indian country.
The U.S. supreme court has identified a number of factors to be considered when
determining whether a state tax borne by non-Indians is preempted, including:
The degree of federal regulation involved, the respective governmental
interests of the tribes and states (both regulatory and revenue raising), and
the provision of tribal or state services to the party the state seeks to tax.
See
Salt River Pima-Maricopa Indian Community v. Waddell, 50
F.3d 734, (1995). This analysis is known as the "balancing test." This
preemption analysis does not extend to subsequent transactions, for example if
the purchaser buys for resale the tax imposed on the consumer in the subsequent
sale is not preempted. However, because these balancing test determinations are
so fact-based, the department will rule on these issues on a case-by-case
basis. For such a ruling please contact the department at:
Department of Revenue
Executive
P.O. Box 47454
Olympia, WA 98504-7454
(d)
Federal
contractors.
The preemption analysis does not extend to persons who are doing work
for the federal government in Indian country. For example, a nonmember doing
road construction for the Bureau of Indian Affairs within an Indian reservation
is subject to state tax jurisdiction.
(e)
Indian housing authorities.
RCW 35.82.210 provides that the
property of housing authorities and the housing authorities themselves are
exempt from taxes, such as state and local sales and use taxes, state and local
excise taxes, state and local property taxes, and special assessments. This
covers tribal housing authorities and intertribal housing authorities both on
and off of Indian land. Please note that tribal housing authorities, like all
other housing authorities, are exempt from tax anywhere in the state, and the
delivery requirement and other geographic thresholds are not applicable.
Not all assessments are exempted under
RCW
35.82.210. See Housing Authority of
Sunnyside v. Sunnyside Valley Irrigation District, 112 Wn2d 262
(1989).
For the purposes of the exemption:
(i) "Intertribal housing authority" means a
housing authority created by a consortium of tribal governments to operate and
administer housing programs for persons of low income or senior citizens for
and on behalf of such tribes.
(ii)
"Tribal government" means the governing body of a federally recognized Indian
tribe.
(iii) "Tribal housing
authority" means the tribal government or an agency or branch of the tribal
government that operates and administers housing programs for persons of low
income or senior citizens.
(8)
Motor vehicles, trailers,
snowmobiles, etc., sold to Indians or Indian tribes. Sales tax is not
imposed when a motor vehicle, trailer, snowmobile, off-road vehicle, or other
such property is delivered to an Indian or the tribe in Indian country or if
the sale is made in Indian country. Similarly, use tax is not imposed when such
an item is acquired in Indian country by an Indian or the tribe for at least
partial use in Indian country. For purposes of this rule, acquisition in Indian
country creates a presumption that the property is acquired for partial use in
Indian country.
(a)
Registration of
vehicle, trailer, etc. County auditors, subagencies appointed under
RCW
46.01.140, and department of licensing
vehicle licensing offices must collect use tax when Indians or Indian tribes
apply for an original title transaction or transfer of title issued on a
vehicle or vessel under
chapters
46.09,
46.10,
46.12, or
88.02 RCW unless the tribe/Indian
shows that they are not subject to tax. To substantiate that they are not
subject to tax the Indian/tribe must show that they previously paid retail
sales or use tax on their acquisition or use of the property, or that the
property was acquired on or delivered to Indian country. The person claiming
the exclusion from tax must sign a declaration of delivery to or acquisition in
Indian country. A statement in substantially the following form will be
sufficient to establish eligibility for the exclusion from sales and use
tax.
(b)
Declaration.
DECLARATION OF DELIVERY OR ACQUISITION IN INDIAN
COUNTRY
The undersigned is (circle one) an enrolled member of the
tribe/authorized representative of the tribe or tribal enterprise, and the
property was delivered/acquired within Indian country, for at least partial use
in Indian country.
name of buyer date of delivery/acquisition address of
delivery/acquisition
(9)
Miscellaneous taxes. The
state imposes a number of excise taxes in addition to the most common excise
taxes administered by the department (e.g., B&O, public utility, retail
sales, and use taxes). The following is a brief discussion of some of these
taxes.
(a)
Cigarette tax. The
statutory duties applicable to administration and enforcement of the cigarette
tax are divided between the department and the liquor control board.
Enforcement of nonvoluntary compliance is the responsibility of the liquor
control board. Voluntary compliance is the responsibility of the department of
revenue. See
chapter
82.24 RCW for specific
statutory requirements regarding purchase of cigarettes by Indians and Indian
tribes. For a specific ruling regarding the taxability of and stamping
requirements for cigarettes manufactured by Indians or Indian tribes in Indian
country, please contact the department at:
Department of Revenue
Executive
P.O. Box 47454
Olympia, WA 98504-7454
Where sales of cigarettes are the subject of a
government-to-government cooperative agreement, the provisions of that
agreement supersede conflicting provisions of this subsection.
(i) Sales of cigarettes to nonmembers by
Indians or Indian tribes are subject to the cigarette tax. The wholesaler is
obligated to make precollection of the tax. Therefore, Indian or tribal sellers
making sales to non-Indian customers must (A) purchase a stock of cigarettes
with Washington state cigarette tax stamps affixed for the purpose of making
such sales or (B) they may make purchases of cigarettes from licensed cigarette
distributors for resale to qualified purchasers or (C) may purchase a stock of
untaxed unstamped cigarettes for resale to qualified purchasers if the tribal
seller gives advance notice under
RCW
82.24.250 and Rule 186.
For purposes of this rule, "qualified purchaser" means an
Indian purchasing for resale within Indian country to other Indians or an
Indian purchasing solely for his or her use other than for resale.
(ii) Delivery or sale and delivery
by any person of stamped exempt cigarettes to Indians or tribal sellers for
sale to qualified purchasers may be made only in such quantity as is approved
in advance by the department. Approval for delivery will be based upon evidence
of a valid purchase order of a quantity reasonably related to the probable
demand of qualified purchasers in the trade territory of the seller. Evidence
submitted may also consist of verified record of previous sales to qualified
purchasers, the probable demand as indicated by average cigarette consumption
for the number of qualified purchasers within a reasonable distance of the
seller's place of business, records indicating the percentage of such trade
that has historically been realized by the seller, or such other statistical
evidence submitted in support of the proposed transaction. In the absence of
such evidence the department may restrict total deliveries of stamped exempt
cigarettes to Indian country or to any Indian or tribal seller thereon to a
quantity reasonably equal to the national average cigarette consumption per
capita, as compiled for the most recently completed calendar or fiscal year,
multiplied by the resident enrolled membership of the affected tribe.
(iii) Any delivery, or attempted delivery, of
unstamped cigarettes to an Indian or tribal seller without advance notice to
the department will result in the treatment of those cigarettes as contraband
and subject to seizure. In addition, the person making or attempting such
delivery will be held liable for payment of the cigarette tax and penalties.
See chapter 82.24
RCW.
Approval for sale or delivery to Indian or tribal sellers of
stamped exempt cigarettes will be denied where the department finds that such
Indian or tribal sellers are or have been making sales in violation of this
rule.
(iv) Delivery of
stamped exempt cigarettes by a licensed distributor to Indians or Indian tribes
must be by bonded carrier or the distributor's own vehicle to Indian country.
Delivery of stamped exempt cigarettes outside of Indian country at the
distributor's dock or place of business or any other location outside of Indian
country is prohibited unless the cigarettes are accompanied by an invoice.
(b)
Refuse
collection tax. Indians and Indian tribes are not subject to the refuse
collection tax for service provided in Indian country, regardless of whether
the refuse collection company hauls the refuse off of Indian country.
(c)
Leasehold excise tax.
Indians and Indian tribes in Indian country are not subject to the leasehold
excise tax. Leasehold interests held by nonenrolled persons are subject to
tax.
(d)
Fish
tax.Chapter 82.27 RCW imposes a tax on the commercial possession of
enhanced food fish, which includes shellfish. The tax is imposed on the fish
buyer. The measure of the tax is the value of the enhanced food fish at the
point of landing. A credit is allowed against the amount of tax owed for any
tax previously paid on the same food fish to any legally established taxing
authority, which includes Indian tribes. Transactions involving treaty fish are
not subject to the fish tax, regardless of where the transaction takes
place.
(e)
Tobacco
tax. The tobacco tax is imposed on "distributors" as that term is
defined in
RCW
82.26.010. Tobacco tax is not imposed on
Indian persons or tribes who take delivery of the tobacco in Indian country.
Effective July 1, 2002, persons who handle for sale any tobacco products that
are within this state but upon which tax has not been imposed are subject to
the tobacco tax. Chapter 325, Laws of 2002. Thus, persons purchasing tobacco
products for resale from Indians who are exempt from the tobacco tax are
subject to tobacco tax on the product. See WAC
458-20-185, Tax on tobacco
products.
(f)
Real estate
excise tax. The real estate excise tax is imposed on the seller. A sale
of land located in Indian country by a tribe or a tribal member is not subject
to real estate excise tax. A sale of land located within Indian country by a
nonmember to the tribe or to a tribal member is subject to real estate excise
tax.
(g)
Timber excise
tax. Payment of the timber excise tax is the obligation of the
harvester. The tribe or tribal members are not subject to the timber excise tax
in Indian country. Generally, timber excise tax is due from a nonmember who
harvests timber on fee land within Indian country. Timber excise tax is not due
if the timber being harvested is on trust land or is owned by the tribe and
located in Indian country, regardless of the identity of the harvester. There
are some instances in which the timber excise tax might be preempted on
non-Indians harvesting timber on fee land in Indian country due to tribal
regulatory authority. For such a ruling please contact the department at:
Department of Revenue
Executive
P.O. Box 47454
Olympia, WA 98504-7454
Statutory Authority:
RCW
82.32.300. 02-14-133, § 458-20-192,
filed 7/2/02, effective 8/2/02; 00-24-050A, § 458-20-192, filed 11/30/00,
effective 1/1/01; 80-17-026 (Order ET 80-3), § 458-20-192, filed 11/14/80;
Order ET 76-4, § 458-20-192, filed 11/12/76; Order ET 74-5, §
458-20-192, filed 12/16/74; Order ET 70-3, § 458-20-192 (Rule 192), filed
5/29/70, effective 7/1/70.