Six Surprising Tax Rules for Native American Casinos

Of the many specialized tax rules for exclusive entities, the federal tax rules governing Native American tribes may possibly be least understood. The only contact lots of Americans have with Native Americans is via Indian casinos. Here are six tax rules about Native Americans you could not know.

1. Tribes are Tax Exempt. Gaming on Native American lands earned $26.5 billion in 2011. 236 Native American tribes operate 422 facilities across 28 states. However Native American tribes and their wholly owned tribal companies are certainly not subject to federal earnings taxes on their earnings.

2. Federal Law Regulates Indian Gaming. In California v. Cabazon Band of Mission Indians, 480 U.S. 202 (1987), the Supreme Court ruled that tribes can conduct gaming on Native American lands unhindered by state regulation in states that permit gaming. A year later, Congress enacted the Indian Gaming Regulatory Act of 1988 (IGRA), producing a regulatory framework for gaming on Indian lands. The National Indian Gaming Commission within the Division from the Interior has oversight.

3.The Exemption is Absolute. Some sorts of tax-exempt organizations are taxed on some varieties of earnings. Tribes are exempt from federal revenue taxes even when conducting commercial activities. They’re able to form corporations to conduct enterprise and their earnings remains exempt.

4. Individual Native Americans are Taxed. Native Americans are U.S. citizens, and unlike their tribes, individuals are topic to federal revenue taxes. Even exempt tribal income can be taxed when distributed to person members on the tribe. 1 of your much more difficult provisions of IGRA permits Native American tribes to create per capita distributions of income from gaming activities to tribe members. These per capita distributions are taxed.

5. But Some Payments to Native Americans are Exempt. Some “general welfare” payments to folks beneath social advantage programs aren’t taxed. Generally, to become tax-free, payments has to be made under a governmental plan; be for the promotion of general welfare (i.e., based normally on person, family or other requirements); and not be compensation for services. This Common Welfare Exception from revenue has turn out to be increasingly controversial as applied to tribal members as well as the IRS is being asked to weigh in.

6. State Taxes are Tricky. Absent an express authorization from Congress, states don’t have the energy to tax Native Americans residing on a reservation whose revenue is derived from reservation sources. Even so, a state may perhaps tax Native Americans on revenue (like wages from tribal employment) if they reside within the state but outside the reservation.

As with many other tax guidelines, these rules are becoming much more controversial. Anticipate renewed discussion of those guidelines and their limits within the future.