WAC 458-20-192
Indians -- Indian country. (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.]