Taxation on Indian Reservations: To Balance or Not to Balance, That Is the Question


Introduction -

The ability of the states to impose a tax upon transactions occurring on an Indian reservation has evolved substantially in the past 50 years. After numerous court decisions, the Indian preemption doctrine was fairly well established in the United States, and many businesses, tribes, and tribal members conducted their affairs under those rules. State and local governments were also versed on the taxation rules for Indian reservation activity. However, on January 4, 2013, new federal regulations became effective which may, if interpreted broadly, create a landscape shift in the Indian preemption doctrine. The regulations are already the focus of two federal court proceedings, and thus judicial guidance as to the regulations’ validity and breadth may be just months away.

The Indian Preemption Doctrine Historical Background -

Federal Indian law jurisprudence exploring the dichotomy between tribal sovereignty and state taxation on the reservation has come a long way since 1832 when Chief Justice Marshall noted that state laws could simply “have no force” in Indian country. By 1980, the U.S. Supreme Court wrote that it had departed from the “no force” rule long ago. Despite the progress of state regulatory authority on the reservation, one barrier to state taxation on the reservation has endured.

Originally published in the September–October 2013 Issue of the Journal of State Taxation.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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