Native American Business Law Alert: Significant Tax and Applicable Law Ambiguity in Proposed Revisions for Indian Lands Rights-of-Way Regulations


The Bureau of Indian Affairs (BIA) is proposing to revise the process  for obtaining and administering rights-of-way (ROWs) on Indian lands. While the proposed regulations seek to make improvements and clarifications benefiting Indian landowners and ROW applicants and grantees, they also raise significant tribal-state taxation issues and tribal-state applicable law issues. We explore these issues below.  

The proposed regulations, which would be codified at 25 C.F.R. Part 169, leave unchanged the ability of Indian tribes and individual Indian landowners to demand above "market value" compensation and to set the term for new and renewed ROWs.  Apart from these rules, 25 U.S.C. § 357 authorizes condemnation of ROWs on allotments owned by individual Indians, but not tribal land, in federal court.  The proposed rule does not affect ROWs acquired under the Federal Power Act.

Risk of Double Taxation for ROW Holders

Proposed rule 169.009 states, "Subject only to applicable Federal law," state and local governments may not tax permanent improvements in a ROW, non-member activities conducted under a ROW grant, or non-member possessory interests in a ROW.  The proposed rule adds that each of these interests or activities "may be subject to taxation by the Indian tribe with jurisdiction," in addition to compensation paid for the ROW itself.  Many federal court decisions have upheld state taxes on non-member business activities and possessory interests on Indian reservations.  The BIA’s proposed rule provides no guidance as to when or under what circumstances state taxes would not be applicable.   Absent clear guidance, this creates ambiguity that may lead state and local governments as well as Indian tribes to demand that their respective taxes be paid, creating double taxation and tax dispute risks for ROW holders.

Interplay of Federal, Tribal, and State Law

Proposed rule 169.008(a) states that ROWs approved under 25 C.F.R. Part 169 are subject to applicable federal and tribal laws but not the laws of states or their political subdivisions.  The proposed rule provides that tribal law applies "except to the extent that those tribal laws are inconsistent with . . . applicable Federal law" and acknowledges that state law "may apply" based on Congressional enactments and federal court decisions or when Indian tribes make state law applicable as a matter of tribal law or contract.  Issues related to whether tribal and state laws apply to ROWs on Indian lands are complex, and have been the subject of many federal court decisions; the proposed rule does little to clarify these issues. 

Recommended Course of Action

We recommend that those interested in ROWs on Indian land ask their appropriate state tax authorities to review and comment on the BIA's proposed ROW rule, including requests for practical clarifications on when state taxes will or will not be preempted.  We also recommend that those interested in ROWs on Indian land provide similar comments, individually or through trade associations.  Finally, entities negotiating Indian land ROW agreements should  consider including terms in these agreements addressing,  so far as practical, potential overlapping tribal and state taxes, and, more broadly, applicable law.

The proposed rules are published in 79 Federal Register 34,474 (June 17, 2014).  The comment period runs until August 18, 2014. 

Doing business with Indian tribes and Alaska Native Corporations requires knowledge of the complex history and evolving federal, state, and tribal laws and policies affecting Indian tribes and Alaska Native Corporations.  Our Native American Business Practice attorneys assist clients in business transactions, energy and natural resources development, environmental and cultural resources compliance, tax, employment, and litigation matters involving Indian tribes and Alaska Native Corporations.

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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