96-047

Response March 8, 1996

Request

To: XXXXX

From: XXXXX

Re Sales tax exemption for Indian tribes

Date: January 5, 1996

I am sending to you herewith a request from the Director of the Division of Indian Affairs for advice on whether Indian tribes qualify for an exemption from the payment of sales tax. Undoubtedly you have considered this issue and have either an opinion or a regulation dealing with the subject. If you will advise me of the answer to this inquiry I will be happy to pass it on to XXXXX.

Thanks

March 8, 1996

Craig Sandberg

Auditing Division

RE: Advisory Opinion - Use of TC-721G by tribal members

Dear Craig,

We have reviewed your request for a response to a question raised by XXXXX of the Division of Indian Affairs. XXXXX memorandum to XXXXX touches on two issues: (1) are Indian tribes or tribal members exempt from sales tax as government entities? and, (2) should the tribes use a form TC-721G to document exempt sales? We address each issue in turn.

1. Are tribes or tribal members exempt from Utah's sales tax?

Absent congressional authorization, a state may not impose sales tax on a tribe or its members for sales made within Indian country, but Indian tribes and their members are not immune from state taxes imposed on sales outside of Indian lands. See, e.g., Oklahoma Tax Commission v. Chickasaw Nation, 515 US 2214 (1995).

a. Sales to the tribe: For sales tax purposes, a federally recognized tribe is treated like any other government sovereign. However, Utah sales tax law only provides a sales tax exemption to the federal government and to the state government and its political subdivision. The sales tax exemption does not apply to government entities of another state or to other sovereign entities. Therefore, to take advantage of the sales tax exemption, purchases by the Tribe must be made on Indian lands or purchased for delivery to Indian lands by way of common carrier. It is not necessary for the tribe to use the TC-721. The vendor may provide proof of delivery to the reservation with a freight bill, bill of lading or invoice.

b. Sales to tribal members: A sales tax is a transaction tax imposed on the purchaser. Under the rule stated above, the state may not impose a sales tax on a transaction which occurs on tribal land if the purchaser is a tribal member. Therefore, the sales tax exemption available to tribes and tribal members is narrower than the exemption available to government entities. A sale to a tribe or tribal member qualifies for exemption if:

(1) the sale occurs on tribal lands; and

(2) the purchaser is an enrolled tribal member living on the reservation where the purchase is made (as evidenced by the tribal card).

Sales on Indian lands to non-tribal members and sales outside of Indian lands to tribal members are not entitled to the exemption.

2. Should exempt sales to tribal members be documented on Tax Commission form TC-721G exemption certificate?

Generally, any sales tax exemption must be documented on some form of exemption certificate and that documentation must be kept With the vendor's permanent sales tax records. However, the Commission recognizes that this system of documentation is unduly cumbersome to vendors operating on tribal land and primarily making tax exempt sales to tribal members. In Tax Bulletin 234 (copy attached), the Commission outlined the record keeping requirements for vendors on tribal lands. To Summarize the record keeping requirements outlined in the Commission's tax bulletins:

1. For exempt sales in an amount greater than $100, the vendor must record the purchaser's tribal member card number on the receipt or invoice or in some other manner that ties that member's number to the exempt transaction.

2. For exempt sales in an amount of $100 or less, the vendor must verify the purchaser's eligibility for the exemption, but the vendor need not record the purchaser's member card number in his or her tax records.

On the basis of this policy, tribal members making qualifying purchases on tribal lands need not complete an exemption certificate. Vendors are required to document exempt sales in amounts of more than $100 dollars and all non-exempt sales.

Please let us know if you have additional questions.

For the Commission,

Alice Shearer

Commissioner