Competitive Advantages of Doing Business With Native American Tribes and Tribal Corporations
JOSE LUIS PELAEZ INC
In an expanding global economy, investors are looking for competitive advantages and more advantageous business environments. Under the U.S. Constitution, Native American Indian tribes are recognized as semi sovereign nations, and a business venture with an Indian tribe can offer many competitive advantages.
While Native American Indian tribal governments follow most federal laws, they also have the authority to establish their own laws and regulations. Most tribes have wholly owned tribal corporate entities that enjoy most of the same legal protections and advantages as the tribe itself. In addition, the federal government has enacted a broad array of financial incentives to encourage investment in economic development projects in economically distressed areas and on tribal lands specifically.
Tribes are sovereign governments with sovereign corporations
Tribal government-owned corporations. Tribal governments can charter their own tribal government-owned corporations under tribal law or federal law (Section 17 of the Indian Reorganization Act of 1934). Tribally chartered enterprises hold the same status as the tribe itself for purposes of federal income tax exemptions and sovereign immunity from suit. Tribal governments can promulgate their own regulations governing economic activity on their lands. Further, tribal governments and their tribal corporations are generally not subject to most state laws.
Tribal corporations create governmental revenue. Unlike most governments, due to a variety of legal and practical impediments, Native American tribal governments do not have significant tax-based revenue to run their governments and provide governmental services. (Tribal land is held in “trust” by the federal government and, as such, is not taxable; tribal unemployment rates are very high, so there is no real opportunity for tribal income tax; and, sales taxes are often in dispute with state governments.) As a result, tribal governments create wholly owned tribal corporations in order to participate in the private marketplace, and own a wide variety of businesses (casinos, gas stations, hotels, etc.) in order to generate a revenue stream for their governmental services.
Federal and state tax exemptions
No federal income tax (on or off tribal land). Like any government-owned entity, tribes and tribal enterprises are exempt from federal income taxes. If a business entity is formed between a tribe and a non-tribal company, the portion owned by the tribe (or the tribal corporation) is in most cases exempt from federal income taxes. This is true regardless of whether the business owned is on or off tribal land. On reservation tribal owned businesses may also be exempt from state income taxes.
No state sales tax. Most tribes do not have their own sales taxes. In addition, most states have exemptions from state sales taxes for purchases made by government entities.
No state property tax. If the land is located on an Indian reservation, owned by a tribe, and held in “trust” by the federal government, then the land is not subject to state property taxes.
No state property improvements tax. Tribal trust lands and tribal-owned improvements on such lands are exempt from state taxation. There are also some circumstances in which this exemption can be extended to non-tribally owned improvements.
Federal tax credits
New in 2018 - Opportunity Zones. Opportunity Zones are economically distressed census tracks designated by governors, a significant percent of those zones are in Indian country. If capital gains are invested in an “opportunity zone,” taxes on those gains are deferred until 2026 (with some savings due to step-up in basis). In addition, if the investment stays in that zone for 10 years, there are no taxes on the profits made from that investment.
New in 2018 – Department of Energy (DOE) loan guarantees for tribal energy projects. $2 billion in loan guarantees have recently become available, to guarantee up to 90 percent guarantee of a private loan. Indian tribes or Alaska Native corporations are eligible, and “energy development” is broadly defined. Applications are submitted in rounds every few months.
Investment tax credit (New market tax credits). NMTCs are also available to investors for capital investments in Indian reservations, providing tax credits of up to 39 percent of the entire amount of the investment. The tax credit is spread over seven years – five percent of the investment for the first three years, and six percent of the investment amount can be claimed over the next four years.
Indian wages and insurance tax credits. Employers can receive a tax credit of up to 20 percent of wages and health insurance for qualified employees who are working and living on Indian reservations.
Equipment and buildings: accelerated depreciation. Businesses can claim depreciation at twice the normal rate for locating equipment and buildings on tribal land.