1. department of finance revenue and taxation division 2 exempt status of natives / first nations

Department of Finance

Revenue and Taxation Division

2

Exempt Status of Natives /Exempt Status of Natives /First NationsFirst Nations



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Legal OriginsLegal Origins

The United States of AmericaThe United States of America

Sovereignty of Indian Reservations from state authority Sovereignty of Indian Reservations from state authority upheld as a basic tenet of US Code of law. I.e. all lands or upheld as a basic tenet of US Code of law. I.e. all lands or interests in land acquired by the United States for an Indian interests in land acquired by the United States for an Indian or Indian tribe is sovereign from state tax unless there is or Indian tribe is sovereign from state tax unless there is clear congressional authorization to the contrary.clear congressional authorization to the contrary.



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Legal OriginsLegal Origins

CanadaCanada

Exempt status of Natives protected under Section Exempt status of Natives protected under Section 87 of Canada’s 87 of Canada’s Indian Act.Indian Act.

This legislation is applied based upon the This legislation is applied based upon the interpretation of the Supreme Court of Canada interpretation of the Supreme Court of Canada which is as follows:which is as follows:– All goods either purchased on reserve land or delivered All goods either purchased on reserve land or delivered

to reserve land are exempt from tax (federal and to reserve land are exempt from tax (federal and provincial)provincial)



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Implications for Taxing Implications for Taxing Authorities:Authorities:

State LevelState Level

Provincial LevelProvincial Level



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States have no authority to impose tax on States have no authority to impose tax on Indians/Tribal membersIndians/Tribal members

In addition, lands placed in trust by the In addition, lands placed in trust by the Bureau of Indian Affairs fall outside state Bureau of Indian Affairs fall outside state jurisdictionjurisdiction

Tribal members are taking advantage of Tribal members are taking advantage of exempt status through increased exempt status through increased commercial activity (retail) commercial activity (retail)

Continued…Continued…



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Commercial establishments are under no Commercial establishments are under no legal obligation to collect taxes from Tribal legal obligation to collect taxes from Tribal membersmembers

There is a legal obligation to collect from There is a legal obligation to collect from non-Tribal members – the reality, many are non-Tribal members – the reality, many are not not – Exceptions: Tax collection agreements, tax Exceptions: Tax collection agreements, tax

compacts, treaties, etc.compacts, treaties, etc.



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Provincial LevelProvincial Level

Obligation to ensure that Natives receive Obligation to ensure that Natives receive the exemption the exemption

Administrative arrangements vary from Administrative arrangements vary from province to provinceprovince to province

Sales to non-Natives must include all Sales to non-Natives must include all applicable taxes applicable taxes



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Natives and IFTANatives and IFTA

R820 under Article VIII states that:R820 under Article VIII states that:All motor fuel acquired that is normally subject to All motor fuel acquired that is normally subject to

consumption tax is taxable unless proof to the consumption tax is taxable unless proof to the contrary is provided by the licencee. The contrary is provided by the licencee. The licencee must report all fuel placed in the licencee must report all fuel placed in the supply tank of a qualified motor vehicle as supply tank of a qualified motor vehicle as taxable on the IFTA tax return.taxable on the IFTA tax return.

Continued….Continued….



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Natives and IFTANatives and IFTA

Background:Background:

U.S. ExperienceU.S. Experience

Canadian ExperienceCanadian Experience



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Background –Background –U.S. ExperienceU.S. Experience

Proliferation Proliferation of commercial establishments of commercial establishments on reserves and/or trust landson reserves and/or trust lands

Large fuel stops for traveling publicLarge fuel stops for traveling public Ability to manipulate prices Ability to manipulate prices Misleading non-tribal purchasersMisleading non-tribal purchasers

……ContinuedContinued



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Background - U.S. ExperienceBackground - U.S. Experience

Truckers are purchasing fuel from Native Truckers are purchasing fuel from Native operated outlets operated outlets

Often, truckers may not be aware that they Often, truckers may not be aware that they are purchasing tax exempt fuelare purchasing tax exempt fuel

Claim tax paid purchases on returnsClaim tax paid purchases on returns Base jurisdictions process the returns Base jurisdictions process the returns FundsFunds are transmitted on the assumption are transmitted on the assumption

that all purchases made in the jurisdictions that all purchases made in the jurisdictions of travel were taxed at the respective ratesof travel were taxed at the respective rates



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What Are the Issues?What Are the Issues?

JurisdictionsJurisdictions– Revenue LossesRevenue Losses

» Tribal based retailers Tribal based retailers Example:Example: Idaho case Idaho case

» Incorrect distribution of Incorrect distribution of revenues on IFTA returns revenues on IFTA returns Example:Example: HHigh intra-state igh intra-state (reserve) purchases with low (reserve) purchases with low intra-state travel results in a net intra-state travel results in a net transfer of fundstransfer of funds

– Inability to correct the Inability to correct the IFTA loss outside of the IFTA loss outside of the audit process audit process

TruckersTruckers– May be subject to large May be subject to large

assessments upon auditassessments upon audit



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Background – Background – Canadian ExperienceCanadian Experience

Increased involvement in the retailing of Increased involvement in the retailing of fuel through gas bars, truck stops, etc. by fuel through gas bars, truck stops, etc. by Native Bands Native Bands

Exempt sales by Natives are restricted to Exempt sales by Natives are restricted to Native peoples Native peoples

Loss of tax revenue due to exempt sales to Loss of tax revenue due to exempt sales to non-Native truckers is not a problem non-Native truckers is not a problem



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Potential ProblemPotential Problem

An An independent Native trucker (1 truck) buys independent Native trucker (1 truck) buys the fuel for his qualified vehicle on a the fuel for his qualified vehicle on a reserve (NB) where he is eligible for reserve (NB) where he is eligible for exemption. exemption.

The Native then travels into Maine where he The Native then travels into Maine where he consumes the fuel purchased tax exempt.consumes the fuel purchased tax exempt.




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Potential Problem Potential Problem

Upon filing the return, the Native may do one Upon filing the return, the Native may do one of two thingsof two things::

1.1. Report Report all travel as exempt on basis of exempt all travel as exempt on basis of exempt status, orstatus, or

2.2. Report Report all travel as tax paid to avoid any further all travel as tax paid to avoid any further questioningquestioning




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Potential Problem Potential Problem If the Native reports If the Native reports all travel as exempt all travel as exempt

on basis of exempt status:on basis of exempt status: NB would be obligated to recognize the NB would be obligated to recognize the

exemption for NB consumption, but would have to exemption for NB consumption, but would have to decide an action for the travel in Maine. NB would decide an action for the travel in Maine. NB would be obligated as per terms of the agreement to be obligated as per terms of the agreement to transfer the funds to Maine to account for the transfer the funds to Maine to account for the consumption, which would result in a net loss to consumption, which would result in a net loss to NB. Would there be any grounds upon which to NB. Would there be any grounds upon which to recover this from the Native?recover this from the Native?




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Potential Problem Potential Problem

If the Native reports If the Native reports all travel as tax paid all travel as tax paid to avoid any further questioningto avoid any further questioning::

NB would process the return in the standard NB would process the return in the standard manner and make the necessary transfers, which manner and make the necessary transfers, which would create a revenue loss for NB. This could would create a revenue loss for NB. This could only be detected in the event that the Native was only be detected in the event that the Native was audited. audited.

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Questions and /or Final Questions and /or Final CommentsComments

1. department of finance revenue and taxation division 2 exempt status of natives / first nations

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