Multi-State Tax Law Blog
As a Florida state and local tax attorney I live in the world of strange. Few attorneys or tax professionals are even aware of our peculiar area of the law. Even fewer attorneys or tax professionals have heard of, let alone practiced in the even stranger area of Native American Taxation. During my travels and while earning my LL.M. at NYU, I was one of the few fortunate souls to be exposed to this spin off of state and local tax. In fact, there are only two courses offered in the United States at the LL.M. level on this subject. Native American Taxation is poorly developed, the rules are unclear, and the cases make no sense whatsoever. While this is common for Florida attorneys like me who live in a world with no clear answers, living in this gray area of the law is uncomfortable for most lawyers and professionals.
From a legal perspective, a state’s ability to tax tribal activities turns on 1) whom is being taxed, Indian vs. Non-Indian and 2) where the transaction is taking place, on vs. off the reservation. One of the primitive cases, Utah Railroad, from 1885, stands for the idea that a state’s power to tax is at its weakest if the tax is imposed on a reservation and the burden falls on a member of a tribe. For example, Mescalero says that ad-valorem tax (property tax) cannot be imposed by a state for real estate located on a reservation. Similarly, a case called McClanahan holds that a state cannot tax a Native American’s income if it is derived from within the reservation’s borders. If sales are wholly made to Indians on the reservation then a state cannot impose its sales tax on those transactions. Warren trading.
Other than the law cited above, there is close to no rhyme or reason as to how the cases have come down over the years. It seems when the Native American community needs funding, then the reservation is regarded as its own nation or sovereign. Conversely, if the state is trying to tax the reservation’s activities then it suggests the tribe is merely a “domestic dependent nation.”
With that background in mind, you know more about Native American taxation than 95% of tax practitioners. Back in early 2013, I wrote about two recent Florida decisions that caught my eye. Specifically, the two disputes involved Taxpayers against the Florida Department of Revenue in Ark Hollywood LLC v. Department of Revenue and Ark Tampa LLC v. Department of Revenue. The nearly identical cases were filed in November of 2012. Both cases involved companies that leased restaurant space at the Hard Rock Casinos in Hollywood and Tampa Florida, respectively. Specifically, the tax at issue on the alleged commercial rent is $110,306 for the Hollywood property and $100,735 for the Tampa location.
Florida is the only state that imposes a sales tax on commercial rent. But what if the commercial rent is on land that is on an Indian reservation? Is that like Mescalero, which stated that a state could not charge property tax to reservation land? Or is the tax borne on the commercial tenant, which means they should be treated like any other commercial tenant in Florida? Is this a case in which the reservation is merely a domestic dependent nation or is it a foreign sovereignty? In the case, the Seminoles argued the tribal land is immune from state tax, while the Department of Revenue asserted that “the rental tax is not a tax on Tribal land but rather it is a privilege tax imposed on non-Indian tenants for the use of commercial property.”
From a legal standpoint, the crux of this particular case was the Indian Commerce Clause. Many lawyers and other tax professionals have heard of the Commerce Clause but not necessarily the Indian Commerce Clause. For those that are not familiar, the Commerce Clause states in Article I, section 8, of our Constitution that Congress shall have the power “To regulate Commerce with foreign Nation, and among the several states.” Man are taught that this provision gives Congress the power to regulate interstate commerce. Reading a little bit further, the Commerce Clause continues to read “and with the Indian Tribes.” It is this provision that has led to enormous debate and litigation in the world of state taxation with regard to the Native Americans.
As it turned out, in 1956, Congress conveyed land in Florida to the Seminole Tribe. Also known as the “The Act of 1956,” the Act declared that “all lands which have been acquired by the United States for the Seminole Tribe of Indians in the State of Florida under [the Act] are ‘a reservation for the use and benefit’ of the Seminole Tribe.” In addition to the Indian Commerce Clause, Commerce made a law that specifically prevents a state from taxing the Seminole’s land. The Southern District of Florida concluded that the tax was on the land itself, and, therefore, immune from Florida sales tax.
From a SALT practitioner’s perspective, we now can add this case to our bag of tricks, at least in Florida. Staying in line with the cases above, this case makes sense. The state should not be allowed to tax the use of property, if the underlying property is on the reservation. Along those same lines, Mashantucket Pequot Tribe v. Ledyard, which is a 2012 federal decision out of Connecticut, ruled that a state could not tax the land of a tribe under a traditional property tax regime. Overall, the states have not been successful in fighting land taxation issues on the reservation.
It will be interesting to see whether Florida appeals this decision. However, it feels like this court got it right. While it remains impossible to predict the future, one can almost guarantee, states, like Florida, will continue to aggressively chase revenue. On the flip side, Taxpayer, even the “domestic dependent” Native American tribes should continue to fight the states’ extortion attempts. Stay weird SALT world.
About the author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini received his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email JerryDonnini@Floridasalestax.com or phone at 954-642-9390