Some forms of taxation can work differently for Native American people because of their unique status within the United States.
Tribes, as sovereign governments, are exempt from taxes. But, in general, individuals are expected to submit to the same income taxes as others living in the U.S., arising from their status as citizens. However, there are exceptions to this general rule.
For example, lands held in trust by the government for the benefit of Native Americans are spared from taxes. Native Americans who own some of this land don’t have to pay property taxes.
Knowing how taxes work for Native Americans can help them take advantage of the tax exemptions that are offered for tribes.
Key Takeaways
- Tribes are not taxable. As sovereign governments, tribes also set their own sales taxes.
- Individuals, in contrast, are required to pay federal taxes to the U.S. government.
- There are some exemptions and tax benefits, such as revenue from lands held in trust, which is not taxed by the U.S. government.
Individuals vs. Tribes
Native Americans are expected to pay taxes to the federal government.
In the eyes of the U.S. government, all members of tribes were recognized as citizens beginning in 1924 with the passage of the Indian Citizenship Act. That law eventually allowed access to voting rights—belatedly, in many states, and which observers argue are continually suppressed—but it also means Native Americans are expected to pay federal income tax.
But there’s an exception. Notably, tribal members do not pay taxes on income from lands held in trust (where the title is held by the Interior Department on behalf of tribes or individuals).
The U.S. holds around 55 million surface acres and 59 million acres of subsurface mineral estate in trust, according to a 2021 congressional research note. The money that this land generates is intended to benefit Native Americans, and it is not taxed.
This means that if a tribe operates a casino on trust land, it doesn’t pay taxes on that land or on the proceeds. Note that this is not reservation land. (Trust land can meet the federal definition of reservation when it’s used to benefit a federally recognized tribe. But trust land held for individual Native Americans would not be considered a reservation.)
In contrast to individual tribal members, federally recognized tribes are sovereign and therefore are immune from tax obligations. This means that the tribes themselves do not pay federal or state taxes.
The tribal tax base is itself typically the consequence of agreements made with states and local governments. Because their lands are held in trust, tribes do not levy property taxes. This leaves them without the usual sources of tax revenue for a government. In consequence, many tribes have turned to sales and excise taxes.
Due to the high levels of poverty and unemployment on tribal lands, advocates argue that these sources of tax revenue are inadequate to fund basic tribal government services. In practice, different tribes have different policies, meaning that some indigenous people are released from obligations like sales taxes for purchases that occur on reservations, though for transactions outside of reservations, they would still pay local and state sales taxes.
Native American Taxes
Federal Income Taxes
For the most part, income taxes for Native Americans are the same as for other U.S. citizens.
The major exception is for income derived from a specific trust or treaty. The United States holds land as trust assets for tribes, which can be leased out to corporations. Federal taxes are not levied on income from such business arrangements, though interest income, capital gain income, and some royalties are subject to federal (and state) taxes.
State Taxes
As with federal taxes, tribes do not have to pay state taxes. By law, without explicit permission from Congress, states cannot impose taxes on tribes.
But just like the federal government, a state can individually tax Native Americans who live within the state’s territory, rather than on a reservation.
Sales Taxes
Tribes themselves are exempt from sales taxes for purchases on reservation land.
However, states can collect sales tax from transactions to non-tribal members even when the point of purchase occurs on tribal land. But the tribal government doesn’t have responsibility for collecting the tax.
Some have argued that these taxes represent “the latest variation on centuries of wealth extraction” because the collection of these taxes by states discourage tribal governments from levying their own tax for fear of scaring away economic activity. Instead, many tribes have struck revenue-sharing agreements with state governments. Each year, these practices siphon hundreds of millions of dollars away from tribal governments, according to an estimate from The Center for Public Integrity, an investigative reporting organization.
Property Taxes
Real estate taxes rest on the same criteria as other forms of tax liability.
However, Native American lands held in trust are considered immune from taxation. But since it is the trust or sovereignty status that establishes the immunity, Native Americans would be expected to pay property taxes on lands not held in trust or on reservations.
Tribal Casinos
Tribal casinos represent a significant revenue stream for a number of federally recognized tribes.
Tribal casinos are likewise free from U.S. taxes. But for the right to operate, tribal casinos sometimes pay “gaming exclusivity fees” based on the profits. These can be significant sums.
For example, Oklahoma collected $191.5 million in fees for tribal gaming exclusivity rights for fiscal year 2022. Those fees came from $3.19 billion in revenue, according to an estimate from the state of Oklahoma.
Do Native Americans Pay Property Taxes If They Live on a Reservation?
Native Americans living on reservations are exempt from U.S. property taxes. These lands are usually held in tax-exempt trusts.
Do Native Americans Pay Taxes on Cars?
If the sale of a car takes place in Indian Country, then the Native American will not need to pay tax on the vehicle. But even on reservation land, Native Americans have to pay fuel taxes in most states.
Do Native Americans Have to File Tax Returns?
Yes, Native Americans have to file tax returns. The Internal Revenue Service, the U.S. tax authority, notes that, “As a general rule, Native Americans are subject to federal income tax just like every other American.”
Can Anyone Live on a Reservation?
Since reservation lands are given special protections, not just anyone can “settle” on them. However, that doesn’t necessarily mean you can’t live there. It will depend on the tribal laws. Notably, living on a reservation won’t make you a tribal member.
The Bottom Line
U.S. recognition of tribal sovereignty presents a potentially confusing tax situation. In general, though, tribal members are expected to pay federal tax, despite some exemptions—such as sales taxes for interactions on tribal land, or income from land held in trust. Tribal governments, on the other hand, cannot be taxed by either states or the federal government.
