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Tax Breaks on Native Lands Could Spur Economic Growth

  • Feb 4, 2016 | Gail Cole

 In search of economic stimulation for Native American reservations.

Legislation recently introduced in Nebraska seeks to create sales and use tax exemptions for certain businesses located on Native American lands. A main goal of the measure is to spark economic growth on tribal lands, where unemployment currently hovers at about 69% (as compared to 2.5% statewide). It would also remove race from the equation.

Legislative Bill 1104 would exempt non-Native owned businesses located on Native American lands from sales and use taxes for the first ten million dollars of taxable purchases made by the qualified business (Native-owned businesses are already exempt from these taxes). It clarifies the following:

  • State sales and use tax are not paid by members of an Indian tribe on transactions made on a federal Indian reservation
  • State income taxes are not paid on income earned on a federal Indian reservation if the individual earning the income is a member of an Indian tribe and is living on an Indian reservation
  • Local property taxes are not paid on Indian reservation or trust land

Certain income taxes and property taxes would also be exempt under the legislation. In addition, the bill allows for the creation of a revenue-sharing agreement under which:

  • The Indian tribe shall impose a tribal tax that is less than or equal to the state sales and use taxes
  • The tribal tax shall be imposed on both members and nonmembers of the Indian tribe
  • 20% of the tribal tax shall be shared with the State of Nebraska

Transactions subject to the tribal tax would be exempt from Nebraska state sales and use tax. Currently, Native Americans do not pay sales or use tax on purchases made on tribal lands, but non-Natives shopping on tribal lands do. Lance Morgan, leader of the Omaha tribe’s economic development arm, says this arrangement — basing who does and doesn’t pay tax on race — is offensive.” It also leads to “daily confusion on tax.”

The tax breaks would only apply to new and expanding businesses in economic impact zones on reservations; businesses would not be permitted to relocate from another part of the state to the special economic impact zone in order to take advantage of the exemptions.

If LB 1104 is enacted as written, the exemptions would take effect January 1, 2017.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.