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American Indian Sales of Motor Fuel:
Assessment of Reporting and Policy Recommendations

2.0 The State of the Practice

2.1 Introduction

Tribal entities across the United States continue to build and operate fuel retail establishments, with increasing fuel sales on tribal lands over the past several years. With the increased sales, the Federal Highway Administration (FHWA) has a growing interest in ensuring that those sales are reported for use in FHWA's attribution and apportionment process. However, the lack of comprehensive and detailed research on the topic has limited current understanding, with FHWA particularly concerned about the extent of data not currently reported. The research led by ICF Consulting under Task 2 of the study sought to address this issue and enhance the body of knowledge by investigating situations where voluntary reporting occurs and where it does not occur.

In order to better understand the reporting situation in various states, the team first conducted a review of the available literature on the topic, and then sought extensive input from a range of stakeholders, including tribal representatives at the 7th Annual Tribal Transportation Conference. After developing a priority list of participants, the team contacted representatives from both tribal and state offices in an effort to ensure that the list was comprehensive and balanced. In selecting the states for inclusion, the team selected the following types:

  • Cases where Native American fuel sales are being reported;
  • Cases where state and tribal entities are developing agreements to report sales; and
  • Cases where tribes do not report fuel sales, including those where parties have been unable to reach agreements

A total of twelve states responded to outreach efforts, including three of the five states that have the greatest tribal populations. Input solicited from stakeholders included information on the circumstances that encouraged the development of agreements, and the benefits and limitations of situations. This information was analyzed for each state and across states, and recommendations developed.

The work conducted under this task is discussed below. Section 2.2 describes the research approach, section 2.3 presents findings state-by-state, and section 2.4 provides a cross-state analysis. Section 3.4 offers recommendations on crafting successful fuel sale reporting agreements, as provided by tribal representatives and state staff consulted during the study.

2.2 Approach

The team first prepared a plan that detailed its outreach strategy. The plan was designed to target a sample that covers cases where Native American fuel sales are being reported; cases where Native American fuel sales are not being reported, including those where parties have been unable to reach agreements; and, cases where state and tribal entities are developing agreements for the reporting of Native American fuel sales. The Team aimed to review a sample that encompassed the diversity of cases but was small enough to allow a full probe of the elements of reporting and non reporting.

Drawing on the Federal Tax Administration's Survey of Native American Issues, the team developed a listing of states that was grouped according to the above three categories. The team then overlaid this information with a listing of states and tribal representatives to whom FHWA and the team had been referred in the context of the study, including tribal contacts made at the 7th Annual Tribal Transportation Conference held in Scottsdale, Arizona (October 2004).

In addition, the team reviewed findings from Task 1, which shows there are several states where tribal gas sales apparently do not take place at all, in order to ensure these were not included in outreach efforts. The team also reviewed Task 1 information as a means to identifying case studies; this included states where the fuel price differential with tribal entities is most significant, as well as where there are current legal issues and litigation over the issue of fuel sale reporting and fuel taxes. This review of Task 1 findings provided an additional layer in guiding outreach efforts.

The final listing of states and tribal entities was flagged for priority outreach. State and tribal representatives were then identified in each state who could speak knowledgeably about the current state and history of fuel sales and reporting on tribal lands in the state. For the state, these contacts included representatives from tax and revenue departments, and attorney general offices. For the tribe, these contacts were primarily from transportation departments and legal counsel. The team also sought feedback from several Tribal Technical Assistance Program (TTAP) representatives.

Individuals were contacted by telephone, and information was gathered using a general discussion guide (see Appendix B). This guide was developed by the team to support open ended discussions and to ensure consistency in the study, both in terms of responses and in terms of presenting findings and conducting analysis.

Where possible, supporting documentation was gathered from study participants, such as the actual agreements between states and tribes, minutes from agreement meetings, and other materials. In general, discussion focused on gasoline sales, and did not address diesel fuels. Some individuals provided referral information for other state and tribal representatives, whose input was then solicited by the team. Write-ups of each discussion were provided to participants electronically to allow them to verify that their comments had been fully captured, as well as to give them the opportunity to provide further comments.

The final summaries by state have been drafted as a compendium of the information provided by state and tribal representatives.

2.3 Findings

This section reviews the findings from a total of twelve states, with input received from tribal representatives from ten states, and from state government officials from eleven states. State summaries are presented for all states that provided either state and/or tribal input; these states are: Alaska, Arizona, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, New York, Oklahoma, South Dakota, and Washington. Because there are many tribes in some states, the tribes' perspectives discussed in this section should be seen as the views of only some of the tribes in each state. It should also be noted that the New York summary is based on input from one tribe only.

Of the state officials who provided feedback, most believed that all tribal fuel sales were being reported. Many states have formed taxation agreements with tribes, which include reporting. Under these agreements, tribes either pay the state fuel tax and receive a rebate, or assess a tribal tax and report sales to the state. These agreements are typically the product of negotiations with each individual tribe in a given state. One of the exceptions, New Mexico, legislated an exemption for all fuel sales on tribal lands, which includes a requirement that all distributors report fuel sales to tribal entities and licensed Indian distributors. In several states with agreements, legislation was necessary to allow the state to form agreements.

2.3.1 Taxation Issues

In the state summaries presented below, state taxation of tribal fuel sales is addressed in parallel with tribal fuel sales reporting because of the way that reporting and taxation are linked in negotiations and agreements. What follows is a brief discussion of the situation surrounding tribal fuel sales reporting in the states surveyed.

Tribal sovereignty is the core philosophical issue behind disagreements on tribal fuel sales reporting and taxation. Most states in this survey have conceded tribes' right to an exemption from the state fuel tax, with the exception of Idaho, which recently challenged the exemptions in a case that the U.S. Supreme court declined to hear. However, a Kansas case currently before the U.S. Supreme court, Prairie Band Potawatomi Nation v. Richards, also addresses tribes' exemption from state fuel tax. Although Kansas was not included in the study, several of the states contacted in this study, including those with agreements, were party to an amicus brief in support of the state's assertion of its fuel tax.

In the Kansas case, the states' support for Kansas, and cases in several states in recent years are evidence that many states still assert their right to impose the state fuel tax on tribal sales, and that tribes are actively opposing those efforts. The agreements therefore range in character from a temporary declaration of truce to an accepted resolution. In some states, agreed-upon exemptions are the direct result of court decisions that forced the state to concede. In other cases, states created agreements to avoid litigation based on court decisions in other states.

Despite ongoing issues, agreements were described in many cases as welcome harbingers of stability and an important part of a more cooperative relationship between tribes and the states. Several tax administrators specifically commented that there were fuel tax evasion problems in the past, a few of which involved tribes, but that resolving the tribal taxation issue, as well as moving the taxation point further up in the supply chain, had curtailed them.

In addition to the discussion of the character of the agreements, the type of agreement in each state is described carefully below. In some states, because fuel tax is assessed so high in the chain, it is administratively difficult to allow for state tax-free fuel sales by specific retailers, who receive a small part of bulk fuel shipments distributed long after the state fuel tax has been assessed. Several states have signed agreements with tribes that specifically reduce the administrative burden for the state in light of these complications.

Table 2.1, below, shows the general status of tribal fuel sales reporting in each state contacted.
This is followed by information for each state, and then a cross-state review.
  Fuel Sales Reporting Fuel Tax Agreements
State Tribal fuel sales reported? Tribes pay state fuel tax? Receive refund? Tribal tax?
Alaska (Negligible sales, according to state) NO NO n/a
Arizona 100% NO - some pay like tax to state YES (some) YES (some) - "like tax"; state collects for some tribes
Idaho 100% NO NO YES
Iowa Mixed YES (some) YES (some) NO
Minnesota 100% YES YES NO
Montana 100% NO YES YES
Nebraska 100% NO - exempt NO YES - collect tax and share portion with state (estimated non-member sales)
New Mexico 100% NO - exempt NO YES
New York not available not available not available not available
Oklahoma 100% YES YES NO
South Dakota 100% NO-exempt YES YES - "like tax"; state collects
Washington 100% YES YES NO

Source: ICF Consulting; State and Tribal Contacts

2.3.2 Definitions: Point of Fuel Taxation

Fuel sales are reported and fuel tax is generally collected before fuel reaches a gasoline retailer, but the exact method differs from state to state. The point of fuel tax collection sometimes influences how agreements with tribes are structured and whether additional reporting is required, and is noted in each of the state summaries. There are three points for fuel taxation: at the terminal, upon first receipt, and on distributors. The figure below shows the process and the point at which the state fuel tax is paid.

Figure 1: Point of Taxation for State Fuel Tax
Figure 1: Point of Taxation for State Fuel Tax

  • At the terminal. "At the rack" is commonly used to describe taxation at the terminal. In this case, the position holder (i.e. the terminal operator and/or the person with a contract with the terminal operator for the use of storage facilities and terminaling services) or importers assess the tax on distributors buying fuel from the terminal. Position holders or importers convey the fuel tax to the state.
  • Upon first receipt. Fuel tax assessed "upon first receipt" is paid by the "importer" (i.e., the cross-state distributor), where "importation" is defined to include taking fuel from a terminal for distribution in-state. In this case, distributors convey the fuel tax to the state as soon as they "import" it.
  • Distributor. In some states, fuel tax is assessed on licensed distributors. In these states, distributors are typically licensed to buy and sell fuel tax-free, but must pay the fuel tax when they sell it to an unlicensed business - a retailer in most cases. In this case, distributors also convey the fuel tax to the state, but at a later point in their distribution process than "upon first receipt."

Regardless of the point of taxation, many states have interstate tax agreements, which allow for fuel that is exported for sale in another state not to be taxed by both states.

For ease of administration, in recent years, several states have moved the point of taxation up the supply chain, which has also eliminated some fuel tax evasion.

Alaska Summary
Facts on State and Tribal Fuel Sales
Native American population for the state, 2003:
U.S. Census Annual Estimates
122,990
Percent of total state population that is Native American or Alaskan Native, Alone or in combination, 2003:
U.S. Census Annual Estimates
19.0 percent
Federally Recognized Tribes in state:
Federal Register, Vol. 67 p .46327 (2002)
There are 225 federally recognized tribes in Alaska. They are not listed here.
State gasoline sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
329,303,000 gallons
State special fuel (diesel) sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
45,747,000 gallons
State contributions to the Highway Trust Fund, 2003
Highway Statistics 2003, Table FE-221
$64,553,000 (0.223 percent)
State fuel tax rate for gasoline, as of November 2004:
Highway Statistics 2003, Table MF-121T
8 cents
Point of tax collection:
State Contacts
At the terminal ("At the rack")
Estimated annual gasoline sales on tribal lands:
State Contacts
Insignificant.
Number of retail establishments on tribal lands:
State Contacts
2 Native corporations have retail motor fuel outlets on federally recognized reservations.
Status of state fuel tax agreements between state and tribes:
State and Tribal Contacts
No agreement, and no need perceived for an agreement.
State Fuel Tax on Tribal Sales: History and Status

Alaska does not have fuel reporting agreements with any Alaskan Native tribes. the state does not consider the lack of agreements a problem, since the state believes that the amount of fuel sold on federally recognized reservations is relatively insignificant.

Motor fuel is taxed at the rack, and paid by the supplier. The State does not tax motor fuel sales on native reservations. Most of the federally recognized tribes not residing on reservations defer paying motor fuel tax on purchases and pay tax only if and when there is a taxable event. For example, a "taxable event" could be when otherwise tax-exempt fuel, normally used for heating, is used by a tribe or tribal member in a truck(s) on a highway.

Reporting

The State has not estimated the amount of tax-exempt fuel sold in the state. the State reports that the amount of taxable fuel sold on native tribal lands is so small that it does not consider it worth the amount of time it would take to estimate the sales.

The FHWA apportionment for the state of Alaska is not controlled primarily by the state's contributions to the Highway Trust Fund. Most of the state's federal-Aid Highway apportionment stems from the Minimum Guarantee program, which under current law guarantees that Alaska will receive 1.2 percent of total funding, even though it contributes only 0.2 percent of the total Federal motor fuel revenue.

Tribal Fuel Tax

There are only two Native American reservations with retail fuel outlets. the state reports no price differential between fuel prices on or off native lands.

Cooperative Process: Taxation and Reporting

The state reports no issues or complaints regarding reporting of fuel sales data in Alaska.

If there is an issue regarding under reporting, it may because tribal units are reluctant to report sales due to confidentiality concerns.

Arizona Summary
Facts on State and Tribal Fuel Sales
Native American population for the state, 2003:
U.S. Census Annual Estimates
327,547
Percent of total state population that is Native American or Alaskan Native, Alone or in combination, 2003:
U.S. Census Annual Estimates
5.9%
Federally Recognized Tribes in state:
Federal Register, Vol. 67 p .46327 (2002)
Ak Chin, Cocopah, Colorado River, Fort McDowell, Yavapai Nation, Fort Mojave, Gila River, Havasupai, Hopi, Hulapai, Kaibab Band of Paiute, Navajo Nation, Pascua Yaqui, Quechuan, Salt River Pima-Maricopa, San Carlos Apache, San Juan Southern Paiute, Tohono O'odham Nation, Tonto Apache, White Mountain Apache, Yavapai-Apache Nation, Yavapai-Prescott
State gasoline sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
2,574,087,000 gallons
State special fuel (diesel) sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
726,925,000 gallons
State contributions to the Highway Trust Fund, 2003:
Highway Statistics 2003, Table FE-221
$576,955,000 (1.992 percent)
State fuel tax rate for gasoline, as of November 2004:
Highway Statistics 2003, Table MF-121T
18 cents
Point of tax collection:
State Contacts
"At the rack" (at the terminal)
Estimated annual gasoline sales on tribal lands:
State Contacts
n/a
Number of retail establishments on tribal lands:
State Contacts
n/a
Status of state fuel tax agreements between state and tribes:
State and Tribal Contacts
Agreements with 3 tribes (out of 21)

State Fuel Tax on Tribal Sales: History and Status

The state of Arizona has fuel reporting agreements with three tribes out of 21 in the state. The first agreement was made in 1998, on the initiation of a single tribe. A second tribe formed a similar agreement in 2003. Under these agreements, the tribes enacted their own tribal fuel tax, in the same amount as the state fuel tax. The state fuel tax is levied by the state at the rack on all gasoline, including gasoline destined for tribal fuel sales. tribes sell the fuel with the state fuel tax included in the price. The state then uses a formula to estimate the amount of fuel sold to tribal members on the reservation in order to refund fuel taxes on that amount to the tribal government.

A tribal representative reported that the formula for the tribe's estimated fuel use is as follows:

  • Vehicles owned on reservation x
  • Average fuel economy x
  • Average vehicle miles traveled x
  • Tribal fuel tax rate

In effect, this formula estimates what the tribal fuel tax revenue would be if the tax were levied on gasoline; the state does not explicitly track tribal sales separate from other sales in the state.

In the case of the third tribe, which made an agreement with the state in 1999, the tribe also imposes a tribal fuel tax on fuel purchases on the reservation. However, in this tribe's case, the tribe actually collects the tax revenue from suppliers and reports deliveries to the state of Arizona. The tribe and the state negotiated a formula to estimate the percentage of reservation fuel sales to non-members, and makes a payment to the state each quarter.

In tribes without agreements, tribal members may individually apply for fuel tax refunds. The state moved to tax at the rack in 1998, and at the same time shifted the legal incidence of the fuel tax to the end consumer.

Reporting

The state receives full reporting on tribal fuel sales. In two of the agreements, tribal fuel sales occur with the fuel tax (nominally the tribe's fuel tax) already in the price, after being assessed at the rack. Thus the fuel is recorded and sold within the same system as other fuel in Arizona.

In the case of the third tribe, the state receives load by load detailed reports from the tribe, which are then matched to reports from suppliers and distributors. This particular tribe imports most of its fuel from out of state. when it obtains fuel from an Arizona rack, the supplier pays the Arizona state tax and then applies to the state for a refund, since the tribe also assesses its own tax.

Tribal Fuel Tax

Three tribes in the state levy their own fuel tax. In two cases, however, the tribes' fuel tax is in essence collected by the state and remitted to the tribes based on estimates of tribal member purchases. In the third case, the tribe collects its own tax and remits to the state the state's share, based on estimates of non-member purchases on the reservation. In all three cases, the tribal fuel tax rates are identical to the state's fuel tax rate (18 cents).

Cooperative Process: Taxation and Reporting

The Governor brings the tribes in Arizona together quarterly on different topics, including transportation. A March 2005 meeting on tribal transportation issues was planned at the time the state was contacted.

One state staff person and a tribal representative reported that in addition to the three tribes with agreements, seven other tribes have expressed interest in forming agreements with the state. The state is not currently negotiating with any of those tribes.

A representative of one tribe said that their tribe was able to come to an agreement with the state partially because it has "less baggage" on other issues with the state.

Benefits and Limitations

Benefits. According to a staff person at the state, one tribe has set aside its revenues from the tribal fuel tax for transportation purposes. this has provided more consistent funding to the tribe for transportation improvements.

In general, according to the state, the tribes were interested in establishing a revenue source from on reservation fuel sales to benefit tribal members.

One tribal representative said that the state was interested in the agreements because it would help to close a loophole that might otherwise allow untaxed fuel sales.

Limitations. While the tribes with agreements report satisfaction with the arrangements, tribes without agreements are reportedly dissatisfied with the state's dissemination of information on how tribal members can apply for individual refunds.

Recommendations

The state noted that the agreements it has with tribes are not "cookie cutter agreements," and that each tribe's situation is unique and must be addressed accordingly.

One tribal representative said that before anything else, a trust relationship between the state and the tribe must be established.

Idaho Summary
Facts on State and Tribal Fuel Sales
Native American population for the state, 2003:
U.S. Census Annual Estimates
29,241
Percent of total state population that is Native American or Alaskan Native, Alone or in combination, 2003:
U.S. Census Annual Estimates
2.1%
Federally Recognized Tribes in state:
Federal Register, Vol. 67 p .46327 (2002)
Kootenai, Coeur d'Alene, Nez Perce, Shoshone-Bannock
State gasoline sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
612,291,000 gallons
State special fuel (diesel) sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
230,046,000 gallons
State contributions to the Highway Trust Fund, 2003:
Highway Statistics 2003, Table FE-221
$159,348,000 (0.550 percent)
State fuel tax rate for gasoline, as of November 2004:
Highway Statistics 2003, Table MF-121T
25 cents per gallon
Point of tax collection:
State Contacts
Distributor
Estimated annual gasoline sales on tribal lands:
State Contacts
7,600,000 gallons ($1.9 million in state fuel tax)
Number of retail establishments on tribal lands:
State Contacts
6 retailers
Status of state fuel tax agreements between state and tribes:
State and Tribal Contacts
No agreements

State Fuel Tax on Tribal Sales: History and Status

In Idaho, the collection of state fuel tax from tribal sales was recently litigated. In their suit, the tribes asserted that fuel sales on tribal lands are exempt from state fuel tax, which the state disputed. The courts found in favor of the tribes. In addition to future exemptions, the tribes requested retroactive refunds of all state gas tax paid on tribal lands for the previous ten months. The courts found in favor of the tribes on this suit as well, and the state has paid the tribes retroactively for those ten months

The state estimates that 7.6 million gallons are sold annually on tribal lands, from six retailers (five owned by tribes, one by an individual tribal member).

Reporting

There are currently no reporting issues. Even though tribes sell fuel without the state fuel tax, tribal fuel sales are still reported by distributors. distributors take a deduction for gallons sold to tribal retailers from the state taxes they owe.

Even though the state is collecting information on tribal fuel sales, it is unclear that this information is being reported to FHWA.

Tribal Fuel Tax

Tribal fuel taxes are currently being levied on at least four of the six tribal retailers in the state. The two tribes involved are assessing a tribal fuel tax in the same amount as the state's (25 cents per gallon). Although one of the two tribes had originally planned to assess a lower fuel tax, the tribe's executive committee decided to raise the tribe's fuel tax to match the state's in part to address fuel price equity concerns.

One tribe has a significant business selling diesel to interstate truckers, and has imposed the tribal fuel tax on diesel as well as gasoline. This has led to some problems because of the way that the International Fuel Trade agreement (IFTA) governs revenue from diesel fuel sales. Among other functions, iFTA redistributes revenue from the tax on diesel to the state or province where the fuel was used (by mileage) rather than where it was purchased. The state of Idaho has issued a warning to other IFTA members that truckers may not count fuel bought from tribal retailers as "tax paid fuel," and that Idaho will not reimburse other states for fuel taxes paid to the tribal government. this tribe is currently seeking a resolution to this issue by working with iFTA.

Cooperative Process: Taxation and Reporting

The state is able to track tribal fuel sales despite the lack of a reporting agreement in Idaho because of the way that tribes receive tax-exempt fuel. However, contacts described a lack of cooperative talk between the two sides. staff at the state commented that tribes would be more interested in an agreement if they recognized the state's power to collect the fuel tax.

From the perspective of tribes contacted, the state's past performance in maintaining roadways on tribal lands has produced varying degrees of interest in working with the state. One tribal representative said that the tribe was Uninterested in paying the state fuel tax because of a lack of maintenance on roadways on tribal lands.

As of June 2005, both sides continued to look to legal action on the subject. two tribes contacted are anticipating the results of a Kansas case currently before the U.S. Supreme Court. This case could set a legal precedent for shifting the incidence of the fuel tax to distributors, thereby eliminating state tax exemptions for tribal fuel sales.

Outlook for future agreements

The state and tribes are not currently engaged in negotiations, and contacts did not indicate the potential for agreements in the near term.

One tribal representative expressed interest in receiving funds directly from the state and the federal government to make improvements to the roads on tribal lands. Another tribal representative said the tribe would prefer to have an agreement directly with the federal government.

Staff at the state did not describe a cooperative relationship with tribes. in their view, there are many contentious issues with tribes, and an agreement on fuel tax could not be reached without state government leadership.

Iowa Summary
Facts on State and Tribal Fuel Sales
Native American population for the state, 2003:
U.S. Census Annual Estimates
19,308
Percent of total state population that is Native American or Alaskan Native, Alone or in combination, 2003:
U.S. Census Annual Estimates
0.7 percent
Federally Recognized Tribes in state:
Federal Register, Vol. 67 p .46327 (2002)
Sac and Fox, Winnebago
State gasoline sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
1,566,210,000 gallons
State special fuel (diesel) sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
511,789,000 gallons
State contributions to the Highway Trust Fund, 2003:
Highway Statistics 2003, Table FE-221
$321,792,000 (1.111 percent)
State fuel tax rate for gasoline, as of November 2004:
Highway Statistics 2003, Table MF-121T
20.3 cents
Point of tax collection:
State Contacts
"At the rack" (at the terminal)
Estimated annual gasoline sales on tribal lands:
FHWA review
The State did not offer an estimate of fuel sales on tribal lands. However, a recent review by FHWA concluded that 1.08M gal/year are used on tribal lands and are thus exempted from tax.
Number of retail establishments on tribal lands:
State Contacts
Two tribes have one retail fuel outlet each.
Status of state fuel tax agreements between state and tribes:
State Contacts
There is an existing agreement with one tribe requiring payment of fuel taxes and then the tribe applies for a refund on behalf of its members. A negotiation is underway between the State and the other tribe.

State Fuel Tax on Tribal Sales: History and Status

Iowa has an agreement with one tribe, and is currently working toward an agreement with a second tribe for the reporting of fuel sales on the tribe's reservation. There apparently is no tracking currently done by the state to ensure that tribal fuel data is reported and is correct. There is only one fuel retail outlet for each tribe.

The existing agreement with one tribe has been in effect for some time. Under this agreement, the tribe purchases fuel including the state fuel tax in the price and then files for a refund on behalf of its members. The State and the FHWA indicate the tribe is satisfied with this arrangement.

The Iowa Department of Revenue is in the preliminary stages of negotiating an agreement with a second tribe in Iowa. Possibly within the next year or so, the state will sit down with the tribe to discuss the parameters for possible agreements. The state hopes that the two parties can lay out an agreement in a reasonable time after that.

The state indicates that the second tribe already has an agreement with Nebraska. Under that agreement, the tribe is exempt from paying the Nebraska fuel tax, and consequently does not pay it, negating the need to file for a tribal refund with Nebraska. According to the state, this tribe would prefer an agreement with Iowa with an exemption from the state gas tax similar to the one it has with Nebraska. Iowa would prefer an agreement providing for the tribe to pay the fuel tax in the first instance and apply to the state for a refund, similar to the agreement it already has with another tribe.

The state legislature has passed legislation authorizing the state to execute agreements with tribes on motor fuel reporting issues.

Reporting

Motor fuel is taxed at the rack/supplier in Iowa. Suppliers pay the tax to the state when it is sold or imported into Iowa. For the tribe with an agreement, the tribe pays the state fuel tax in the first instance, then requests a tax refund based on their records of fuel used on tribal lands. The state is confident that it receives accurate reports for fuel sales from this tribe.

Outside the tribe's refund requests, the tracking and estimation of fuel sales on tribal lands is minimal, although the state is working to improve the situation. The state indicates some uncertainty regarding the data on fuel sales it receives from the tribe that does not have an agreement. The data will likely be an issue in the on-going negotiations.

Tribal Fuel Tax

Tribes do not impose their own fuel tax.

Cooperative Process: Taxation and Reporting

The state refunds approximately $18,000/month to tribes for fuel used on tribal lands. In general, there are no particularly significant issues regarding fuel sales reporting and appropriate tax collection in Iowa. However, the state indicates that some locals are upset that tribal retailers sell fuel for less than non-tribal competitors because of their tax-exempt status.

The state is reasonably satisfied with the current arrangement, but would like to take measures to improve fuel sales reporting. There apparently has been no litigation in Iowa concerning tribal fuel sales issues.

The following issues seem to be paramount in the current negotiations between the state and the tribes:

  • Whether having to pay tax and then apply for refund vs. exemption from paying tax at all,
  • Documentation of sales to tribal members,
  • Looking at different methods for estimating tribal member sales of gasoline versus diesel fuel,
  • Tribal sovereignty and ability to impose tribal tax.

The state is aiming for a win-win solution in the negotiations with the tribes.

Benefits and Limitations

Benefits. The state is aware of other litigation and has taken the initiative to develop agreements to avoid possible litigation.

Limitations. The exemptions in the agreement the state has with one tribe only apply to fuel used on tribal lands, not fuel sold on tribal lands. The effects of this definition are not clear.

Recommendations

The state recommends that parties aim for a win-win solution in negotiations.

Minnesota Summary
Facts on State and Tribal Fuel Sales
Native American population for the state, 2003:
U.S. Census Annual Estimates
83,341
Percent of total state population that is Native American or Alaskan Native, Alone or in combination, 2003:
U.S. Census Annual Estimates
1.6 percent
Federally Recognized Tribes in state:
Federal Register, Vol. 67 p .46327 (2002)
Lower Sioux, Prairie Island, Red Lake Band of Chippewa, Shakopee Mdewakanton Sioux, Upper Sioux, and six bands of Chippewa: Bois Forte Band, Fond du Lac Band, Grand Portage Band, Leech Lake Band, Mille Lacs Band, and White Earth Band
State gasoline sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
2,616,703,000 gallons
State special fuel (diesel) sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
645,306,000 gallons
State contributions to the Highway Trust Fund, 2003:
Highway Statistics 2003, Table FE-221
$435,020,000 (1.502 percent)
State fuel tax rate for gasoline, as of November 2004:
Highway Statistics 2003, Table MF-121T
20 cents
Point of tax collection:
State Contacts
Upon first receipt (from distributor)
Estimated annual gasoline sales on tribal lands:
State Contacts
(tribal refunds received on approximately 14 million gallons per year)
Number of retail establishments on tribal lands:
State Contacts
N/A
Status of state fuel tax agreements between state and tribes:
State and Tribal Contacts
Agreements in place with 10 of 11 tribes

State Fuel Tax on Tribal Sales: History and Status

The state of Minnesota has a history of cooperative agreements with tribes on taxes, starting with sales, cigarette and liquor taxes in the 1970s, after Bryant v. Itasca County (426 US 373), which found that states could not impose taxes on tribal lands. The state formed agreements with the tribes on fuel sales tax in the 1990s, after economic growth increased on tribal lands.

The state has agreements with 10 of 11 tribes in the state on motor fuel sales tax. Six tribes follow the formula described below, estimating member sales and receiving a refund. Another three tribes have no non-member sales on the reservation, and simply make quarterly sales reports in order to receive the appropriate refund. One tribe has no gasoline sales on the reservation lands, reports all fuel received, and is refunded based on those reports.

Formula for refund:
(tribal government purchases exempted)
Past year's fuel tax revenue at tribal retailers –
Estimated fuel tax revenue from tribal member purchases (based on federally registered membership) +
50 percent of remaining estimated purchases at tribal retailers by non-members

The per capita rate of fuel use by tribal members is adjusted every fall for inflation, using the Consumer Price Index.

The agreements with the tribes in Minnesota are different than in many other states in that the tribes do track actual sales, and although revenue from tribal sales is refunded based on estimates, the state also splits revenue from sales to non-members 50/50 with the tribes.

Reporting

Distributors report to the state monthly on their total fuel sales to tribal establishments. The state audits distributors rather than retailers. As part of the agreements with the states, tribes commit to purchasing fuel only from state licensed distributors.

Tribes report quarterly to the state the total sales at tribal facilities, and also send in documentation, such as fuel sales invoices, receipts for tribal government use, and the federal tribal population report. If a tribe misses its reporting deadline, it has up to one year to make the requisite reports. If necessary, refunds to the tribe would then be retroactively amended.

Tribal Fuel Tax

Tribes do not levy their own taxes on gasoline sales. The agreements with the tribes in Minnesota generally require tribal members to pay the tax in return for a refund from the state.

Cooperative Process: Taxation and Reporting

The relationship between tribes and the state on taxation issues has historically been very cooperative. A tribal representative related a story of state officers giving testimony together with tribal representatives when tax agreements came under question in the state legislature. Both testified in support of the agreements. Although fuel taxation agreements have been created only in the past ten years, prior agreements on other taxes (cigarette, liquor, sales) date back to the 1970s.

The Department of Revenue at the state has had the authority to form agreements with the tribes independent of the governor and legislature. This has worked to the Department's benefit in that it keeps fuel and other taxation agreements separate from more difficult issues such as gaming and criminal justice. Staff at the Department described the process as creating a living agreement, rather than fine-tuning an ideal enforcement mechanism. One said that "there had to be a level of trust - if that wasn't there, you didn't need an agreement." A tribal representative said that the Department "understands the benefits of tax peace... of having a uniform tax system throughout the state."

Benefits and Limitations

Benefits. For the state, the main benefit is the assurance that there will be no untaxed sales. For the tribes, the fuel tax refund is an important source of revenue, and discussions on the issue have been part of an historically cooperative relationship between the state and the tribes.

Limitations. The state is considering renegotiating the fuel tax agreement as part of another negotiation planned for addressing revenue from gaming operations revenue. Some minor administrative issues associated with the fuel tax agreement may also be addressed at that time, though these issues were not specified by the state.

A tribal representative said that although these agreements are part of an historically good relationship between the state and the tribes, other issues, such as gaming, have caused a deterioration in the relationship in recent years.

Recommendations

From the point of view of the state, a cooperative relationship with genuine agreement is more important than the perfect enforcement mechanism. The fuel sales agreements were made as one of several agreements, so the revenue for the tribes from them is in addition to revenues from sales and cigarette taxes.

A tribal representative cautioned that the type of agreement reached must meet the goals of each particular tribe in order to be of benefit. The agreements in Minnesota are structured around maximizing revenue for the tribes without requiring them to develop their own taxation system. Some tribes may prefer to maximize other aspects. As an example, a tribal representative in Minnesota said that agreements in Michigan focus on refunds to individual members, rather than revenue for tribal governments.

Montana Summary
Facts on State and Tribal Fuel Sales
Native American population for the state, 2003:
U.S. Census Annual Estimates
69,680
Percent of total state population that is Native American or Alaskan Native, Alone or in combination, 2003:
U.S. Census Annual Estimates
7.6%
Federally Recognized Tribes in state:
Federal Register, Vol. 67 p .46327 (2002)
Assiniboine and Sioux of Fort Peck Indian Reservation, Blackfeet, Chippewa-Cree, Confederated Salish & Kootenai, Crow, Fort Belknap, Northern Cheyenne
State gasoline sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
495,078,000 gallons
State special fuel (diesel) sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
194,419,000 gallons
State contributions to the Highway Trust Fund, 2003:
Highway Statistics 2003, Table FE-221
$128,682,000 (0.444 percent)
State fuel tax rate for gasoline, as of November 2004:
Highway Statistics 2003, Table MF-121T
27 cents
Point of tax collection:
State Contacts
Distributor
Estimated annual gasoline sales on tribal lands:
State Contacts
N/A
Number of retail establishments on tribal lands:
State and Tribal Contacts
N/A
Status of state fuel tax agreements between state and tribes:
State and Tribal Contacts
Agreements with 6 of 7 tribes

State Fuel Tax on Tribal Sales: History and Status

Montana has had state fuel tax agreements with most tribes in the state since 1993. The agreements stipulate that the tribes enact a tribal tax in the same amount on their members, and that the state will collect the tax and remit it to the tribal government. In effect, it acts as a revenue-sharing agreement.

The formula for the remittance to the tribes is as follows:

Enrolled members living on the reservation x
(Per capita gasoline consumption (state average)+20% increase (negotiated)) -
Agricultural refund for off-road use per capita -
16% due to state's distribution to the counties -
Estimated off-reservation travel -
1% collection fee for the state

The agreement with each tribe is slightly different in terms of the factors used and any adjustments applied. On average, tribes are receiving about 80 percent of the fuel tax revenue from sales on tribal lands, according to state staff. Tribes receive a quarterly payment of the rebate. As in most other states in the study with agreements, payments are not determined by actual sales because recording sales to tribal members specifically would be a large administrative burden, on the cashier, the tribe, and staff at the state who would presumably process the paperwork.

One tribe still does not have an agreement with the state. Tribal members in that tribe pay the state gas tax at the pump, and the tribe does not receive any refund. This tribe reportedly has a large percentage of non-tribal members living on the reservation.

Reporting

There are no reporting issues currently with tribes in Montana. Licensed distributors report sales, including those to tribes, electronically for the most part. One tribe has a special arrangement to receive funds based on gallons of gasoline sold rather than the formula. For this tribe, sales are reported on paper.

Tribal Fuel Tax

The agreements require the tribe to enact a like tax on fuel sales within tribal lands, which is then administered by the state and rebated to the tribe according to the formula above. On- and off-reservation prices are identical.

Tribes are free to determine the best use for the funds they receive through the formula.

Cooperative Process: Taxation and Reporting

The state of Montana has had a good and long lasting relationship with the tribes on the issue of fuel taxation. The agreements were formed in 1993, and include a clause that allows either party the ability to opt out with 30 days notice; however, neither a tribe nor the state has decided to opt out since inception.

According to one tribal representative, the two parties "agree to disagree" about the state's power to tax tribal members as part of the agreements. However, for the state, a fundamental part of its commitment to the agreements is recognizing the sovereignty of the tribes. This commitment is part of a larger attitude toward the agreements and helps explain both their longevity and stability.

Prior to making the agreements, the state legislature gave the state the authority to make the agreements with the tribes. Fuel tax was negotiated along with several other issues (tobacco, etc.) at the same time, although there is a separate agreement for each.

Benefits and Limitations

Benefits. For the state tax administrators, the agreements are a win-win situation, preventing untaxed fuel sales without increasing the state's administrative burden. If tribal members were exempted from the fuel tax at the service station, the state would have to process more paperwork.

For tribes, the agreements avoid litigation, and provide a stable source of revenue. Income from the fuel tax is predictable, and its level is unlikely to change dramatically as the remittance formula is tied to population. The agreements also allow tribal members to avoid dual taxation by both the state and the tribe.

One tribal representative said that an additional benefit of the work with the state on the agreements is the good relationship that has developed with the staff who administer them. This relationship enables the tribe to have easier access to public information through those staff.

One tribe reportedly was able to use the revenue stream as collateral for a bank loan.

Limitations. The state would like to update some of the factors in the rebate calculation, especially the per capita gasoline consumption, which has not been updated since a 1993 study.

One tribal representative expressed concern that there is no way to determine if the agreements are producing the right amount of revenue for the tribes, but added that the effort to determine this would hardly be worth the improvements to the refund formula. In order to determine the correct amounts, fuel retailers on tribal lands would have to track sales for a year, gathering tribal membership information and other information on each customer. In the end, the formula may be found to slightly over or underestimate revenue; however, the tribal representative was of the opinion that the current formula is not significantly off the correct amount.

Recommendations

The state views the agreements as a win-win situation, and recommends that other states follow this type of arrangement. However, a tribal representative cautioned that the Montana agreements may not necessarily work for other tribes, depending on their needs, tax laws, and demographics.

A tribal representative emphasized the importance of having executives on both sides of the negotiations involved in the process. Because of his involvement in, and commitment to, the agreements, Montana's Attorney General has reportedly been supportive of the tribes, even when the agreements came under dispute.

Nebraska Summary
Facts on State and Tribal Fuel Sales
Native American population for the state, 2003:
U.S. Census Annual Estimates
23,274
Percent of total state population that is Native American or Alaskan Native, Alone or in combination, 2003:
U.S. Census Annual Estimates
1.3 percent
Federally Recognized Tribes in state:
Federal Register, Vol. 67 p .46327 (2002)
Winnebago, Omaha, and the Santee Sioux; and the Sac and Fox, the Iowa, and the Ponca tribes (the latter three tribes either have no recognized reservation land or no retail operations in Nebraska)
State gasoline sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
847,443,000 gallons
State special fuel (diesel) sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
377,292,000 gallons
State contributions to the Highway Trust Fund, 2003:
Highway Statistics 2003, Table FE-221
$214,331,000 (0.740 percent)
State fuel tax rate for gasoline, as of November 2004:
Highway Statistics 2003, Table MF-121T
24.6 cents
Point of tax collection:
State Contacts
Distributor (upon first receipt)
Estimated annual gasoline sales on tribal lands:
State Contacts
1,620,000 gallons
Number of retail establishments on tribal lands:
State and Tribal Contacts
About 5
Status of state fuel tax agreements between state and tribes:
State and Tribal Contacts
Agreements with 2 of 3 eligible tribes

State Fuel Tax on Tribal Sales: History and Status

In 2000, the state received word that one of the tribes was planning to sell blended gasoline that was blended on the reservation, and exempt from the state fuel tax. The Nebraska Department of Revenue considered its options and decided to attempt to form an agreement with the tribe rather than turn to litigation. The Department requested the authority from the legislature to make an agreement with tribes on motor fuel taxation issues, and received it in 2002.

The agreements provide for tribes to purchase fuel tax-free, and then make quarterly reports and payments to the state for the state's share of the fuel tax revenue. Tribes with agreements levy a tax in the same amount as the state's (see below). One of the tribes in Nebraska serves as a distributor for gasoline retailers on most tribal lands in Nebraska, and acts under the agreements both as a distributor and a retailer. The state receives 20-25 percent of taxes on gasoline sales, and 25-40 percent of diesel tax revenue, depending on each tribe's agreement.

Although tribal members were reportedly reluctant to come to an agreement that meant giving up some tribal sovereignty, they preferred to avoid litigation. Prior to the agreement, tribes were paying some taxes, but there was no audit agreement.

Reporting

The state is confident that it is receiving full reports on fuel sales on tribal lands. The agreements also give the state the right to audit the tribal distributors. If a tribal distributor cannot show that the fuel was sold from the reservation, the assumption is that it was sold off reservation, and therefore subject to the state fuel tax.

Tribal Fuel Tax

Fuel prices on reservations used to be lower than off-reservation, but are now within 1-2 cents of other prices. The tribes agreed to charge a fuel tax at the same rate as the state's in return for their share of the revenue.

The agreements in Nebraska are different than many other state-tribal agreements on fuel tax in that they provide for the tribes to assess a fuel tax and pay the state its agreed-upon share of the revenues. While several other states in the study assess a fuel tax and then issue a refund to the tribe or tribal members, Nebraska's limitations on fuel tax revenues precluded the state from following that route.

The share that the state receives from the fuel tax revenue is a negotiated amount that approximates non-member purchases on the reservation. The state's goal in the agreement was primarily to stop tax-free fuel sales.

Cooperative Process: Taxation and Reporting

Building trust between the tribes and the state was an important part of achieving agreement on these issues. During negotiations, the Governor issued a statement that tribes would be treated as another governmental entity, and attended some of the meetings along with the tax commissioner.

One tribal representative said that the agreements are key to providing the stability that investors need in order to put capital into businesses on the reservation. For the state, getting full information on fuel sales was more important than getting the revenue from the fuel sales tax. According to a state representative, members of the public were very concerned about the agreements initially, but have since been convinced that the tribes are administering the fuel sales tax appropriately, as evidenced through the more comparable on and off-reservation fuel prices.

A tribal representative whose tribal lands straddle Nebraska and another state contrasted the dealings with the two governmental entities sharply. Although the tribe has a good relationship with the state of Nebraska, officials from the other state have reportedly alienated the tribe during the negotiations process. The tribe is now in the fifth year of negotiations with this state over the issue of fuel taxes. Nebraska state staff have worked with the tribe and the other state to help with the process.

Benefits and Limitations

Benefits. For the state, the main benefit of the agreements has been greater accountability; the state now receives full reporting on both the sales and importation of fuel on tribal lands.

One tribal representative said that the agreements have improved the economic stability of the reservation for investments. Both parties preferred to negotiate an agreement rather than turn to litigation.

Limitations. Despite the agreement, a tribal representative emphasized that the tribe still takes its taxation jurisdiction on tribal lands very seriously, and does not believe that the state should have power over tribal jurisdiction.

The administration of the agreement has been somewhat of a burden for the state because the tribes report in a slightly different way from other distributors and retailers operating in Nebraska. The state may change its procedures to streamline the process.

Recommendations

The state recommended that the administrative burden should be considered in negotiating an agreement. The state also recommended that the agreements cover tank wagon sales, which are sales directly to customers who maintain their own storage tanks.

A tribal representative said that the successful development of agreements depends on the attitudes of staff at state agencies, and that communications between the tribes and the state should be kept open to facilitate successful negotiations.

New Mexico Summary
Facts on State and Tribal Fuel Sales
Native American population for the state, 2003:
U.S. Census Annual Estimates
202,529
Percent of total state population that is Native American or Alaskan Native, Alone or in combination, 2003:
U.S. Census Annual Estimates
10.8 percent
Federally Recognized Tribes in state:
Federal Register, Vol. 67 p .46327 (2002)
Navajo Nation, Jicarilla Apache, Mescalero Apache, Ute Mountain, Zuni, and 18 Pueblo tribes: Acoma, Cochiti, Jemez, Isleta, Laguna, Nambe, Picuris, Pojoaque, San Felipe, San Juan, San Ildefonso, Sandia, Santa Ana, Santa Clara, Santo Domingo, Taos, Tesuque, and Zia
State gasoline sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
852,800,000 gallons
State special fuel (diesel) sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
440,395,000 gallons
State contributions to the Highway Trust Fund, 2003:
Highway Statistics 2003, Table FE-221
$251,758,000 (0.869 percent)
State fuel tax rate for gasoline, as of November 2004:
Highway Statistics 2003, Table MF-121T
18.5 cents
Point of tax collection:
State Contacts
At the terminal ("At the rack")
Estimated annual gasoline sales on tribal lands:
State and Tribal Contacts
Estimated $14 - $17 million in tribal fuel tax revenue, or 82 - 100 million gallons
Number of retail establishments on tribal lands:
State and Tribal Contacts
One tribe has 80 retailers; others unknown

22 registered Indian tribal distributors; 150 distributors take indirect deductions
Status of state fuel tax agreements between state and tribes:
State and Tribal Contacts
Agreements with 2 tribes; in negotiations with others

State Fuel Tax on Tribal Sales: History and Status

The state first worked out an agreement with one tribe after a 1995 federal investigation uncovered a fuel tax evasion scheme that used a tribe's name as a cover-up. However, since then, the state has mainly used legislation to address issues of tribal fuel sales and tax collection, rather than agreements with the tribes. The state is working on agreements with other tribes to share information for auditing purposes.

The legislation in New Mexico that governs tribal fuel sales is different in many ways from other states. The Gasoline Tax Act of 1999, passed as a compromise between the state and the tribes, exempts tribal fuel sales from the state fuel tax as long as the tribe assesses its own tax. Either retailers or distributors pay the tribe's fuel tax after purchasing state tax-free fuel from distributors, and tribes are responsible for the administration of their own fuel tax, and how they levy it.

Tribes can administer their own fuel tax, and exempt sales on tribal lands from the state fuel tax, without any special agreement with the state. This is due to the nature of the legislation. The state would prefer to have information-sharing agreements with tribes to ease the auditing process, and has such agreements with two tribes. Rather than tribes, distributors currently report to the state, and they and retailers are audited by the state.

Since the 1999 law was passed, distributors file monthly reports on how much they have sold and to which stations. The tribes' fuel tax must at least match the state's fuel tax rate. Since 2001, distributors must show proof that they or the retailers to whom they sold fuel have paid the tribe's fuel tax in order to take a deduction from their state fuel tax payment.

Reporting

Distributors report all fuel sales when they submit payment of the state fuel tax. In the course of reporting their sales, they must report sales to tribal entities or licensed Indian distributors in order to take a deduction for the exempt sales. Otherwise, they would be required to pay the state fuel sales tax. If they sell fuel to a tribal entity directly, they report a direct deduction on their fuel tax payment and sales report to the state. If they sell fuel to a licensed Indian distributor, they take an indirect deduction from their state fuel tax payment and report the sales as such.

After distributors take a deduction and report fuel sales to the state, tribes levy their own tribal fuel tax. The method for reporting to tribes and paying the tribal fuel tax is determined by each tribe, and can be done by either the distributor or the retailer. The state audits distributors and retailers, but not tribes. The state has joint audit agreements with two tribes.

When the state audits a distributor, the distributor must provide tax reports from the retailers they supply. If neither the distributor nor the retailers show payments to tribal governments, the state assesses the distributor for the state fuel tax.

Tribal Fuel Tax

New Mexico law requires tribes to impose their own fuel tax at the same or higher rate as the state. Each tribe collects taxes from distributors and retailers directly.

Cooperative Process: Taxation and Reporting

Fuel sales reporting agreements seldom work outside the fuel taxation system, but the state of New Mexico is an exception. While state legislation covers the exemption of tribal fuel sales, the state also has separate agreements with two tribes that provide for information sharing only. One tribe has an agreement to do joint audits, and another has an agreement to engage in limited information-sharing with the state. This is a testament to a high level of cooperation and agreement between the state and the tribes. In addition, one of the tribes in New Mexico has information-sharing agreements with two states outside their reservation that are often the source of imported fuel onto the reservation.

In 2003, Governor Richardson formed a gasoline taxation working group to address some of the logistical problems involved with fuel taxation in New Mexico. Even though the tribes had only four representatives in the core working group, one tribal representative who had gone to the meetings as a member of the public said that they were inclusive and had fostered a cooperative atmosphere between industry, tribes, and state agencies. Prior to the working group, many of the participants had never before sat at a table together.

One tribal representative said that before 1999, the state legislature had spent entire sessions just on the issue of tribal fuel taxation. In this representative's view, the state had taken a very positive approach by engaging the tribes and other interested parties and working toward consensus on fuel taxation issues.

Benefits and Limitations

Benefits. Several tribes are now receiving substantial revenues through levying their own fuel tax. The economic development spurred by the resolution of the taxation issue and the associated increase in revenues has conferred many benefits for people living on the reservations. For example, the new stability in fuel taxation laws has attracted brand-name gasoline retailers to reservations, thereby increasing competition and lowering prices for consumers.

One tribe that has an agreement with the state for joint audits has been learning auditing skills by working with state agents.

For the state, the Gasoline Tax Act of 1999 has produced uniform fuel taxation on tribal and non-tribal lands.

Limitations. The state would prefer to have joint audit agreements with all of the tribes in order to improve enforcement. Having appropriate information exchange in agreements is also important; the state has one agreement that allows for information exchange only at the level of the head of agency, rather than the staff level, which makes working arrangements difficult.

Recommendations

The Gas Tax Working Group, organized by the Governor in 2003, was praised by both state and tribal representatives because it has improved relations between tribes, the state, and the petroleum industry. The state emphasized the importance of building good relationships with tribes, even if it takes some time. One tribal representative emphasized that each tribe is different, and has its own history and relationship to fuel retailers, and must be approached individually by the state.

New York Summary
Facts on State and Tribal Fuel Sales
Native American population for the state, 2003:
U.S. Census Annual Estimates
186,024
Percent of total state population that is Native American or Alaskan Native, Alone or in combination, 2003:
U.S. Census Annual Estimates
1.0 percent
Federally Recognized Tribes in state:
Federal Register, Vol. 67 p .46327 (2002)
Cayuga, Oneida, Onondaga, St. Regis Band of Mohawk, Seneca, Tonawanda Band of Seneca, Tuscarora
State gasoline sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
5,776,130,000 gallons
State special fuel (diesel) sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
919,946,000 gallons
State contributions to the Highway Trust Fund, 2003:
Highway Statistics 2003, Table FE-221
$1,223,902,000 (4.226 percent)
State fuel tax rate for gasoline, as of November 2004:
Highway Statistics 2003, Table MF-121T
22.65 cents
Point of tax collection:
Tribal Contacts
Point of first sale
Estimated annual gasoline sales on tribal lands:
Tribal Contacts
n/a
Number of retail establishments on tribal lands:
Tribal Contacts
n/a; About 8 on one reservation
Status of state fuel tax agreements between state and tribes:
Tribal Contacts
No agreements

Note: The State of New York was unable to comment on this topic for this study. Information below is based on tribal contacts only.

State Fuel Tax on Tribal Sales: History and Status

Although several tribes and the state government were contacted for the study, they were unable to comment. The following is based on one tribal representative.

According to one tribal representative, "you could fill a room with all of the litigation that has transpired." The Governor has made several attempts to solve the issue. In 1996, the Governor attempted to promulgate tax regulations to tax the tribes, which failed. He was later sued by a convenience store group for failing to tax tribal sales, but the court found in favor of the Governor. In 2003, the legislature passed a law requiring taxation of tribal sales to non-members, which was then vetoed by the Governor. The legislature has since overridden the veto, but enforcement of the law has been unresolved.

Currently, one tribe in the state has a negotiated agreement that has not yet been signed. The agreement, as negotiated, would provide for the tribe to impose a like tax on both fuel and cigarette sales. This is a "tax parity agreement," creating an even taxation field, although the tribe would receive all tax revenue from sales on the reservation, including non-members.

Reporting

The extent of unreported fuel sales in the state of New York is not clear.

Tribal Fuel Tax

At least one tribe in the state is interested in signing an agreement with the state that would provide for the tribe to levy a tribal fuel tax equal to the state's. It is unclear what other tribes' positions may be.

Cooperative Process: Taxation and Reporting

Although several tribes were contacted, only one tribal representative was able to comment on this issue in New York. This tribal representative described the staff at the Department of Taxation and Finance as cooperative and forthcoming in negotiations with that particular tribe. However, according to a tribal representative, the practice of the state has been to refuse to settle any individual issue when other issues are outstanding, which has hindered finalizing this tribe's agreement with the state on fuel taxation.

Opposition to the special tax status for tribes is still strong in some parts of the state, according to one tribal representative.

Outlook for future agreements

Although several tribes were contacted, only one tribe was able to comment for the study. This tribe has already negotiated an agreement hopes to sign the agreement in the near future, but reports that the state has tied this agreement to other issues. This tribe would like to resolve outstanding legal issues on fuel taxation and avoid future lawsuits and enforcement actions, in order to create more certainty for the future.

This tribe, however, views the agreement as a net fund loss for the tribe, as it would not be able to market a tax exemption. Fuel taxation is a major issue here, but more significant is cigarette sales taxation (the agreement covers both). The tribe predicts that it would have a net loss of $1 million in revenue by foregoing the cigarette and fuel tax exemptions in favor of tribal taxes equal to the state's.

Oklahoma Summary
Facts on State and Tribal Fuel Sales
Native American population for the state, 2003:
U.S. Census Annual Estimates
394,831
Percent of total state population that is Native American or Alaskan Native, Alone or in combination, 2003:
U.S. Census Annual Estimates
11.3 percent
Federally Recognized Tribes in state:
Federal Register, Vol. 67 p .46327 (2002)
Absentee-Shawnee, Alabama-Quassarte, Apache, Caddo, Cherokee Nation, Cheyenne-Arapaho, Chickasaw, Choctaw, Citizen Potawatomi Nation, Comanche Nation, Delaware Nation, Delaware, Eastern Shawnee, Fort Sill Apache, Iowa, Kaw, Kialegee, Kickapoo, Kiowa, Miami, Modoc, Muscogee Creek, Osage, Ottawa, Otoe-Missouria, Pawnee Nation, Peoria, Ponca, Quapaw, Sac and Fox, Seminole Nation, Seneca-Cayuga, Shawnee, Thlopthlocco, Tonkawa, United Keetowah Band of Cherokee, Wichitaw, Keechi, Waco, Tawakonie, and Wyandotte
State gasoline sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
1,880,211,000 gallons
State special fuel (diesel) sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
842,195,000 gallons
State contributions to the Highway Trust Fund, 2003:
Highway Statistics 2003, Table FE-221
$488,085,000 (1.685 percent)
State fuel tax rate for gasoline, as of November 2004:
Highway Statistics 2003, Table MF-121T
17 cents per gallon
Point of tax collection:
State Contacts
"At the rack" (at the terminal)
Estimated annual gasoline sales on tribal lands:
State Contacts
n/a
Number of retail establishments on tribal lands:
State Contacts
n/a
Status of state fuel tax agreements between state and tribes:
State and Tribal Contacts
The State has agreements with 23 of 41 tribes.

State Fuel Tax on Tribal Sales: History and Status

There are 23 Oklahoma tribes which have executed agreements/compacts with the state. Under the agreements, the state distributes to each tribe a portion of state motor fuel tax revenues, which are collected prior to the retail sale ("at the rack") according to the terms of the agreement. Each contracting tribe receives $6,250 per quarter, plus tribes, which were engaged in the sales of motor fuels in the fourth calendar quarter of 1996, receive $0.02 per gallon sold during that quarter.

Agreements are executed under state enabling legislation. There was litigation in 1995 (Oklahoma Tax Commission v. Chickasaw Nation, 115 S.Ct. 2214 (1995)), which precipitated the enabling legislation allowing for agreements. The case is described as follows on the Oklahoma Indian Affairs Commission website:

The Court found that Oklahoma's motor fuel tax laws in place at the time of the litigation could not be applied to sales of fuel by Indian tribes. In response to the decision, the state revised the motor fuel tax law so that the tax could legally be applied to fuel sales on tribal lands to non-tribal members. The basic premise of the law allows federally recognized tribes to contract with the state to receive an apportionment of the annual gross motor fuel revenues collected by the state. (http://www.oiac.state.ok.us/motorfuels.htm)

The state legislation at S68-500.63(A) outlines the legislative conditions under which agreements between the state and federally recognized tribes are developed. It makes it quite clear that when an agreement is in place, state and federal taxes will be included in the price of all fuel sales. The tribe will not sell fuel in Indian country on which the tax has not been pre-collected. In return, the tribes will receive from the state a quarterly apportionment of motor fuel tax revenues. Their apportionment is currently a 4½ percent takedown based on total state fuel tax revenue, or $14.4 million in fiscal year 2003. These funds are divided up between the various tribes as follows. Each contracting tribe receives $6,250.00 quarterly ($25,000 per year or $575,000 total for all tribes). Then each contracting tribe receives $0.02 per gallon of motor fuels sold by the tribe during the fourth quarter of 1996 (approximately $400,000 of the total)) The remainder is apportioned based upon tribal resident membership of each tribe relative to the other tribes in the state. According to the legislation, tribes must spend the funds "...for tribal government programs limited to highway and bridge construction, health, education, corrections, and law enforcement."

Copies of the agreements/compacts may be found on the web at www.oiac.state.ok.us. OIAC is the Oklahoma Indian Affairs Commission.

Reporting

One tribe in Oklahoma, which has a retail outlet, indicated that they periodically report retail sales of oil and gas to the state, which occur primarily at convenience stores related to the tribe's casino.

Suppliers report fuel taxes and pay the state fuel tax to the state (at the rack), and the Oklahoma Tax Commission reports motor fuel data to the FHWA.

Tribal Fuel Tax

The enabling legislation recognizes that both the tribes and the state government impose motor fuel taxes.

Cooperative Process: Taxation and Reporting

Native American fuel sales are being reported fully in Oklahoma. The reporting is done under agreements executed pursuant to State enabling legislation.

Litigation in 1995 precipitated enabling legislation allowing for agreements, under which the tribes receive a portion of state motor fuel tax revenues. The taxes are collected prior to the retail sale (paid by the supplier) according to the terms of the agreement. A portion of state fuel tax revenues are withheld monthly and apportioned quarterly to the tribes.

Benefits and Limitations

Benefits. There is general agreement that tribal-state relations have improved as a result of the agreements in place. The incentive of tax refunds has caused tribes to be more careful with data on fuel sales and related tax issues.

Limitations. Generally tribes are comfortable with the agreements, but there is some concern that the tribes that actually have fuel sales must share the revenues with all tribes, including those that don't actually sell fuel. In this case some feel that only those tribes with actual fuel sales should share in the revenues distributed under the agreement.

Since not all tribes have executed agreements/contracts with the state, members of non-contracting tribes apply for refunds for fuel taxes they have paid.

Recommendations

Oklahoma's agreement process is worthy of consideration by states which are in the negotiating stages with tribes on fuel tax issues.

South Dakota Summary
Facts on State and Tribal Fuel Sales
Native American population for the state, 2003:
U.S. Census Annual Estimates
69,950
Percent of total state population that is Native American or Alaskan Native, Alone or in combination, 2003:
U.S. Census Annual Estimates
9.1%
Federally Recognized Tribes in state:
Federal Register, Vol. 67 p .46327 (2002)
Cheyenne River Sioux, Crow Creek Sioux, Flandreau Santee Sioux, Lower Brule Sioux, Oglala Sioux, Rosebud Sioux, Sisseton-Wahpeton Sioux, Standing Rock Sioux, Yankton Sioux
State gasoline sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
419,842,000
State special fuel (diesel) sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
166,675,000 gallons
State contributions to the Highway Trust Fund, 2003:
Highway Statistics 2003, Table FE-221
$96,331,000 (0.333 percent)
State fuel tax rate for gasoline, as of November 2004:
Highway Statistics 2003, Table MF-121T
22 cents
Point of tax collection:
State Contacts
At the terminal ("At the rack")
Estimated annual gasoline sales on tribal lands:
State Contacts
16,349,617 gallons (FY 2004)
(15,623,718 gallons on tribal lands with agreements; 725,899 gallons sold by two tribes without an agreement. Sales on the lands of 3 tribes are not accounted for here.)
Number of retail establishments on tribal lands:
State Contacts
30-50
Status of state fuel tax agreements between state and tribes:
State and Tribal Contacts
Agreements with 4 of 9 tribes

State Fuel Tax on Tribal Sales: History and Status

There was litigation over the taxation of tribal fuel sales in recent years, ending in 2003 when the South Dakota Supreme Court upheld a lower court ruling in favor of the tribes. In addition to finding that the state was not able to tax fuel sales to members on tribal lands, the court required the state to remit 15 months of fuel tax revenue from those sales retroactively, for a total of $1.3 million.

After the court case ended in 2003, the state formed fuel taxation agreements with 4 of the 9 tribes in South Dakota. Under the agreements, tribes set a tribal fuel tax equal to that of the state. The state continues to administer the fuel tax collection, and refunds part of the revenue from sales on tribal lands to the tribes. The portion that tribes receive is based on an estimate of Native American purchases in that fiscal year, based on Census data (see formula, below).

Under the agreements, the state waived any fee for the administration of the tax.

Formula:

Census estimates of Native American population on reservation /
Entire population on reservation +
2 percent additional

For those tribes without an agreement with the state, the state fuel tax is assessed as on other sales. However, retailers can sell fuel without the state fuel tax included and request a refund, but only if they document that the sales are made to tribal members. Because this tax abatement ultimately goes to the individual purchaser, for tribes without agreements, tribal members (not the tribal government) benefit from the exemption.

Reporting

Because fuel is taxed at the rack, total sales are accounted for in all tribes. On tribal lands where tribes have an agreement with the state, retailers must submit monthly reports to the state in order for the tribe to receive the refund. Tribal governments have been assisting with asking the retailers to submit reports to the state.

On tribal lands where tribes do not have an agreement, retailers must submit evidence (with purchaser's signatures) that fuel sold without the state fuel tax was sold to tribal members. This creates a paperwork burden on the retailer and the purchaser.

Tribal Fuel Tax

One tribe contacted through the study had a tribal fuel tax on the books starting in 1993, but did not enforce it until the case with the state was settled in 2003 to avoid double taxation for tribal members.

Under the agreements, tribal fuel taxes are equal to the state's fuel tax.

Cooperative Process: Taxation and Reporting

Although the taxation of fuel sales on tribal lands is not the focus of this study, sales reporting agreements seldom are made without an agreement as to the taxation of the sales. Prior to the February 2003 South Dakota Supreme Court decision, the Attorney General of South Dakota asserted the state's right to tax these sales under the Hayden-Cartwright Act. The tribes maintained that the state fuel tax imposition was illegal, and were vindicated in 2003 in Pourier v. South Dakota Department of Revenue (2003 SD 21).

After the court case was settled, the state was willing to make agreements with tribes on this issue. Since the agreements were made with the four tribes, those relationships have improved and are now more stable.

A tribal representative said that the state received a generous portion of the tribal fuel tax revenue under the agreement, and that the agreements could have been more in favor of the tribes. A state representative said in contrast that the agreements were generous to the tribes, and described them as a win-win arrangement.

Benefits and Limitations

Benefits. The agreements discourage fuel tax evasion, which constitutes a significant benefit for the state. The agreements have also helped improve relations between the tribes and the state. In addition, the tribes now receive revenue from their own fuel tax that they did not collect before. One tribal representative described the agreements as "better than spending years in court."

Limitations. For one tribe, the agreements signaled a loss of sovereignty, because the tribe is required to set its taxation rate equal to the state's as part of the agreement. This was a difficult issue, politically. The way the agreements are administered creates some paperwork burden for the states because retailers file on paper. The state hopes to move to an electronic filing system soon.

Recommendations

The relations between the state and the tribes have improved in the last few years because of the Governor's efforts to meet and work with tribes. The Governor's tribal relations staff person, who is also a tribal member, was key in creating the agreements with the four tribes.

A tribal representative recommended that other tribes include administrative cost, retroactive reimbursement, and other issues in the negotiations over fuel tax administration. The retroactive reimbursement for just 15 months, the time period established by the South Dakota Supreme Court, was $1.3 million.

A state representative said that South Dakota was at a disadvantage in the negotiations because of the court decision. Even though tribes did not have to legally come to an agreement, they were interested in potential revenues from a tribal fuel tax, and so were motivated to work with the state. Tribes are currently receiving $1.9 million annually through their tribal fuel tax. The agreements covered multiple taxes, with the fuel tax not necessarily the primary issue.

Washington Summary
Facts on State and Tribal Fuel Sales
Native American population for the state, 2003:
U.S. Census Annual Estimates
164,642
Percent of total state population that is Native American or Alaskan Native, Alone or in combination, 2003:
U.S. Census Annual Estimates
2.7 percent
Federally Recognized Tribes in state:
Federal Register, Vol. 67 p .46327 (2002)
Chehalis, Colville, Yakama, Cowlitz, Hoh, Jamestown S'Klallam, Kalispel, Lower Elwha, Lummi, Makah, Muckleshoot, Nisqually, Nooksack, Port Gamble, Puyallup, Quileute, Quinault, Sarnish, Sauk-Suiattle, Shoalwater Bay, Skokomish, Snoqualmie, Spokane, Squaxin Island, Stillaguamish, Suquamish, Swinomish, Tulalip, Upper Skagit
State gasoline sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
2,723,972,000 gallons
State special fuel (diesel) sales (taxed), 2003:
Highway Statistics 2003, Table MF-2
572,042,000 gallons
State contributions to the Highway Trust Fund, 2003:
Highway Statistics 2003, Table FE-221
$527,772,000 (1.822 percent)
State fuel tax rate for gasoline, as of November 2004:
Highway Statistics 2003, Table MF-121T
23 cents per gallon
Point of tax collection:
State Contacts
At the terminal ("At the rack")
Estimated annual gasoline sales on tribal lands:
State Contacts
N/A
Number of retail establishments on tribal lands:
State Contacts
N/A
Status of state fuel tax agreements between state and tribes:
State and Tribal Contacts
Agreements with 16 tribes, 1 federal consent decree, 12 tribes no agreement

State Fuel Tax on Tribal Sales: History and Status

Under current agreements, the state of Washington recognizes that the state fuel tax is not applicable to tribal member purchases on their tribal reservation. The agreements state, however, that tribal members will pay the state fuel tax in return for a refund from the state. The first agreements were made in 1994, pursuant to a 1994 U.S. Supreme Court decision (New York v. Attea, 93-377) that retail sales made to tribal members on reservations were not subject to state fuel tax.

Of the 29 tribes in Washington State, 13 have agreements with the state that follow the formula laid out below. One has a federal consent decree under which the tribe is able to purchase a certain percentage of its fuel tax-free, approximating the amount sold to tribal members. Of the other tribes, 11 do not have retail fuel outlets and are therefore not eligible. Two other tribes are in litigation, and a third has been contacted by the state but no agreement has yet been developed.

Formula for refund:

Total tribal governmental vehicle use fuel tax +
BIA-Registered members living on or near reservation x
Average per capita gasoline consumption in Washington x
State fuel tax rate

One tribal representative said that only allowing the agreements to cover purchases on the reservation put those tribes without retailers at an unfair disadvantage. In contrast, the state has a revenue-sharing program with local government entities for transportation funds, and the program is not tied to sales of gasoline in local jurisdictions. This revenue-sharing program is perceived by some tribes as a parallel to the tribal agreements

Reporting

Fuel sold on reservations has been taxed at the terminal, and all sales are reported to the state along with the state tax payment at that point. Tribal retailers do not make any special records or report fuel sales differently than other retailers.

Tribal Fuel Tax

The state is not averse to tribes levying their own fuel tax, though tribal representatives were not aware of any tribes doing so.

Cooperative Process: Taxation and Reporting

Although this study does not concern state taxation of tribal fuel sales directly, reporting agreements are seldom made without an agreement as to the legality and propriety of the taxation itself. The Washington agreements follow the pattern of those in Montana, first made in the early 1990s. Washington State in effect exempts fuel sales to members on reservations, but in order to ease the administrative burden on the state those sales are estimated, instead of being tracked separately. Thus, the price that a tribal member pays at a tribal retailer is equal to any other fuel purchase, including the state fuel tax, and those sales are not tracked any differently than other sales. But the state makes an estimate of those sales based on the formula described above and refunds that amount to the tribal government.

Other important issues for the state, such as illegal fuel tax evasion, have been largely resolved by improving agreements with other states and Canadian/provincial governments to exchange information about distributors' licensing.

Benefits and Limitations

Benefits. The agreements carry a very low administrative burden for the state and the tribes, because they do not require separate fuel sale reporting for tribal retailers. The agreements have also helped to avoid litigation by either the state or tribes.

Limitations. Although the agreements have reportedly helped to avoid litigation, there are still two court cases moving forward in the state. One tribe is seeking to receive the refund without signing a formal agreement with the state. Another tribe is seeking exemption from the state fuel tax entirely by asserting that it is manufacturing the fuel on the reservation, though the state disputes this claim.

Some tribes are ineligible to develop agreements with the state because they do not have retail fuel sales on their lands, and one tribal representative objected to the exclusion.

Recommendations

One tribal representative emphasized that better cooperation between the state and tribes on all transportation issues can be achieved by improving communications. Montana was cited as an example of a state with better communications on transportation issues, because a tribal representative sits on the state transportation commission.

From the state's perspective, making agreements that impose a low administrative burden for the state is very important. By using a formula, rather than counting gallons sold to tribal members at the pump, the state has made the process much easier for both the state and the tribes.

2.4 Cross-State Review

Several consistent findings and themes emerged from a cross-state analysis of tribal fuel sales reporting. These themes are discussed in this section, and relate to reporting, type of agreements, cooperative process, benefits and limitations.

2.4.1 Reporting

Most of the states surveyed for the study were confident that they were receiving full reporting on fuel sales. This is due mostly to what could be called non-exceptional reporting. In these states, tribal fuel sales are tracked along with all other fuel sales. Tribes with agreements in these states typically agree to purchase fuel from distributors with the state fuel tax already included in the price, in return for a refund of estimated fuel taxes associated with tribal sales. In these states, the state taxes fuel high in the fuel supply chain (often at the rack), which is also the point at which the state tracks total fuel sales in the state. In effect, fuel sold on tribal lands goes through the same process of importation and distribution as other fuel sold in the state, and is fully accounted for.

In a few cases, tribes may have an agreement with a state to acquire and sell fuel outside the state's reporting system, collect a tribal fuel tax, and report sales to the state. This exceptional reporting was the practice in New Mexico and in one other tribe surveyed.

In most cases, tribes and states described an arrangement in which the state records all fuel sales and administers the fuel tax for tribal sales along with other fuel sold in the state as a "win-win" for both parties. This type of agreement relieves the tribe of the administrative burden of taxation and recording sales, and at the same time reserves the revenue (or an estimate thereof) from tribal fuel sales for the tribe.

In cases where the surveyed state did not have an agreement with some of the tribes in the state, this was most often described as unproblematic because those tribes do not have large volumes of fuel sales. This was the case in Washington and Nebraska. In both those states, staff said that the tribes without agreements either had no fuel sales (Washington) or very few (Nebraska).

The states that track the actual fuel sales on tribal lands typically received records not only from tribes but also from distributors. Because distributors are typically already reporting fuel sales to the state, they report as part of an existing process. Sometimes suppliers fill the reporting gap for a tribe without a reporting agreement. In Nebraska, where one tribe does not have an agreement with the state on fuel sales taxation or reporting, the state is still able to track sales to the reservation through its supplier.

2.4.2 Types of Agreements

Agreements that address fuel sales reporting are seldom made in the absence of an agreement on state fuel tax payment by the tribes. Even though the agreements reviewed in the study typically focused on fuel tax revenue, most states surveyed said a major benefit of the agreements was eliminating undocumented and untaxed fuel sales. The revenues that go to the tribes were seen as an incentive for tribes to sell taxed fuel, and in some cases, specifically to report fuel sales.

Most of the agreements reviewed provide for non-exceptional reporting, where the state collects the state fuel tax on all gasoline distributed within the state, and then remits to the tribes the estimated amount that is due to fuel sales on tribal lands to tribal members. Typically, these agreements either include a state admission that these sales are exempt from the state fuel tax, recognizing the sovereignty of the tribes in some cases, or providing for the state and the tribe to "agree to disagree," in the words of one tribal representative. In some cases, state action was spurred by legal decisions that exempt tribal sales from state jurisdiction.

Negotiations on these agreements typically focused on the formula used to estimate the fuel sales on tribal lands to tribal members. Factors used in the formulas include:

  • Native American population from the U.S. Census, as a percent of residents on reservation
  • BIA-registered Tribal members living on or near the reservation
  • Per capita gasoline usage in the state
  • Per capita vehicle miles traveled x vehicles owned on reservation x average fuel economy
  • Subtractions for other exemptions, such as off-road agricultural use, revenue-sharing with counties
  • Administrative fees for the state

In four states, actual tribal fuel sales are tracked as part of agreements: Minnesota, Nebraska, New Mexico, and South Dakota. In Nebraska, the tribe's share of fuel tax revenues was negotiated as a percentage for each tribe (one tribe receives 80 percent, another 75 percent). This percentage could include revenue from tribal sales to non-members, which are not recorded separately. In Minnesota, the state estimates tribal member purchases on tribal reservations, then shares the rest of the revenue (from estimated non-member sales on tribal lands) 50/50 with the tribes. Economic development was a key interest in these agreements. In New Mexico, distributors must report gallons of fuel sold to tribal entities or licensed Indian distributors in order to take a deduction on their state fuel taxes. In South Dakota, each tribe receives a refund of fuel sales tax collected on tribal sales in proportion to the percent of Native American population on each reservation.

In three states surveyed, some tribes reported administering their own fuel tax. In New Mexico, tribes administer their own tribal fuel tax and retain all revenues from the sales. Distributors must show proof to the state, however, that they have paid the tribe's fuel tax in each case in order to receive a deduction on the state fuel taxes owed. This compromise agreement was reached in 1999, with some modifications in administration since then.

In Arizona, one tribe administers its fuel tax and pays the state its estimated share of the revenues, based on non-tribal member purchases. This tribe may be a special case because its lands extend through three states, and the tribe levies its own fuel tax on all of its territory.

In Nebraska, two tribes administer their own fuel tax and pay the state an agreed-upon percentage of the revenue. The agreements with these tribes include the state's right to audit.

One state surveyed, Idaho, has been in litigation with tribes in recent months over state taxation of fuel sales. At the time they were contacted, some tribes were planning to levy their own fuel tax if the case were decided in their favor. The 9th Circuit decision was in favor of the tribes, and an appeal by the state was recently refused at the U.S. Supreme Court.

2.4.3 Cooperative Process

In states surveyed, those with a strong cooperative relationship with tribes had been more successful in developing agreements specifically on state fuel tax and sales reporting on tribal lands. The various processes of negotiation typically involved high-level leadership commitment within the state, in several cases involving the Governor, and often the Tax Commissioner. In some states, legislative action was required before agreements could be made with tribes.

In Minnesota, one tribal representative praised the commitment of the state staff to uphold agreements despite criticism. When fuel tax and other tax agreements were criticized by the legislature several years ago, Revenue Department officials sat side-by-side with tribal representatives and gave supportive testimony. One staff person at the state of Minnesota who was party to negotiations said that an agreement could not replace a good relationship. "There had to be a level of trust - if that isn't there, you don't need an agreement." Agreements in Minnesota still depend on ongoing cooperation from tribes, according to staff there.

In Montana, agreements are set for specific time periods, but can be cancelled by either party at any time. They have been in place since 1993.

One tribe that has territory in two states has an agreement with one and not the other. The difference, according to one tribal representative, is the attitude of the two states; while one has sought solutions, the other has produced some individuals who are antagonistic toward tribal representatives in negotiations.

In New Mexico, the Governor formed a Gas Tax Working Group that has built trust between the tribes, the state, and industry groups on the issue of tribal fuel sales. The focus of the group has been the elimination of untaxed sales, and both organizing staff and tribal representatives surveyed said that the meetings have built trust and cooperation between factions that were antagonistic prior to the meetings.

2.4. Barriers

One state surveyed, Idaho, was involved in active litigation with tribes when contacted. Another state, South Dakota, recently emerged from its own litigation with tribes. In these states, tribal representatives spoke of their need to be recognized in negotiations as sovereign governments.

In Idaho, one tribal representative said that because of past relations the tribe would prefer to have an agreement with the federal government than with the state. In Washington state, where most eligible tribes have agreements with the state, one tribe operates under a federal consent decree, reportedly because of a history of poor relations with the state.

On the other side, some states view tribal tax exemptions simply as lost revenues, and continue to seek to reduce or eliminate them in order to enforce state fuel taxes evenly. State finance departments also do not work on this issue in isolation; the general public, convenience store groups, the Governor, and the state legislature are often involved in discussions of tribal fuel tax issues. In addition, other issues with tribes, such as gaming and land claims, were cited as problems that sometimes become entangled with taxation agreements.

2.4.5 Benefits of Agreements

Despite the barriers to agreements, most states and tribes contacted for the study understood the potential benefits, even if they had not been able to reach agreements yet. Central benefits for both sides included avoiding litigation and settling taxation issues. One tribal representative said that the agreements are "better than spending years in court." Several state staff said that the agreements helped to eliminate untaxed sales. One tribal representative said that the Revenue Department in Minnesota "understands the benefits of tax peace," preferring to have "a uniform tax system throughout the state instead of having little islands where the tax situation is in limbo or even antagonistic."

Many states surveyed commented not only on the benefits of the agreements to their own government, but also on the benefits to tribal governments. This demonstrates that many successful negotiators were aware of, and sympathetic to, the needs of the other side. Several states said that the agreements benefit the tribes by providing a steady revenue source, and that the revenue supports economic development.

Several tribal representatives said that having an agreement improved overall relations with the state, both on the taxation issue and on other fronts. Tribal representatives also said that the revenue was important to tribal government functions, and often noted that they had few other sources of funds to make infrastructure improvements on tribal lands, since they do not receive funds from the Federal-Aid Highway program outside of the Indian Roads Program. This program totals $27 million each year.

2.4.6 Limitations of Agreements

Several states commented that they had administrative issues with the agreements they had set up. In New Mexico, for example, licensed Indian distributors and retailers are completely exempt from the state fuel tax, and the state is still working out the administration of the exemption. Currently, the state is processing around 250 reports from distributors manually each month, and is in the process of developing an electronic format for the monthly report on gasoline sales that is issued to the public. The state also commented that full reporting has only been achieved through audits to check that distributors had correctly paid tribal fuel taxes.

Also in New Mexico, an audit agreement the state has with one tribe does not allow for staff-level contacts, meaning that requests for information from the tribe or the state must go through the head of the agency. In contrast, the agreement New Mexico has with another tribe allows for staff-level contact and has been easier to administer.

Montana, Washington, and Minnesota specifically recommended their type of agreement for adoption by others because of low administrative burdens. These agreements stipulate that tribes receive revenues from fuel sales tax based on estimates rather than actual fuel sales.

Several tribal representatives reiterated their position that the state had no right to tax fuel sales on their tribal lands, and that they still considered the agreements a compromise. One tribal representative said that the agreements have made the situation workable, though not amicable.

 

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