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Executive Summary – American Indian Sales of Motor Fuel – Motor Fuel and the Highway Trust Fund – OHPI – FHWA

Motor Fuel and the Highway Trust Fund

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

Executive Summary


The Federal Highway Administration (FHWA) selected the Louis Berger Group and ICF Consulting (the Project Team) to undertake an investigation of American Indian motor fuel sales on tribal lands and to assess any reporting issues attendant to these sales. The primary objective of the work was to determine whether significant motor fuel sales on tribal lands are not included in state-level estimates of fuel sales provided to FHWA. As these estimates form the basis of FHWA´s attribution formula for Highway Trust Fund resources, such omissions raise concerns about potential bias in the attribution process. The current study's intent was to investigate attribution issues, not tax evasion issues per se.

The Project Team's efforts included a thorough review of available data and reports to understand the magnitude of these sales. The Team also undertook an analytical exercise to determine the scope of sales on tribal lands as well as estimates of sales to non-residents of tribal lands. In addition, the team also reviewed recent judicial decisions related to the issue of tribal-state excise tax issues, as the reporting issues are closely imbedded in this larger topic. The Team also completed a comprehensive survey of current reporting arrangements between tribal governments and selected states. This effort included outreach to tribal and state entities to understand the various types of reporting arrangements, as well as to assess the problems and benefits attributable to each. The Team then developed a series of policy recommendations stemming from the research and analysis conducted in the study.


American Indian tribal entities exhibit a variety of inter-governmental relationships with the states surrounding or adjacent to the tribal reservation. While sovereignty is the cornerstone of the relationship, significant variation exists when comparing specific relationships between states and tribes because of historical circumstances and established treaties. One important area of variation relates to the tax treatment of fuel sales on tribal lands. In general, motor fuel sales to American Indians for on-reservation consumption are not taxable by states. In certain instances, this differential tax treatment has led to ex tax fuel sales occurring on reservations. In turn, ex tax sales to tribal members has created a situation wherein non-tribal members may make fuel purchases outside the FHWA motor fuel sales reporting regime.

Significant unreported sales could create bias in the attribution process utilized by FHWA to identify each state's share of total fuel sales and federal tax receipts. Errors in attribution would then lead to biased estimates of the amount due to each state under the Federal-Aid Highway Minimum Guarantee provision. While under-reporting could occur for various reasons, this effort seeks to identify the existence of under-reporting associated with tribal fuel sales, and whether under-reporting is of a magnitude sufficient to affect in a significant way the accuracy of FHWA's attribution formula.

Summary of Results
Task 1: Ascertaining the Scope of the Problem

The key elements of Task 1 were two-fold: first, undertake a quantitative assessment of motor fuel sales at the county level, with specific attention on those counties bordering tribal reservations; and second, complete a review of recent judicial decisions to identify the important legal issues governing state tax treatments of tribal retail activities. Key elements of the work carried out by the Project Team, as summarized in this report, include the following:

Task 2: State of the Practice

Twelve states were examined for this portion of the study. The team sought both state and tribal contacts knowledgeable about the status and history of tribal fuel sales reporting and taxation in each state. In all, state staff in eleven states and tribal representatives in ten states had input into the study.

Agreements on tribal fuel sales reporting and taxation generally fall into one of three types.

Task 3: Policy Recommendations

The Team's research suggests that tribal fuel sale reporting is not likely to be biasing FHWA's attribution formula. Most of the states surveyed reported either successful reporting agreements or movements towards achieving such agreements. Even in sates where reporting issues exist, the potential magnitude of unreported sales is relatively modest as a proportion of total fuel sales in the state.


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