May 24, 2023
Re: Request for Ruling: Individual Income Tax
Dear *****:
This will respond to your letter in which you seek a ruling regarding the taxability of income earned by members of the ****** (the “Tribe”) who do not reside on their reservation but who earn income from employment on the reservation.
FACTS
The Tribe is an Indian tribe with a reservation located in Virginia. Several members of the Tribe do not reside on the reservation, but they are employed by the Tribe and work on the reservation. The Tribe requests a ruling regarding whether income earned by these members is subject to Virginia income tax.
DETERMINATION
Virginia Code § 58.1-301 provides, with certain exceptions, that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia. For individual income tax purposes, Virginia conforms to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Chapter 3 of Title 58.1 of the Code of Virginia.
The Department previously issued a ruling to another Virginia Indian tribe regarding this issue. See Public Document (P.D.) 19-15 (3/6/2019). In that case, the Department opined that, as long as an individual is a bona fide member of the tribe and the income is earned from activities pursued on that tribe’s reservation, the income is exempt from Virginia income tax.
In an effort to bring more clarity to issues surrounding the state income taxation of Tribe members, the following scenarios may be useful:
- If an individual is a bona fide member of the Tribe and earns income from activities pursued on their Tribe’s reservation, the income is exempt from Virginia income tax regardless of whether the individual lives on or off the reservation.
- If an individual is a bona fide member of the Tribe and earns income from activities pursued off their Tribe’s reservation, the income is subject to Virginia income tax regardless of whether the individual lives on or off the reservation.
- If an individual is a bona fide member of the Tribe and earns income from both activities performed on their Tribe’s reservation and from activities performed off their Tribe’s reservation, only the income attributable to activities performed on the reservation is exempt from Virginia income tax regardless of whether the individual lives on or off the reservation. For example, if a Tribe member works at the Tribe office on the reservation three days a week and works from their home office located off the reservation two days a week, three-fifths of that individual’s income is exempt from Virginia income tax and two-fifths of the income is subject to Virginia income tax. As a further example, if a Tribe member generally works on their reservation, but attends a two-week conference held off the reservation, income earned attending that conference is not exempt from Virginia income tax, regardless of whether the individual lives on or off the reservation.
- If an individual is not a bona fide member of the Tribe and earns income from activities pursued on the Tribe’s reservation, the individual’s income is subject to Virginia income tax regardless of whether the individual lives on or off the reservation.
As the examples above illustrate, in order to determine if an individual’s income is exempt from Virginia income tax, the relevant facts are the individual’s status as a bona fide Tribe member and where the activities are performed. The location of an individual’s residence is not relevant. Only income earned by bona fide Tribe members from activities performed on their Tribe’s reservation qualifies for exemption from Virginia income tax.
This ruling is based on the facts presented as summarized above. Any changes in facts or the introduction of new facts may lead to a different result.
The Code of Virginia section and public document cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at (804) *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/4487.X