January 5, 2022
Re: Ruling Request: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (collectively the “Tribes”), in which you request a ruling on the application of local taxes on the Tribes’ real and personal property holdings as well as the Virginia retail sales and use tax to purchases made by the Tribes. I apologize for the delay in responding to your correspondence.
FACTS
The Tribes are federally recognized Indian tribes located in Virginia. The Tribes dispute the Department’s ruling in Public Document (P.D.) 20-113 (6/30/2020) and request a revised ruling on whether they, as entities separate from their members, are exempt from Virginia retail sales and use tax on purchases made off-reservation for use on-reservation. The Tribes also request clarification on the limitations of local taxing authorities to tax the Tribes’ real and personal property holdings.
RULING
The Tribes assert that federal recognition and general concepts of tribal sovereignty establish the Tribes exclusion from Virginia retail sales and use tax, regardless of the situs of the transaction. The Tribes contend that the Department erred in ruling that the Tribes bear the burden of establishing an exemption for state taxation, and instead argue that the Commonwealth that must establish the authorization to impose taxation on the Tribes.
Impact of Federal Recognition on State Taxation
The Tribes argue that through their federal recognition, they are sovereign legal entities who possess both the right and authority to regulate their activities independently from state government control. As such, the Tribes cannot be taxed by Virginia, unless such taxation is specifically authorized. Because nothing in Virginia law specifically authorizes a state entity or subdivision thereof to tax any Tribe, the Tribes reason that they are excluded from state taxation.
The Department does not agree with that conclusion. While federal recognition entitles Tribes to privileges and treatment as sovereign legal entities, such entitlements are limited to the bounds of their respective reservations. Indians and Indian property on an Indian reservation are not subject to federal or state taxation except by virtue of express authority conferred upon the state by act of Congress. See McClanahan v. Arizona State Tax Comm’n, 411 U.S. 164, 171 (1973), citing U.S. Dept. of the Interior, Federal Indian Law 845 (1958). This congressional power is rooted in Article 1, Section 8, Clause 3 of the United States Constitution (hereinafter referred to as “the Indian Commerce Clause”) which states that “Congress shall have Power… to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes…”. The Supreme Court of the United States has consistently held that the Indian Commerce Clause does not automatically bar all state taxation of matters significantly touching the political and economic interest of Indian Tribes residing in the state. See Washington v. Confederated Tribes of the Colville Indian Reservation, 447 U.S. 134, 157 (1980). See also, Moe v. Confederated Salish and Kootenai Tribe, 425 U.S. 463, 481 (1976).
Absent express federal law to the contrary, Indians going beyond reservation boundaries have generally been held subject to nondiscriminatory state law otherwise applicable to all citizens of the state. See Mescalero Apache Tribe v Jones, 411 U.S. 145, 148-149 (1973). Therefore, it is the Department’s position that restraints on state power by the Indian Commerce Clause extend only as far as the bounds of the reservations. While not on a reservation, Tribes and members thereof are subject to state taxation in the same manner as all other individuals and businesses in the Commonwealth.
Enforceability of the 1677 Treaty of Middle Plantation
The Tribes contend that the 1677 Treaty of Middle Plantation (the “Treaty”) governs the relationship between the Tribes and the Commonwealth and enumerates the only tax burdens on which the Tribes consented. The Tribes further assert that treaties with federally recognized Indian tribes constitute federal law and preempt conflicting state laws. Thus, the Tribes reason that the Treaty renders unenforceable Virginia’s regulation purporting to allow state taxation of the Tribes.
The Department again must disagree. The enforceability of the Treaty as federal law was considered by the Supreme Court of Virginia in Alliance to Save the Mattaponi v. Commonwealth, 270 Va. 423, 621 S.E.2d 78 (2005). In its opinion, the Court observed that the Treaty was entered into over 100 years before the Constitution was adopted in 1789. Because the United States did not exist in 1677, the Treaty could not have been made under the authority of the United States. Further, the United States Congress has not ratified the Treaty pursuant to its authority under Article 1, Section 10 of the United States Constitution. Therefore, the Treaty is not enforceable as federal law. Inasmuch as the Treaty is enforceable at all, it rests in Virginia law and, as such, removes the question of federal preemption.
Assuming the Treaty is enforceable as Virginia law, an exemption from the Virginia retail sales and use tax for transactions occurring off the reservation cannot be inferred. While it is acknowledged that any ambiguities in the Treaty’s language should be interpreted in the Tribes’ favor, the Department concludes that the Tribes misinterpret the plain meaning of the agreement being made. Article I of the Treaty requires “that the respective Indian kings and queens to acknowledge their immediate dependency on and their subjugation to the great King of England, his heirs and successors…”. Article II states that in consideration thereof, the Indian kings and queens “…shall hold their Lands…without any fee, gratuity or reward” and pay yearly “in lieu of a quit rent… onely three Indian arrows”. Plainly, the agreement between the Crown and the Tribes was that in consideration for the Tribes submitting to the King, they would receive title to their lands without payment, and agreed to pay three Indian arrows as a yearly tax (i.e. quit rent). The waiver of “fee, gratuity or reward” was not in reference to an ongoing exemption from all potential excise taxation, but rather a waiver of purchase price. The quit rent, on the other hand, was waived and the Crown agreed to accept three Indian arrows in satisfaction thereof.
As the Department stated in P.D. 20-113, the Treaty provides for a waiver of an annual tax for the occupation of the Tribe on their reservation. The Department’s long-standing policy is that the retail sales and use tax is a transactional tax and is therefore separate and distinct from the payment contemplated under the Treaty.
Situs of Purchases made by Tribes
While the Department recognizes the limitations placed on the Commonwealth in regards to the enjoyment of tribal sovereignty while on their respective reservations, that sovereignty is limited to those boundaries. Outside the limits of the reservations, Tribes and members thereof are held subject to nondiscriminatory state law otherwise applicable to all citizens of the Commonwealth. That principle is as relevant to a state’s tax laws as it is to state criminal laws. See Mescalero Apache Tribe v Jones, at 149.
Title 23 of the Virginia Administrative Code (VAC) 10-210-2070 addresses situs of sale, and states that “sales are subject to the sale tax and sourced to the city or county of the place of business of the dealer collecting the tax, without regard to the city or county of possible use by the purchaser.” Therefore, purchases made by the Tribe, or the members thereof, at locations off their respective reservations, regardless of the ultimate location for its use, are subject to retail sales and use tax as applicable under Chapter 6 of Section 58.1 of the Virginia Code.
The Tax Commissioner has the authority to interpret and enforce the laws of the Commonwealth governing taxes in accordance with Virginia Code § 58.1-203. That authority, however, does not extend to creating exemptions that do not exist under the laws of the Commonwealth. After careful review and consideration, I find that there is no basis to grant an exemption from the Virginia retail sales and use tax for purchases made off the reservation by the Tribe for use on the reservation. As a result, the Tribes may consider pursuing legislative solutions to address the concerns herein.
Statutory Limitations on Local Tax Matters
The Department’s authority to issue advisory opinions regarding local tax matters is confined to the Business Professional and Occupational License (BPOL) tax pursuant to Virginia Code § 58.1-3703.1 and local mobile property and certain business taxes under Virginia Code § 58.1-3983.1. The Department’s authority to issue such opinions thus reflects its administrative appeals jurisdiction over local tax matters, and real property tax matters are generally not within the Department’s appeals jurisdiction. See P.D. 16-13 (3/1/2016) and P.D. 16-25 (3/08/2016). The Department, however, does have appeals jurisdiction regarding the value or assessment of tax resulting from a valuation of property made by the Department. See P.D. 11-201 (12/12/2011). The Department also has specific educational and reporting roles involving the local real estate appeals process with boards of equalization. See P.D. 03-92 (11/18/2003).
We have also consulted Title 58.1, Chapter 32 of the Code of Virginia governing real property tax generally and can find no express authorization for the Department to issue an opinion on this subject. The Department can only act to the extent the law allows.
The Code of Virginia sections, regulation, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3618.A