Arizona Formally Codifies Exemptions for Indian Tribes

The State of Arizona passed a bill on July 10, 2021 that formalizes the sourcing rules and exemptions for transaction privilege tax for Indian tribes, tribally owned businesses, and affiliated Indians. The exemptions outlined were previously included in guidance from the Department of Revenue but were not formally included in the state’s Revised Statutes. The language of this bill is effective as of September 29, 2021.

The exemptions apply to:

• Affiliated Indians, or Native American Indians who are registered on the tribal rolls of the tribe for whom the reservation was established
• Indian Tribes recognized by the Department of the Interior
• Entities formed under the laws of an Indian Tribe

The language of the bill exempts from transaction privilege tax:

• Business activities performed for or by an Indian tribe, tribally owned business, tribal entity, or an affiliated Indian on an Indian reservation
• Contracting activities performed for or by an Indian tribe, tribally owned business, tribal entity, or an affiliated Indian on an Indian reservation
• Retail sales of tangible personal property to an Indian tribe, tribally owned business, tribal entity, or an affiliated Indian if the property is delivered from and on an Indian reservation
• Sales of motor vehicles to enrolled members of Indian tribes who reside on Indian reservations.

The bill also requires those making sales that are subject to these exemptions to maintain records to identify these sales as nontaxable.

By federal law, Native Americans on Indian reservations and tribal governments are not subject to state taxes, but when it comes to sales tax defining which transactions fall under tribal or state jurisdiction the distinction can be less clear. Twenty-two Indian reservations and communities including the largest in the country, the Navajo Nation, are in Arizona and make up more than twenty-five percent of the state’s total land area. Tribal governments also have the power to enforce their own sales taxes, so for anyone doing business with tribal governments or on Indian reservations, understanding which jurisdiction they are operating within when state and tribal laws interact is vital to remaining in compliance. (Arizona Senate Bill 1110)