Ericksont Connie F 328.J Taxation on Ll3rtir Indian 1992 reservations and other issues before the Revenue Oversight TAXATION ON INDIAN RESERVATIONS AND OTHER ISSUES BEFORE THE REVENUE OVERSIGHT COMMITTEE STATE DOCU?iIENTS COLLECTIOn JAN 1 '. 1993 MONTANA STATE LIBRARY 1515 E. 6th AVE. HELENA, MONTANA 59520 A Report to the 53rd Legislature November 1992 Published by Montana Legislative Councii Montana Legislative Council State Capitol, Room 138 Helena, Montana 59620 (406) 444-3064 FAX: (406) 444-3036 MONTANASTATELIBRARY 3 0864 00081652 3 TAXATION ON INDIAN RESERVATIONS AND OTHER ISSUES BEFORE THE REVENUE OVERSIGHT COMMITTEE A Report to the 53rd Legislature from the REVENUE OVERSIGHT COMMITTEE Prepared by Connie Erickson, Staff Researcher Jeff Martin, Staff Researcher November 1992 Published by Montana Legislative Council Room 138, State Capitol Helena MT 59621 (406) 444-3064 MEMBERSHIP: REVENUE OVERSIGHT COMMITTEE Senator Dorothy Eck, Vice Chair Representative Bob Gilbert, Chairman Senator Robert Brown Representative Mike Foster Senator Bruce Crippen Representative Marian W. Hanson Senator Thomas Hager Representative Dan Harrington Senator Thomas Towe Representative Robert Ream Senator Fred Van Valkenburg Representative Ted Schye MONTANA LEGISLATIVE COUNCIL Representative William T. (Red) Menahan, Chairman Robert B. Person, Executive Director David D. Bohyer, Director, Research and Reference Division Gregory J. Petesch, Director, Legal Division COMMITTEE STAFF Jeff Martin, Staff Researcher Lee Heiman, Staff Attorney Jill Rohyans, Secretary Lois O'Connor, Secretary TABLE OF CONTENTS PREFACE ii HOUSE JOINT RESOLUTION NUMBER 53 iii CHAPTER ONE 1 INTRODUCTION 1 BACKGROUND 2 FEDERAL TAXATION 2 STATE TAXATION 4 TRIBAL TAXATION 5 PROVISION OF GOVERNMENT SERVICES 6 Education 8 Health 9 Social Services 10 STATE-TRIBAL TAXATION AGREEMENTS 10 South Dakota 11 Minnesota 12 Oregon 13 STATE-TRIBAL NEGOTIATIONS IN MONTANA 14 Fort Peck Tribes 14 Other Tribes 17 PROPOSED LEGISLATION 18 SUMMARY 19 APPENDICES APPENDIX A 21 . . APPENDIX B 23 APPENDIX C 25 APPENDIX D 27 CHAPTER TWO 29 MONITORING REVENUE COLLECTIONS 29 STATE AND AGENCY LIQUOR STORES 36 PROPERTY TAX ISSUES 39 Valuation of Heavy Equipment 39 Negotiated Railroad Property Tax Settlements 39 OIL AND GAS ROYALTY INTEREST TO WORKING INTEREST 41 . . PREFACE This document is the third of three reports from the Revenue Oversight Committee to the 53rd Legislature.* It is divided into two unrelated chapters. Chapter One is the final report from the study mandated by House Joint Resolution No. 53. This resolution, passed by the 1991 Legislature, requested that the Revenue Oversight Committee conduct an interim study of all aspects of taxation on Indian reservations. Chapter One examines issues related to federal, state, and tribal taxation on Indian reservations in Montana; describes the provision of governmental services on reservations; and summarizes the resolution of state-tribal tax conflicts through cooperative agreements. Chapter Two discusses a limited number of issues that came before the Revenue Oversight Committee during the 1991-92 interim that were unrelated to the conduct of formally structured studies. These issues include the monitoring of state revenue collections as part of the Committee's revenue estimating responsibilities; the Montana Department of Revenue's policy regarding the solicitation of bids for agency liquor stores; negotiated property tax settlements between the Department and railroads; the Department's valuation of heavy equipment; and the change in ownership interests on oil and gas leases as a result of the imposition of the local government severance tax in lieu of taxation based on net proceeds. The other two reports are An Overview of Taxation in Montana: Principles and Practice and Senate Bill No. 226: The Taxation of Retirement Income in the Wake of Davis v. Michigan. HOUSE JOINT RESOLUTION NUMBER 53 A JOINT RESOLUTION OF THE SENATE AND THE HOUSE OF REPRESENTATIVES OF THE STATE OF MONTANA REQUESTING THAT THE REVENUE OVERSIGHT COMMITTEE CONDUCT AN INTERIM STUDY OF ALL ASPECTS OF FEDERAL, STATE, LOCAL, AND TRIBAL TAXATION ON INDIAN RESERVATIONS, INCLUDING BUT NOT LIMITED TO INCOME, PROPERTY, NATURAL RESOURCE, SELECTIVE SALES, EXCISE, AND OTHER TAXES; AND REQUIRING A REPORT OF THE FINDINGS OF THE STUDY, WITH ANY RECOMMENDATIONS BY THE COMMITTEE, TO THE 53RD LEGISLATURE. WHEREAS, as stated in the first sentence of the introduction to a January 1990 report entitled "Taxation on Montana Indian Reservations", prepared for the Committee on Indian Affairs by the Committee's staff, "taxation has become one of the most controversial issues in Indian affairs"; and WHEREAS, as further stated in the introduction to that report, economic development on reservations; growing demands for state, local, and tribal services by the reservations; the increasing difficulty of raising state and local taxes; the apparent federal government policy to encourage tribes to assume a greater share of the administrative responsibility and cost of reservation services; and other matters have all combined to make the subject of taxation on Indian reservations evermore important, complex, and perplexing; and WHEREAS, Senate Bill No. 15 exempts from the resource indemnity trust tax oil and gas royalties received by an Indian tribe or by the United States as trustee for individual Indians; and WHEREAS, Senate Bill No. 428 provides for the allocation of motor fuels tax to tribal governments that enact motor fuels taxes at rates that are identical to the rates imposed by the state; and III WHEREAS, Senate Bill No. 464 provides for the allocation of tax from oil and natural gas produced on a reservation to tribal governments that enact a tax identical to the state severance tax or resource indemnity trust tax; and WHEREAS, the above three bills were controversial; and WHEREAS, bill drafts were requested urging the United States Congress to resolve tribal taxation issues and revising cigarette taxation on Indian reservations; and WHEREAS, the taxation authority (and limits on that authority) of the tribes and of the federal, state, and local governments and the interrelated provision of services and funding for such services by the federal, state, local, and tribal governments are issues of serious concern to those governments and their constituents. NOW, THEREFORE, BE IT RESOLVED BY THE SENATE AND THE HOUSE OF REPRESENTATIVES OF THE STATE OF MONTANA: That the Revenue Oversight Committee conduct an interim study of all aspects of federal, state, local, and tribal taxation on Indian reservations, including but not limited to income, property, natural resource, selective sales, excise, and other taxes, and report its findings, with any recommendations of the Committee, to the 53rd Legislature. Approved April 23, 1991. IV