Could an Indian retailer's reservation sale be exempt when the purchaser belonged to another tribe and lived on a different reservation?

Plain-English summary

After a February 19, 1997 inquiry was misrouted until mid-July, counsel answered five sales-and-use-tax questions for a tribe that had recently opened a reservation gasoline and diesel station and was paying all state taxes requested by its distributor. California concluded that an Indian purchaser did not have to belong to the seller's tribe or reside on the reservation where the purchase occurred.

The exemption applied when the purchaser qualified as an Indian, resided on a reservation, received delivery on a reservation, and used the property on reservation property more than half the time during the first 12 months. Greater off-reservation use created a use-tax obligation for the purchaser.

The retailer needed documentation of the purchaser's Indian status and reservation residency. The source discussed Bureau of Indian Affairs identification and retaining purchase date, amount, and tax information to support refund claims.

Fuel sales-tax prepayments were imposed on distributors and passed through as a business cost. The tribe still had to register to collect use tax from non-Indians and Indians who did not reside on reservations.

No periodic-refund arrangement existed. Refund claims had to follow section 6902 deadlines, and passed-through tax generally had to be returned to each qualified purchaser under section 6901.5. If the retailer deducted the prepaid tax from the sale price at purchase, it could retain the later refund.

An absent July 15 Janet Vining letter separately addressed fuel-license, diesel, oil-spill and childhood-lead fees. The PDF supplies no station, distributor, purchaser, registration, claim, refund, customer repayment, audit, appeal, or later outcome. The live annotation cites M98-3 without supplying its record.

What this means for you

Tribal retailers, fuel distributors, and purchasers

Same-tribe membership was not required, but residency, delivery, first-year use, documentation, registration, and refund handling still mattered.

Accountants and tax professionals

Retain status and residency evidence, delivery records, purchase amounts, prepaid tax, customer use evidence, registration records, claim dates, and proof of returned reimbursements.

Common questions

Q: Did the buyer have to belong to the seller's tribe?

A: No.

Q: Did the buyer have to live on the seller's reservation?

A: No; residence on a reservation was sufficient under the source.

Q: Did the tribe still have to register for use-tax collection?

A: Yes.

Citations and references

• California Revenue and Taxation Code sections 6051 and 6007 — cited for general sales tax and retail sale; complete text, versions, exemptions, and later history not supplied
• California Sales and Use Tax Regulation 1616(d)(2), (d)(3)(A)(1), and (d)(3)(A)(2) — quoted or cited for definitions, exempt reservation sales, first-year use, taxable customers, collection and registration; complete text, versions, proof rules, and later history not supplied
• California Revenue and Taxation Code sections 7301 et seq., 60001 et seq., 6480 et seq., and 6480.10 et seq. — cited for fuel taxes and sales-tax prepayments; complete text, versions, rates, reconciliation rules, and later history not supplied
• California Revenue and Taxation Code sections 6902(a)(1) and (2) and 6901.5 — cited for refund deadlines and customer repayment; complete text, versions, claim requirements, proof rules, and later history not supplied
• February 19, 1997 inquiry and routing delay — request, routing record, identities, status proof, distributor contracts and invoices, fuel sales, purchaser records, payments, and returns not reproduced
• July 15, 1997 Senior Tax Counsel Janet Vining special-tax response — letter, authorities beyond those recounted, facts, calculations, conclusions, and later history not reproduced
• August 19, 1997 Senior Tax Counsel Patricia Hart Jorgensen response — no replies, registration, claim, refund, customer repayment, audit, assessment, appeal, or later outcome supplied; copy sent to a District Administrator
• Official Annotation 305.0024.350's other-reservation residence, different tribal membership, Regulation 1616 exemption, first-year majority reservation use, August 19, 1997, and M98-3 rules — annotation omits the inquiry, fuel station, documentation, prepayment, registration, refund and absent-letter details, missing records, later outcome, and reliance status and supplies no M98-3 record

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 305.0024.350
• Original supporting opinion: 305.0024.350 PDF

Original ruling text

305.0024.350

STATE OF CALIFORNIA

JOHAN KLEHS
First District, Hayward

STATE BOARD OF EQUALIZATION
LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
TELEPHONE (916) 327-2291
FAX (916) 323-3387

DEAN F. ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
KATHLEEN CONNELL
Controller, Sacramento
___

August 19, 1997

JOHN CHIANG
Acting Member
Fourth District, Los Angeles
___
E. L. SORENSEN, JR.
Executive Director

Mr. L--- -. S--C--- I--- Legal Services
XXX West --- Avenue, Suite XXX
---, CA XXXXX
Re:

State Taxation Within California Indian Country
Collection Of Sales And Use Taxes By The Tribe

Dear Mr. S---:
First I wish to apologize for the delay in our response to your inquiry of February 19, 1997. Your inquiry was addressed to the wrong mailing unit and was not routed to the Legal Division’s Sales and Use Tax Unit until the middle of July. You explain that your client, the P--- Band of Indians, located in the northern portion of
--- --- County, recently opened a gasoline and diesel station on its reservation and is currently paying all state diesel, gasoline and sales taxes as requested by the distributor. You specifically inquire about the application of California’s Sales and Use Tax, Motor Vehicle Fuel License Tax, Diesel Fuel Tax, Oil Spill Prevention Administration and Response Fees, and Childhood Lead Poisoning Prevention Fees. In a letter dated July 15, 1997, Janet Vining, Senior Tax Counsel of the Legal Division’s Special and Administration Section, responded to your inquiries relative to the Motor Vehicle Fuel License Tax, Diesel Fuel Tax, Oil Spill Prevention, Administration and Response Fees, and Childhood Lead Poisoning Prevention Fees. This letter is in response to your inquiries regarding the collection of sales and use tax. You have first inquired whether the exemption from sales and use tax, as explained in Regulation 1616(d)(3)(A)1., applies to purchases made on your client’s reservation by members of another tribe who reside on other reservation or trust land. You next inquire about documentation needed to support requests for refund for sales and use taxes for purchases made

Mr. --- -. S---

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August 19, 1997
305.0024.350

by Indians residing on reservations. In addition, you inquire whether gasoline and fuel distributors are required to collect sales tax pursuant to collect sales tax prepayment on their products, since the tax imposed on sales to non-Indians and Indians who do not reside on reservations is considered to be a use tax. Your last two inquiries are whether the Tribe needs to register with the Board and whether it is possible to develop an arrangement whereby the state makes periodic refunds of pre-collected sales and use tax attributable to purchases made by Indians residing on reservations. As you know, the general rule is that retail sales of tangible personal property in California are subject to sales tax, measured by gross receipts, unless specifically exempted by statute. (Rev. & Tax. Code § 6051.) A retail sale is a sale for any purpose other than resale in the regular course of business. (Rev. & Tax. Code § 6007.) However, Indians living on Indian reservations enjoy a special status by federal treaty. For example, Regulation 1616(d)(3)((A)1. provides that: “Sales tax does not apply to sales of tangible personal property made to Indians by Indian retailers negotiated at places of business located on Indian reservations if the purchaser resides on a reservation and if the property is delivered to the purchaser on a reservation. The purchaser is required to pay use tax only if, within the first 12 months following delivery, the property is used off a reservation more than it is used on a reservation.” Regulation 1616(d)(2) defines an “Indian” as “any person of Indian descent who is entitled to receive services as an Indian from the United States Department of Interior.” This subdivision also defines “reservation” as including reservations, rancherias, and any land held by the United States in trust for any Indian tribe or individual Indian.” As written, there is nothing in subdivision (d)(3)(A) 1. which requires that the Indian purchasing property from an Indian retailer on an Indian reservation must either be a member of the same tribe as the Indian retailer or reside on the reservation where the purchase is made. All that is required is for the purchasing Indian to reside on a reservation and for the purchased property to be used on reservation property more than 50 percent of the time within the first year that the property is purchased. Accordingly, in response to your first inquiry, sales to Indians which live on other reservations and are not members of the P--- Tribe qualify for the exemption provided under Regulation 1616(D)(3)(a)1.. As explained in the last sentence of this subdivision of Regulation 1616, if the property purchased is used by the purchasing Indian off reservation premises more than 50 percent during the first twelve month after the purchase, the purchasing Indian is required to pay use tax. You inquire as to what type of information or documentation is required by your client to verify a purchaser’s Indian heritage and residency to support a claim for refund of pre-paid sales and use taxes attributable to purchases made on reservations by Indians who reside on

Mr. --- -. S---

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August 19, 1997
305.0024.350

reservations. You need to obtain information that documents that the purchaser is an Indian who resides on a reservation. It is my understanding that the Bureau of Indian Affairs issues an identification card to all Indians plus a letter documenting that the identified Indian resides on a reservation. Accordingly, a copy of the purchaser’s identification card, plus the date of purchase, the purchase amount, and the amount of the applicable sales and use tax should be retained to support a claim for refund. The process for filing a claim for refund will be explained below. Your next inquiry is whether it is appropriate for the distributors of the gasoline and diesel to pre-collect the sales tax since, as explained in Regulation 1616(d)(3)(a)2., the tax collected by Indian retailers on Indian reservations on purchases made by non-Indians and Indians who do not reside on a reservation is a use tax. As Ms. Vining explained in her letter of July 15, 1997, the distributors of gasoline and diesel are liable for the collection of taxes imposed under The Motor Vehicle Fuel Tax (Rev. & Tax. Code §7301, et seq.) and under The Diesel Fuel Tax (Rev. & Tax. Code § 60001, et seq.). In addition, under The Sales and Use Code (Rev.
& Tax. Code §6480 et seq. for Motor Vehicle Fuel and Rev. & Tax. Code § 6480.10 et seq. for Diesel Fuel.), distributors are also liable for the collection of a portion of the sales tax attributable to the retail sales of gasoline and diesel. As further explained by Ms. Vining, these pre-paid taxes are not imposed upon the Indian retailer but rather are imposed on the distributors, who pass this cost, as well as other costs of doing business, on to the Indian retailer. You next question whether the Tribe is still required to register with Board for the collection of use taxes as provided under Regulation 1616(d)(3)(A)2. This regulation provides that, in the case of sales by Indian retailers to non-Indians and Indians who do not reside on reservations, the Indian retailer is required to “collect use tax from such purchasers and must register with the Board for that purpose.” There have been no changes to this regulation, accordingly this requirement is still, in effect. Lastly, you inquire whether it is possible to develop a reciprocal arrangement with the state that allows for the periodic refund of all pre-paid sales and use taxes attributable to fuel purchased by qualified Indians. These is no mechanism in place at this time for periodic refunds of pre-paid taxes, thus, claims for refund must be filed in accordance with Revenue and Taxation Code section 6902. This section provides that, in the case of persons who are required to file on a yearly basis, claims for refund must be filed within three years following the last day of the calendar month following the one year period in which the overpayment was made. (Rev. & Tax. Code §6902(a)(2).) In the case of persons who file on other than an annual basis, their claims for refund must be filed within three years from the last day of the month following the close of the quarterly period in which the overpayment was made. (Rev. & Tax. Code
§6902(a)(1).) In addition, refunds of pre-paid sales and use tax, the cost of which has been passed on to an Indians residing on reservations, must be returned to each of the qualified Indians who made purchases which included the pre-paid tax. (See Rev. & Tax. Code §6901.5.)

Mr. --- -. S---

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August 19, 1997
305.0024.350

If the pre-paid taxes attributable to fuel purchased by a qualified Indian, is deducted from the price of the fuel at the time of the sale, then the refund may be retained by the Indian retailer. If you have any further questions, please feel free to contact this office again. Sincerely, Patricia Hart Jorgensen Senior Tax Counsel PHJ:cl cc:

--- --- District Administrator (--)