NY TSB-A-93(17)C Corporation Tax 1993-10-12

Is a New York corporation owned by tribal members and operating entirely on an Indian reservation exempt from Article 9-A franchise tax?

Short answer: No. A New York domestic corporation that runs a bingo operation entirely on the St. Regis Mohawk Reservation and is owned entirely by tribal members is still subject to the Article 9-A franchise tax. Federal Indian law lets resident tribe members earn reservation income free of state personal income tax, but the taxpayer here is not an individual tribe member -- it is a New York corporation subject to the state's general civil jurisdiction, and federal law does not bar taxing income earned by a corporation on tribal land. For the business allocation percentage, the United States portion of the St. Regis Mohawk Reservation is physically within New York and must be treated as 'within New York,' so income earned there is allocated to New York.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Basil J. Cook Enterprises, Inc. is a New York corporation that manages a bingo operation located entirely on the St. Regis Mohawk Reservation in northern New York. All of its shareholders are members of the St. Regis Mohawk Tribe. It asked (1) whether it is exempt from the New York business corporation franchise tax, and (2) whether it must compute the business allocation percentage for the minimum taxable income base.

It is not exempt. Federal Indian law does let a resident tribe member earn income on the reservation free of state personal income tax (McClanahan; Oklahoma Tax Comm'n v. Sac & Fox Nation). But this taxpayer is not an individual tribe member -- it is a New York domestic corporation, an entity created under New York law and subject to the state's general civil jurisdiction. Federal treaties and laws do not prohibit states from taxing income earned by non-members -- including a corporation -- on tribal land (Mescalero Apache Tribe v. Jones). Under section 209.1, every corporation owes the franchise tax for the privilege of its franchise, and a domestic corporation is subject to all New York laws generally applicable to corporations.

Reservation land is "within New York." For the business allocation percentage (sections 210.3 and 210.3-a), the portion of the St. Regis Mohawk Reservation that lies in the United States (as opposed to the Canadian portion) is physically located within New York and must be treated as within New York. So the corporation's reservation income is allocated to New York.

What this means for you

A corporation is not a tribe member

The personal-income-tax exemption for reservation income belongs to resident individual tribe members. A corporation -- even one wholly owned by tribe members -- is a separate taxpayer subject to New York's franchise tax.

Doing business on a reservation does not move you out of New York

The U.S. portion of the reservation is in New York for tax purposes, so income earned there is New York income for the allocation percentage.

Choice of entity matters

The opinion notes that members operating as a partnership or sole proprietorship might be treated differently; incorporating created a New York taxpayer.

Common questions

Q: Our corporation is owned entirely by tribe members and operates only on the reservation. Are we exempt?
A: No. The corporation is a New York taxpayer subject to Article 9-A; the federal exemption protects individual resident tribe members, not corporations.

Q: Is reservation income allocated to New York?
A: Yes. The U.S. portion of the reservation is physically within New York, so it counts as "within New York" for the business allocation percentage.

Q: Would a partnership or sole proprietorship be treated the same?
A: Possibly not -- the opinion distinguishes individual resident tribe members, who may earn reservation income free of state personal income tax.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (franchise tax on every corporation)
- Tax Law section 210.1 (tax bases) and section 210.3 / 210.3-a (business allocation percentage)
- 20 NYCRR 1-2.3 (definition of corporation and domestic corporation)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (17) C
Corporation Tax
October 12, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C930422A

On April 22, 1993, a Petition for Advisory Opinion was received from Basil J. Cook
Enterprises, Inc., PO Box 480, Route #37, Hogansburg, New York 13655.
The issues raised by Petitioner, Basil J. Cook Enterprises, Inc., are whether Petitioner whose
business is performed entirely on a recognized Indian Reservation and is owned by tribal member
stockholders is exempt from New York State business corporation franchise tax, and if a New York
State corporation doing business on a recognized Indian Reservation, is subject to "Computation of
Business Allocation Percentage for Minimum Taxable Income Base"
Petitioner manages a bingo operation located on the St. Regis Mohawk Indian Reservation
An northern New York State. Petitioner conducts all of its business on the St. Regis Mohawk Indian
Reservation and is incorporated as a New York State corporation. All stockholders are members of
the St. Regis Mohawk Indian Tribe. Petitioner contends that if the shareholders of this corporation
were partners in a partnership or were a sole proprietorship conducting all its business on the
reservation, they would not be subject to New York State personal income tax, and Petitioner
questions whether the New York corporation should be treated differently.
It is true that, pursuant to federal Indian law, tribe members residing on a reservation may
earn income on that reservation without incurring any liability for State personal income taxes. See,
Oklahoma Tax Comm'n v Sac & Fox Nation, _ US _ (dec. May 17, 1993), and McClanahan
v Arizona State Tax Comm'n, 411 US 164 (1973).
However, even if it is assumed that all of the shareholders of Petitioner are resident members
of the St. Regis Mohawk Nation, the instant situation does not involve income earned by resident
tribe members on a reservation. The entity earning the income in question is not a member of the
St. Regis Mohawk Nation residing on that Nation's reservation. It is a New York domestic
corporation that (unlike a resident Indian tribe member) is subject to New York State's general civil
jurisdiction.
Federal Indian treaties and laws do not prohibit states from imposing taxes on income earned
by non-Indians and non-members located on the reservation or other lands of a tribe or nation. (411
US 145 (1973) Mescalero Apache Tribe v Jones)
Section 1-2.3(a) of the Business Corporation Franchise Tax Regulations (hereinafter
"Regulations") defines a corporation as an entity created as such under the laws of the United States,
any state, territory or possession thereof, the District of Columbia, or any foreign country, or any
political subdivision of any of the foregoing, which provides a medium for the conducting of
TP-9 (9/88)

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TSB-A-93 (17) C
Corporation Tax
October 12, 1993

business and the sharing of its gains. Section 1-2.3(a)(1) of the Regulations defines the term
domestic corporation as a corporation incorporated by or under the laws of New York State.
Section 209.1 of the Tax Law imposes, annually, a franchise tax on every corporation for the
privilege of exercising its corporate franchise, or of doing business, or of employing capital, or of
owning or leasing property in New York State in a corporate or organized capacity, or of maintaining
an office in New York State for all or any part of each of its fiscal or calendar years.
As a domestic corporation, Petitioner is subject to all New York State Laws generally
applicable to domestic corporations, including the New York State business corporation franchise
tax imposed under Article 9-A of the Tax Law.
Petitioner also asks whether it is subject to the "Computation of Business Allocation
Percentage for Minimum Taxable Income Base". Section 210.1 of the Tax Law provides that the
tax imposed by section 209.1 of the Tax Law shall be the sum of (1) the highest of the amounts
prescribed in paragraphs (a) [entire net income base], (b) [capital base], (c) [minimum taxable bases]
and (d) [fixed dollar minimum] of section 210.1 and (2) the amount prescribed in paragraph (e)
[subsidiary capital base] of section 210.1. A taxpayer's entire net income base means the portion of
the taxpayer's entire net income allocated within New York State. A taxpayer's minimum taxable
income base means the portion of the taxpayer's minimum taxable income allocated within New
York State. The business allocation percentage is computed pursuant to section 210.3(a) of the Tax
Law, and the business allocation percentage for minimum taxable income base is computed pursuant
to section 210.3-a of the Tax Law. The portion of the St. Regis Mohawk Indian Reservation that is
located in the United States (as opposed to the Canadian portion) is physically located within New
York State, and such portion must be treated as "within New York" for purposes of computing the
business allocation percentage and the business allocation percentage for minimum taxable income.

DATED: October 12, 1993

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.