Was income earned by a bona fide tribal member from work pursued on the tribe's Virginia reservation exempt even if the member lived off reservation?

Plain-English summary

A Virginia tribe asked whether members living away from the reservation could still exempt income earned by working on the reservation.

Virginia said yes. The operative conditions were bona fide tribal membership and income from activities pursued on that tribe's reservation.

Residence versus source of activity

Tribal members living in Virginia are Virginia residents whether they live on or off reservation. Income from outside the reservation is generally taxed like other resident income.

Virginia's longstanding immunity policy, however, applies to income a bona fide member earns from pursuits on the member's own reservation. The Department rejected the view that residence on the reservation was an additional requirement.

What this means for you

• Confirm bona fide membership in the relevant tribe.
• Tie each income item to activity pursued on that tribe's reservation.
• Off-reservation residence does not itself defeat the exemption.
• Outside-reservation income remains subject to ordinary Virginia rules.

Common questions

Q: Did the ruling exempt all income of tribal members?

A: No. It covered income derived from activities pursued on their tribe's reservation.

Q: Did a member have to live on the reservation?

A: No. Virginia expressly applied the exemption without that residence requirement.

Citations and references

• Va. Code §§ 58.1-301, 58.1-322 — conformity and modifications
• Eastern Band of Cherokee Indians v. Lynch, 632 F.2d 373 (4th Cir. 1980)
• Related Virginia ruling cited: P.D. 10-156

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 19-15

Original ruling text

March 6, 2019

Re: Request for Ruling: Individual Income Tax

Dear *:

This will reply to your letter in which you seek a ruling regarding the taxability of income earned by members of the * Indian Tribe (the “Tribe”) who do not reside on their reservation but who earn income from employment on the reservation.

FACTS

The Tribe is an Indian tribe with a reservation located in Virginia. Members of the Tribe are able to pursue activities on their reservation without always residing there. The Tribe requests a ruling on whether income earned by a member of the Tribe from pursuits on their reservation is taxable to Virginia if that member does not reside on the reservation.

ANALYSIS

Virginia Code § 58.1-301 provides, with certain exceptions, that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia . For individual income tax purposes, Virginia “conforms” to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Virginia Code § 58.1-322.

The Tribe asserts that the treaty between Virginia and the Indians in 1677 remains in effect. According to the Tribe, the treaty exacts an annual tax on the Indians. The Tribe argues that, as wards of the Commonwealth, Virginia can impose no other tax on Indians in Virginia without legislation from the General Assembly. The Tribe also argues that taxation status depends on the situs of the earned income, not the domicile of the earner. Thus, the Tribe reasons that income earned by a member of the Tribe from pursuits on the reservation is exempt from taxation, regardless of whether the member resides on the reservation.

Indians are considered residents of the state in which their reservation is located. See Public Document (P.D.) 10-156 (7/30/2010), citing Eastern Band of Cherokee Indians v. Mark G. Lynch, Secretary of Revenue for the State of North Carolina , 632 F.2d 373 (4th Cir 1980). An Indian residing in Virginia, whether on an Indian reservation or not, therefore, is a resident of Virginia. In P.D. 10-156 the Department stated that “[t]he Commonwealth’s longstanding policy has been to refrain from imposing income tax on the income earned by an Indian residing on a reservation solely from pursuits on that reservation,” citing 1917 Report of the Virginia Attorney General 160 (1/26/1917) and 1918 Report of the Virginia Attorney General 86 (1/25/1918). This general state tax immunity, however, does not operate outside of the Indian reservation. Indians receiving income from outside of the reservation are subject to income taxes in the same manner as other residents of Virginia.

The Tribe believes that the Department erred in imposing a reservation residency requirement in P.D. 10-156. A careful review of the Attorney General opinions cited in P.D. 10-156 indicates that the question of taxation depended on the extent Indian tribes “followed up their pursuits upon their reservation.” A member of the Tribe who resides on the reservation and earns income from an occupation pursued on the reservation is unquestionably not subject to tax. These were facts the Department addressed in P.D. 10-156. Contrary to the Tribe’s assertions, the Department has consistently ruled that a member of a tribe is exempt from taxation from pursuits engaged on their tribe’s reservation. As long as an individual is a bona fide member of the Tribe and the income is derived from activities pursued on that tribe’s reservation, the income is exempt from Virginia income tax.

This ruling is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections and public document 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

Related Documents

00-96

10-156

10-157

10-158

11-38

11-39