State Tax Ruling

Plain-English summary

A federally recognized Indian Tribe with a reservation in Virginia asked the Tax Commissioner whether the Tribe itself — as an entity separate from its individual members — is exempt from Virginia retail sales and use tax on purchases made for its administrative operations. The Commissioner ruled no, at least for purchases occurring off the reservation.

The Department's reasoning tracked its own recent precedent, P.D. 20-113 (6/30/2020), which had already denied the same kind of exemption to the same Tribe. Sales and use tax exemptions in Virginia are purely a matter of statute, and the Department applies "strict construction" when reading them — a rule required by the Virginia Constitution and adopted by the courts. Searching the Code of Virginia, the Commissioner found no exemption written for either the Tribe or its individual members. The only relevant provision is a regulation, 23 VAC 10-210-750, which says the tax "does not apply to sales made by Indians to Indians on their reservation," but expressly states that "sales by outsiders to Indians, sales by Indians to outsiders, and all sales made off the reservation are subject to the sales tax."

Because the Tribe's purchases in question occurred off the reservation, the Commissioner concluded there was no legal basis for an exemption — regardless of the fact that the items were ultimately intended for use in the Tribe's on-reservation administrative operations. The ruling also flagged, without deciding, a separate open question: it's not even clear that the on-reservation regulatory exemption in 23 VAC 10-210-750 extends to the Tribe as a governmental entity (as opposed to its individual members) at all. That question was left unresolved because it didn't matter here — the purchases were off the reservation either way.

Finally, the Commissioner noted that while the Department has broad authority under Va. Code § 58.1-203 to interpret and enforce Virginia's tax laws, that authority does not include the power to create tax exemptions that the General Assembly has not enacted.

What this means for you

Tribal governments and tribal entities

If your tribe has a Virginia reservation and makes purchases outside its boundaries — even for goods or services that will be used back on the reservation for governmental or administrative purposes — Virginia currently treats those purchases as fully taxable. The location of the sale, not the location of eventual use, is what the Department looks at under this ruling and its predecessor, P.D. 20-113. Only sales made by Indians to Indians physically on the reservation fall within the regulatory exemption.

Vendors selling to tribal customers

If you sell to a tribal government or its members off the reservation, this ruling confirms you should charge Virginia sales tax as you normally would — there's no statutory or regulatory basis for treating the tribal buyer as exempt merely because it is a tribe, unless the sale itself takes place on the reservation and is a sale by an Indian to an Indian.

Accountants and tax professionals

This ruling is a straightforward application of Virginia's strict-construction rule for tax exemptions: absent explicit statutory or regulatory language, the Department will not read an exemption into existence, and it treats "on the reservation" as a firm geographic line rather than a proxy for eventual use or tribal governmental status. Note that the ruling left open — because it didn't need to decide — whether 23 VAC 10-210-750 (a regulation about sales between Indians) even applies to a tribal entity making a purchase for itself, as opposed to sales to or by individual tribal members. That's a gap worth flagging for any client trying to rely on the regulation for anything other than clearly on-reservation, individual-to-individual transactions.

Common questions

Q: Is an Indian Tribe ever exempt from Virginia sales and use tax?
A: Under the regulation the Commissioner cited (23 VAC 10-210-750), sales made by Indians to Indians on their reservation are not subject to the tax. But sales by outsiders to Indians, sales by Indians to outsiders, and all sales made off the reservation are taxable. This ruling addressed only the off-reservation situation and found no exemption applied.

Q: Does it matter that the purchases were for the Tribe's own administrative operations on the reservation?
A: No. The Commissioner found no basis to extend an exemption based on the intended use of the purchased items once they reached the reservation; the ruling focused on where the purchase transaction itself occurred.

Q: Did the Commissioner decide whether the Tribe, as an entity, qualifies for the on-reservation exemption in 23 VAC 10-210-750?
A: No — the ruling explicitly says it is "not clear" whether that exemption (written in terms of sales by Indians to Indians) extends to the Tribe as an entity separate from its members. The Commissioner didn't need to resolve that question because the purchases at issue happened off the reservation anyway.

Q: Why didn't the Department just create an exemption for the Tribe's administrative purchases?
A: The Commissioner explained that while Va. Code § 58.1-203 gives the Department power to interpret and enforce Virginia's tax laws, that power does not extend to creating exemptions that don't already exist in the Code of Virginia or its regulations. Any new exemption would require action by the General Assembly.

Citations and references

Statutes, regulations, and prior rulings:

• Va. Code § 58.1-203 (Tax Commissioner's authority to interpret and enforce Virginia tax laws — does not include power to create new exemptions)
• 23 VAC 10-210-750 (exempts sales by Indians to Indians on their reservation; taxes sales by outsiders to Indians, sales by Indians to outsiders, and all off-reservation sales)
• P.D. 20-113 (6/30/2020) (the Department's prior ruling for the same Tribe, denying exemption for off-reservation purchases, which this ruling follows)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-173

Original ruling text

September 29, 2020

Re: Ruling Request: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the “Tribe”) requesting a ruling on the application of the Virginia retail sales and use tax to purchases made by the Tribe.

FACTS

The Tribe is a federally recognized Indian tribe with a reservation located in Virginia. The Tribe requests a ruling on whether the Tribe, as an entity separate from its members, is exempt from the Virginia retail sales and use tax on purchases made for use in its administrative operations.

DETERMINATION

In Public Document (P.D.) 20-113 (6/30/2020), the Department found that there was no legal basis to grant sales and use tax exemptions for an Indian Tribe’s purchases occurring off a reservation for use on the reservation. The Department reasoned that exemptions from the Virginia retail sales and use tax are a matter of statute. When interpreting sales and use tax exemptions, the Department applies the rule of strict construction as adopted by the courts and as required by the Virginia Constitution. Upon review of the Code of Virginia , neither the Tribe, nor its individual members, are provided an exemption from the retail sales and use tax. However, Title 23 of the Virginia Administrative Code (VAC) 10-210-750 provides that the retail sales and use tax “does not apply to sales made by Indians to Indians on their reservation”. It goes on to explain, “sales by outsiders to Indians, sales by Indians to outsiders, and all sales made off the reservation are subject to the sales tax”, further reinforcing the Department’s opinion that such exemptions are restricted to activities occurring on the reservation.

The Code of Virginia does not provide for any such exemption, nor do the regulations appear to extend the exemption to transactions occurring off the reservation. While it is not clear whether the retail sales and use exemption in Title 23 VAC 10-210-750 extends to the Tribe, as an entity separate from its members, it is clear that such exemptions are restricted to activities occurring on the reservation.

The Department has the power to interpret and enforce the laws of the Commonwealth governing taxes under Virginia Code § 58.1-203. That power, however, does not extend to creating exemptions that do not exist under the laws of the Commonwealth. After careful review and consistent with P.D. 20-113, I find that there is no basis for the Department to grant an exemption from the retail sales and use tax for purchases made off the reservation by the Tribe.

The Code of Virginia section, regulation, 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

AR/3309.A

Related Documents

20-113