The Ninth Circuit held Thursday that a tribe or tribal business is excepted from paying Federal Unemployment (FUTA) taxes where services are performed “in the employ of an Indian tribe,” but only where a tribe or its instrumentality is a "common-law" employer of the worker performing the services. The court held that because the Tribe's employee leasing and temporary staffing business was a common-law, as opposed to statutory employer, the IRS had incorrectly failed to refund FUTA taxes paid. A common-law employer is an employer based on the law of agency, while a statutory employee for purposes of FUTA can simply be a paymaster. Although Blue Lake Rancheria had argued that even services provided by statutory employees were excepted from FUTA, it ended up not mattering to the Ninth Circuit, which found that the tribe's business was in fact a common-law employer.
Blue Lake will be required reading as tribal business form entities as the border of common-law employers. Any time a tribal business exercises less than total control over its employees, i.e. via staffing businesses, it should be sure to comply with the guidelines set forth in Blue Lake to ensure that FUTA exposure is minimized.
Anthony Broadman is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm. His practice focuses on company-critical business litigation and representing tribal governments. He can be reached at 206.691.3631 or firstname.lastname@example.org, or or via galandabroadman.com.