Indian Tax

Pot Capitas: Distributing The Fruits Of Tribal Land

By Anthony Broadman

Assuming the bottom does not drop out of the legal weed market, and that Tribes are able to begin regulating and selling marijuana within their jurisdictions, how will pot farming revenue be spent? If marijuana is a viable business for Tribes, Tribal governments can expect calls for profits to be “per capped” through per-member distributions. Whether per capitas are good governance is a question for Tribes and their constituents.  But the particular treatment of pot per capitas raises new questions about federal trust assets, federal taxation, and whether distributions can provide a new non-taxable trust resource for Tribes and their members.


A profitable tribal pot economy requires several leaps of faith and what would formerly have been some wild assumptions. But presuming the reservation market takes shape, Tribes will likely use the revenue from pot cultivation, like all economic development initiatives, to provide essential governmental services to their members. We should expect tribal pot revenue to offset the burdens of legal pot, to be allocated to education, law enforcement, marijuana regulation, anti-drug initiatives, public health efforts, and the other sorts of programs Tribes have long provided within and beyond their territory. But with profits often come calls for per capita distributions.

The general rule is that every cent of your wealth, whether you are a member of an Indian tribe or not, is taxable by the United States. Section 61(a) of the Internal Revenue Code provides that, except as otherwise provided by law, gross income means all income from whatever source derived.  Under Section 61, Congress is allowed to tax every “accession[] to wealth.”   Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). Indians are citizens subject to the payment of these income taxes. Squire v. Capoeman, 351 U.S. 1, 6 (1956).

One narrow exception to this rule is that per capita distributions made from funds the Secretary of the Interior holds in a Trust Account for the benefit of a tribe are generally excluded from the gross income of the members receiving the distributions.

Practically, proceeds from trust assets or trust resources are deposited into a tribal Trust Account for a tribe and that tribe subsequently makes a per capita distribution using funds from that Trust Account. Again, those payments are generally not taxable to members. This is different than the treatment of gaming per capitas. The per capita distribution of gaming revenue is taxable to each recipient.

Could trust assets or resources include marijuana grown by a Tribe on Tribal land? Trust resources means any element or matter directly derived from Indian trust property. 25 C.F.R. § 115.002. In fact, it may not be optional for the United States to accept the revenue from tribal pot cultivation into trust. According to federal trust regulations, the Secretary of the Interior “must accept proceed on behalf of tribes or individuals from the following sources . . . [m]oney directly derived from the . . . use of trust lands.” 25 C.F.R. § 115.702. The IRS has wavered on whether trust per capitas are taxable in the last few years. But after Tribal resistance, provided clarity last year in Notice 2014-17.

The IRS often rejects as trust resources that revenue which may be derived from land but is really mischaracterized business profits. But as for marijuana grown on tribal trust land, which is then harvested and sold by the Tribe in the first instance, the resulting revenue is almost certainly money directly derived from the use of tribal trust land. Indeed, there is no difference between pot and timber except that pot is an illegal schedule I controlled substance.

Whether the Secretary can or would accept proceeds from the sale of marijuana grown on Tribal lands – like it does timber – into trust is a different question. Marijuana remains illegal under federal law and even though the DOJ may not be enforcing marijuana laws, participating in what would effectively be the banking of illegal drug revenue feels like a bridge too far. After all, if they won’t let banks easily accept pot profits, how could the feds themselves deposit such funds? Still, the potential for distribution of pot profits could provide tribes with a new source of non-taxable distribution income for members. That, given the stagnating gaming per capita landscape, is a potential novel benefit as Tribes balance the harms and benefits of the marijuana economy.

Anthony Broadman is a partner at Galanda Broadman PLLC. He can be reached at 206.321.2672,, or via Marijuana is illegal under federal law.

Another State Tax Man Smackdown; Tribal Property Tax Win

Today, the Second Circuit Court of Appeals smacked down a New York county assessor's attempt to foreclose upon Cayuga-owned fee lands in a desperate attempt to recover state ad valorem property taxes from the Tribe. Cayuga was a benefactor of both the Oneida Nation's genius mooting of Oneida Indian Nation of N.Y. v. Madison County, before the U.S. Supreme Court, as well as the Bay Mills Tribe's lucky win before the Supreme Court in Michigan v. Bay Mills Indian Community.  Bay Mills should have been mooted too.


The Cayuga decision represents another win in a surprising run for tribes in state property tax or fee assessment disputes before federal circuit courts of appeals.

Last year, the Ninth Circuit struck down property taxes on permanent improvement to Chehalis tribal trust lands in Confederated Tribes of Chehalis Reservation v. Thurston County Bd. of Equalization; and the Seventh Circuit struck down a local assessment of stormwater "fees" against Oneida trust lands in Oneida Tribe of Wisc. Indians v. City of Hobart.

Amidst serial federal court losses in other state-tribal tax contexts (i.e. sales and excise taxation), it seems that Indian property tax or tax-related cases are still winnable.  See also Crow Tribe of Indians v. Montana (9th Cir. 1987).  Granted, Cayuga was a sovereign immunity, not Bracker, case but the county's suggested in rem exception to tribal immunity would have catalyzed state taxation of Indian property nationwide.

In any event, Richard Guest of NARF's advice remains sound:

Stay out of the courts! The federal courts are not your friends anymore.  The majority of judges sitting on the lower federal courts were appointed by Bush II – very conservative, have no understanding of Indian country at all. No interest in your issues. And that can be said of the Roberts court as well. It’s a very difficult place for tribes to secure victories.

Difficult, but thankfully not impossible, at least in the Indian property tax context.

Gabriel “Gabe” Galanda is the Managing Partner at Galanda Broadman, which handled various Indian tax controversies. He is a citizen of the Round Valley Indian Tribes. Gabe can be reached at 206.300.7801 or

Gabe Galanda to Explain Tribal Sovereignty Issues Re State-Legalized Marijuana

On Monday, Gabe Galanda will address the Affiliated Tribes of Northwest Indians General Assembly, during ATNI's Mid-Year Convention this week at the Chehalis Tribe's Great Wolf Lodge, regarding the tribal and federal legalities associated with state-legalized marijuana, as well as related tribal economic opportunities.

The topic couldn't be hotter. Consider the following recent headlines about legalized marijuana in Indian Country:

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Gabriel “Gabe” Galanda is the Managing Partner at Galanda Broadman. He is an enrolled member of the Round Valley Indian Tribes of Covelo, California. Gabe can be reached at 206.300.7801 or

ATF Withdraws PACT Act FAQs; Downgrades Tobacco Investigations?

As reported this week in the Times Argus, the ATF has withdrawn a controversial set of Frequently Asked Questions (FAQ), which states were using to regulate and tax--and essentially vitiate--inter-tribal tobacco commerce. While some speculate that ATF has in very recent times diverted federal attention away from tobacco-diversion investigations, Indian Country should remain vigilant in defense of state PACT Act, CCTA and other tobacco tax enforcement efforts. Screenshot 2014-03-27 12.37.04

According to the Times Argus:

ATF took down a frequently-asked-questions Web site posting attached to its explanation of the PACT Act. The FAQ stated that the law clearly applied to wholesalers and distributors on Indian reservations.

“We are concerned that the removal of the FAQs may evidence a determination by ATF to narrow its current interpretation of the PACT Act to exclude various tribal cigarette sales and shipments,” [Idaho AG Lawrence] Wasden wrote in the Feb. 21 letter to Holder. . . .

ATF took the FAQs down after meeting with tribal representatives because the answers were three years old and “it was time to review (them) based upon the passage of time and the experience gained in enforcing the PACT Act,” [ATF spokeswoman Ginger] Colbrun said in an email statement. “We’ve committed to reviewing the FAQs, but not to making any specific changes unless we conclude they are warranted by the law.” . . .

In recent years, ATF has backed off enforcement of laws governing “tobacco diversion” — underground smuggling of cigarettes from Indian reservations to urban markets or from low-tax states in the South to high-tax states like New York and Connecticut.

Last year, the Albany Times Union obtained an ATF memo that directed agents to downgrade tobacco-diversion investigations unless there is a “nexus” to violent crime.

Indian Country had openly questioned the ATF's written position regarding state enforcement of the PACT Act per the withdrawn or "taken down" FAQs, specifically:

  1. The scope of “lawfully operating” as that term is used in 15 U.S.C. § 375(4)((B);
  2. The scope of “Delivery sales” in regard to wholesale shipments made to reservation retailers intended for resale in a “face to face” transaction;
  3. The PACT Act “list;” and
  4. The PACT Act definition of “interstate commerce” and its relationship with commerce occurring between different Indian reservations.

Of particular concern was Issue No. 1, as ATF took the position in the FAQs that to be “lawfully operating,” a business must possess all state licenses regardless of whether that business is operating in Indian Country. The ATF's position, which represented a wholesale incorporation of state law into Indian Country, is specifically prohibited by the plain language of Section 5 of the PACT Act.

Still, Indian Country should not let its guard down against the states for an upstate New York minute.

Gabriel “Gabe” Galanda is the Managing Partner at Galanda Broadman. He is an enrolled member of the Round Valley Indian Tribes of Covelo, California. Gabe can be reached at 206.691.3631 or

Gabe Galanda Stumps Against Interior's Land Buy Back; Serves as Professor in Residence

This week, Gabe Galanda visited the University of Arizona College of Law in Tucson for a speech at the 2nd Annual Tribal Lands Conference, and a Professorship in Residence at the Indigenous Peoples Law & Policy Program. Gabe's speech at the Conference, which was themed "The Cobell Settlement Land Buy-Back Program for Tribal Nations," was titled: "The Perils of Indian Law Buy Back." He explained that "while Interior’s plan disclaims any facilitation of forced sales under 25 U.S.C. 2204(a), the $1.55 Billion in 'buy back' monies will catalyze controversial intra-tribal forced sales." photo 2-1

Gabe further explained how any such forced sale could violate various federal laws, including the Fifth Amendment of the U.S. Constitution and the United States' trust fiduciary duty at common law, as well as international human rights law, including Articles 1 and 10 of the United Nations Declaration on the Rights of Indigenous Peoples and Article 11 of the Rights of Man and of the Citizen. His slides are available here, and his prior published commentaries are here.

During his Professorship in Residence, Gabe engaged indigenous law students during a program moderated by Dean Marc Miller, in the development series called "A Conversation With...," which features prominent law school alumni. He also delivered a lecture to Professor Ray Austin's class titled, "Tribal Economic Development: Looking Through the Prism of Indian Taxation & Sovereign Immunity."

In his lecture, Gabe explained very recent developments in federal Indian law regarding the powers of tribal taxation, sovereign immunity and territorial authority. His slides are available here.

Gabriel “Gabe” Galanda is the Managing Partner of Galanda Broadman PLLC, of Seattle, an American Indian owned law firm. He is an enrolled member of the Round Valley Indian Tribes of Covelo, California. Gabe can be reached at 206.300.7801 or Features Ryan Dreveskracht's Exposition Of Fed-States-Big Tobacco Unholy Alliance

Ryan Dreveskracht's exposition in Native American Times about the Master Settlement Agreement, was quoted at length in a recent blog post, "Tax-Hungry State Officials Revive Indian Wars Over Cigarettes."

As part of an interesting analysis of the cigarette tax standoff, Ryan D. Dreveskracht summarizes a major tax collecting approach for Native American Times:

In 1998, the Attorneys General of 46 states, five U.S. territories, and the District of Columbia settled various legal actions involving antitrust, product liability, and consumer protection claims against the nation’s four largest tobacco companies. (In the early years of the Bush Administration, the Department of Justice decided not to pursue claims against tobacco manufacturers for harm caused in Indian country). The states wanted billions of dollars, and were likely right to demand it. The tobacco companies, however, anticipated that they would have to substantially raise cigarette prices to pay for their financial obligations to the states. They also knew that by raising their prices, other nonparticipating companies would have a competitive price advantage.

In settling the suits, the major tobacco companies got a sweetheart deal. As part of the settlement agreement, states agreed to enact and “diligently enforce” escrow statutes that “effectively and fully neutralize[d]” competition from nonparticipating companies. These statutes impose financial obligations on non-participating companies by requiring them to make escrow payments based on the number of tax-stamped cigarettes sold in a participating state. Participating tobacco companies are not subject to these payments. Nonparticipating companies, however – companies that have never been sued or found culpable for conduct giving rise to liability – are required to make the payments.

Ryan Dreveskracht is an Associate at Galanda Broadman, PLLC.  His practice focuses on representing businesses and tribal governments in public affairs, energy, gaming, taxation, and general economic development.  He can be reached at 206.909.3842 or ryan

2nd Circuit Gets Stupid With IGRA

In a horrid opinion in Mashantucket Pequot v. Town of Ledyard, the Second Circuit scrutinized IGRA's tax preemption provision, 25 U.S.C. 2710(d)(4), which provides:

nothing in this section shall be interpreted as conferring upon a State or any of its political subdivisions authority to impose any tax, fee, charge, or other assessment upon an Indian tribe or upon any other person or entity authorized by an Indian tribe to engage in a class III activity.

Astonishingly, the Second Circuit held that this provision somehow does not operate to outlaw state taxes on Class III slot machine vendors, meaning on "entit[ies] authorized by an Indian tribe to engage in a class III activity." The panel reasoned that “IGRA does not directly preempt, by its text of by plain implication. . . . IGRA addresses state taxation, without prohibiting taxes." Wow.

Indeed, in the way of judicial realism, the Second Circuit overlooked contrary interpretations of 2710(d)(4) by its sister circuits. Consider, for example, what panels in Cabazon II (9th Cir. 1994) and Rincon (9th Cir. 2010), have said about that statute over the last two decades:

Cabazon II: “IGRA preempts the State of California from taxing offtrack betting activities on tribal lands.” Rincon: “[N]othing in IGRA can reasonably be construed as conferring on states the power to impose anything [fees or taxes]; all the states are empowered to do is negotiate.” Id.: “Under 2710(d)(4), it is not only ‘taxes’ that are precluded, it is any ‘tax, fee, charge, or other assessment.’”

We've now arguably got a circuit split. Until that--heaven forbid--might ever be resolved on high, gaming tribes in the West should be protected from the state tax man under cover of Cabazon II and Rincon. Those mega-gaming tribes in the Northeast, maybe not so much.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  Gabe assists tribal governments and businesses in all matters of tribal economic development and diversification, including entity formation and related tax strategy. He also helps tribes and tribal businesses and joint ventures withstand attack from federal, state and local government. Gabe can be reached at 206.691.3631 or

IRS Targeting Is Nothing New—For Indian Country


Lost in the IRS-Tea-Party scandal is the fact that federal tax collectors have been targeting certain groups—Indian tribal governments—for years.

As Rep. Darrell Issa, R-Calif., Chairman of the House Oversight Committee, wastes Congress’s time on what really looks like a manufactured scandal, Indian Country should focus its attention on the IRS’s special wing—the ITG—focused on “provid[ing] Indian tribal government customers top quality service by helping them understand and comply with applicable tax laws, and to protect the public interest by applying the tax law with integrity and fairness to all.”  Which is code for auditing them.

The irony hasn’t been lost on those paying attention.

If the IRS had a division focused on providing anti-tax group “customers top quality service by helping them understand and comply with applicable tax laws,” Representative Issa might have a real scandal on his hands.

For what it’s worth, it would be more rational for the IRS to have a division focused on anti-tax groups as opposed to tribes.  Anti-tax groups are—surprise—less likely to pay taxes.  But ironically it is tribes and tribal members—supposed “Indians not taxed” according to the Constitution—who have been targeted and forcibly taxed by Uncle Sam since long before Representative Issa’s crusade.

Anthony Broadman is a partner with Galanda Broadman PLLC.  Anthony’s practice focuses on company-critical litigation and representing tribal governments in public affairs, taxation, and economic development matters.  He provides businesses and tribal governments advice regarding taxation, risk management, and legislative strategy.  Anthony was named a Rising Star by Washington Law & Politics magazine for 2013 and is immediate past Chair of the WSBA Administrative Law Section and Editor of the Indian Law Newsletter, published by the WSBA Indian Law Section.





Gabe Galanda Stumps On "Modern Federal Indian Tax Implications for Tribal Economic Development"

On March 13, Gabe Galanda spoke at the RES 2013 conference in Las Vegas, regarding tribal tax issues.  Here is his presentation Modern Federal Indian Tax Implications for Tribal Economic Development.  He addresses the following recent Indian tax developments:

Fiscal Cliff: Indian Country Tax Incentives Restored

Federal Leasing Regulations: Indian Country Tax Relief

PACT Act: Awful Precedent for State Taxation of N2N Commerce

Trending: State Taxation of Indian Country’s “Fringes”

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  Gabe assists tribal governments and businesses in all matters of tribal sovereignty and self-governance, especially in legal opposition to federal, state and local government encroachment.  Gabe can be reached at 206.691.3631 or

President Obama Can Do More For Indian Country

In consideration of recent posts on the successes of President Obama vis-a-vis Indian Country in his first term (for example, here and here), consider a few of Indian Country's trials and tribulations on his watch. 1. Disrespect for Tribal Territorial Autonomy: Agencies within the likes of Justice and Labor, led by the President's appointees, too frequently encroach upon tribal sovereignty and territorial autonomy without appropriate consultation with tribal authorities, as required by Treaties, federal statutes and those agency's own consultation plans and policies. In many respects, it remains business as usual for many federal agencies in terms of entering Indian Country at will to carry out the agency's prerogative. In other words, President Obama's promise of consultation, to federal folks on the ground, is "just words" -- especially given the President's endorsement of the UN Declaration and its "free, prior and informed consent" mandate for nation-state entry onto indigenous lands. I agree with those tribal leaders who insist that the President do more to ensure that "free, prior and informed consent" be integrated into federal policy and action as to issues of tribal implication.

2. Federally Sanctioned State Regulation/Taxation of N2N Commerce: Under guise of the PACT Act, Justice and its ATF have expressly sided with state governments in the enforcement of state civil regulatory laws and tax statutes against tribal governments and entrepreneurs who sell value-generated and other tobacco products from reservation to reservation. Despite the Fed's status as Trustee to Indians, which trust relationship the U.S. does not have to states, the Obama Administration has done so without any meaningful consultation with Indian Country. Even worse, the U.S. threatens to set a precedent of state regulation and taxation of any form of inter-tribal or reservation-to-reservation commerce or trade. Justice and ATF must immediately stand down, in deference to Indian self-sufficiency.

3. President's Unholy Alliance With Big Labor: President Obama struck deals with both Big Labor and Indian Country during his first election. Over the past four years, the Department of Labor has launched un unprecedented assault against Indian Country on behalf of labor unions and employees. In other words, the President has chosen the side of labor interests, which should come as no surprise given his strong predisposition to labor unions. Under banner of the NLRA, most notably, but also OSHA and ERISA, the agency has aggressively challenged tribal self-governance and in the process dishonored notions of tribal territorial authority and federal-tribal consultation. What Labor ultimately threatens to do is ensure that all federal labor laws of so-called general applicability, uniformly govern labor and employment in Indian Country, to the exclusion of tribal self-governance over those areas. Labor should also stand down, in deference to tribal self-governance.

4. Business As Usual With Interior Post-Cobell: It also remains business as usual for the Department of the Interior and BIA as to Indian trust land management, or mismanagement. Indeed, despite so-called "lessons learned" from Cobell, Interior and the BIA have not fundamentally changed the way they carry out the federal trust responsibility to Indian landowners, especially allottees. The $1.9 billion dollar Indian land consolidation, or "buy-back" program, exclaims this point, as Professor David Wilkins observes; instead of exploring new ways to resolve the fractionation epidemic, like Indian estate planning, Interior proposes to band-aid the disease, by creating a $285 million land consolidation/buy-back program, for career BIA employees to administer. All the while, they ignore and do nothing to propose resolution to the real problem of fractionation: non-Indian ownership of undivided interests in allotments. In other words, the more things change (Cobell), the more they stay the same -- and the same will hold true for Cobell-style Indian land controversy.

This critique is not to suggest that the President has not done more for American indigenous people that any President before him; indeed, he has done more than his ever predecessor. Nor is it to suggest naiveté that any President can stand absolutely allegiant to Indian Country in true respect for tribal sovereignty; indeed, no United States President can or ever will. But this critique is to suggest that the Obama Administration can, fundamentally, do more to respect the inherent rights of Native Nations and to resolve historic federal-tribal atrocities, during the President's next four years in the White House.  Yes he can.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian owned law firm.  He is an enrolled member of the Round Valley Indian Tribes of Covelo, California.  Gabe assists tribal governments and businesses in all matters of tribal economic development and diversification, including entity formation and related tax strategy. He also helps tribes and tribal businesses and joint ventures withstand attack from federal, state and local government. Gabe can be reached at 206.691.3631 or