Tribal Marijuana Legalization

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.

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

Puff, Puff, Tax: I-502 and Washington Indian Country

Washington state’s legalization and regulation of marijuana will be hazy for some time. But the effects of Initiative 502 in Washington Indian Country promises to be cloudier than throughout the rest of the state. Setting aside the social issues that all of Washington will be dealing with as pot becomes a mainstream recreational drug à la tobacco and alcohol, the taxation of pot in Indian country, if it can even be sold on Reservations, promises a host of issues that we’ll be working through well into the next election cycle. Issue No. 1: Tribal Prohibition

Tribes can and increasingly do prohibit marijuana on their reservations. While tribes lack criminal jurisdiction over non-Indians, through their civil authority, tribes could attempt to regulate pot traffic and use because it “threatens or has some direct effect on the political integrity, economic security, or the health and welfare of the tribe.” Montana v. United States, 450 U.S. 544, 566 (1981). If tribes do so, and if the Liquor Control Board’s forthcoming pot-licensing regulations mirror liquor regulations (where local governments can object to licenses), many of these taxation issues will be academic.

Issue No. 2: Federal Law

If Washington tribes follow the state’s lead and decriminalize pot within their jurisdictions, federal interference remains likely. In recent years, tribal flirtation with medical marijuana has garnered unintelligible but angry responses from the Department of Justice. Marijuana remains a controlled substance under federal law, everywhere. But the fact that Indian reservations comprise often largely federal land makes them awkward places to sell drugs that are legal under state law (which doesn’t apply) and illegal under federal law (which is often unenforced).

Issue No. 3: Reservation-based Value

In Washington, as throughout Indian Country, federal law generally bars taxes on products that incorporate “value generated on the reservation,” sold to Indians or non-Indians. See WAC 458-20-192(c). This means that food harvested from Indian lands or prepared at a tribal facility and sold to nonmembers would be untaxed. Id. at (a)(i); cf. Agua Caliente Band of Cahuilla Indians v. Hardin, 223 F.3d 1041, 1044 (9th Cir. 2000) (dicta); California v. Cabazon Band of Mission Indians, 480 U.S. 202, 220 (1987); Indian Country, U.S.A., Inc. v. Oklahoma, 829 F.2d 967, 986 (10th Cir. 1987); Conn. Legal Ruling No 2002-3 (May 29, 2002).

In other words, if a Tribe adds value to a product and sells it on the Reservation, it shouldn’t be taxed. In a vacuum this means that tribally or tribal-member grown pot sold on the Reservation will not be subject to state taxes. If state-regulated pot is actually a feasible business endeavor and not irrelevant because of the black market, untaxed on-Reservation sales could severely undercut off-Reservation sales, which will carry a 25% tax.

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Whatever form Washington Liquor Control Board pot regulations take when they are published, Washington Indian Country should remain vigilant to ensure that its interests are taken into account – whether tribes wish to fight pot on the reservation, or to regulate and tax it.

Anthony Broadman is a partner at Galanda Broadman PLLC. He can be reached at 206.321.2672,, or via

Furthering the Case for Tribal Legalization of Marijuana

Two February 20, 2011 national news stories further suggest that it is time for Indian Country to begin seriously engaging in the state-federal debate about legalizing, regulating and taxing marijuana. From the Oklahoman, "How $31 of pot gave mom a 10-year-prison sentence":

Because of $31 in marijuana sales, Patricia Marilyn Spottedcrow is now serving 10 years in prison, has been taken away from her four young children and husband, and has ended her work in nursing homes.

Tragically, Patricia Marilyn Spottedcrow is not the only poor Native American who has had to resort to selling illegal contraband to support her family, and whose family was shattered by the failed effects of the war on drugs. Accordingly, some tribal governments have already taken the matter of marijuana legalization and regulation into their own hands. Other tribes have considered doing so but decided marijuana was and is not part of tribal ways.

From the notoriously conservative Seattle Times editorial board, "The Washington Legislature should legalize marijuana":

MARIJUANA should be legalized, regulated and taxed. The push to repeal federal prohibition should come from the states, and it should begin with the state of Washington. . . .

[I]n America, prohibition is the pursuit of the impossible. It does impose huge costs. There has been:

• A cost to the people arrested and stigmatized as criminals, particularly to students who lose university scholarships because of a single conviction;

• A cost in wasted police time, wasted court time and wasted public resources in the building of jails and prisons;

• A cost in disrespect for the law and, in some U.S. cities, the corruption of police departments;

• A cost in lost civil liberties and lost privacy by such measures as the tapping of private telephones and invasion of private homes;

• A cost in the encouragement of criminal lifestyle among youth, and the consequent rise in theft, assault, intimidation, injury and murder, including multinational criminal gangs; and

• A cost in tax revenues lost by federal, state and local governments — revenues that for this state might be on the order of $300 million a year.

Some drugs have such horrible effects on the human body that the costs of prohibition may be worth it. Not marijuana. This state's experience with medical marijuana and Seattle's tolerance policy suggest that with cannabis, legalization will work — and surprisingly well.

Not only will it work, but it is coming. You can feel it.

To the extent consistent with tribal ways, tribal governments should draft behind the states in the push to repeal federal prohibition, and stand ready to legalize, regulate and tax (or tax exempt) marijuana under tribal law when that day comes.

Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian majority-owned law firm. He is an enrolled member of the Round Valley Indian Tribes of Covelo, California. He can be reached at 206.691.3631 or, or via This information is not intended to create an attorney/client relationship and shall not be construed as legal advice.