Michigan tribes negotiate tax agreements

Bay Mills News, Jan. 2, 2003

LANSING, Mich. — On Dec. 20, Michigan Gov. John Engler signed sweeping tax agreements between the State of Michigan and 10 of Michigan’s 12 federally-recognized tribes. The heads of seven Michigan tribes, including Bay Mills Tribal Chairman L. John Lufkins and Sault Tribe Chairman Bernard Bouschor, were present for the signing.

The agreements, described by the governor’s office as the most comprehensive tax agreement in America, will grant tribal members with expanded tax benefits while assuring that non-tribal individuals who are involved with the tribes pay the appropriate taxes that are due.

Bay Mills Tribal Attorney Kathryn “Candy” Tierney, a key architect of the agreement between Bay Mills and the state, said that the agreement will offer new benefits to Bay Mills members.

“I think the members will be pleased,” Tierney said. According to Tierney, the tax agreement will take effect once all of the administrative details are settled, potentially in early January 2003.

The most significant provision of the document are the agreement areas established as a result of the signing. Tribal members living within the agreement areas will be exempt from paying the taxes that they would not have to pay if they lived on tribal property — specifically, sales tax, use tax, motor fuel tax, tobacco products tax, and the single business tax.

For Bay Mills, the tax agreement area covers a large section of northeastern Chippewa County, including all of Sault Ste. Marie, Bay Mills, and an area stretching through Bay Mills Township, south to M-28 and east to Mackinac Trail. This area overlaps with the Sault Tribe tax agreement area, since members from both tribes live within common areas, such as Sault Ste. Marie.

The agreement also regularizes tax regulations that had previously been unclear or in dispute. For example, tobacco and motor fuel sales from tribal vendors on tribal lands to tribal members are tax-free, but the same vendors must collect taxes on sales to non-members. However, the state has had no means of enforcing the tax collection on the sale of tobacco products or motor fuels, aside from blockades or seizures.

Under the new plan, taxes will be collected on all sales to non-members by the vendors and turned over to the state. Similarly, use taxes — taxes paid on purchases from sellers in non or lower tax areas such as the tribes or other states — will be collected on sales to non-members.

Another significant result of the arrangement is that tribal members living within the tax agreement areas will not have to pay sales tax on items purchased and used within that area. Vehicles may be purchased outside of an agreement area and still fall under the agreement if the member garages the vehicle within the agreement area.

Sales tax will still be paid to retailers when purchases of everyday items is made, but tribal members will be able to claim an annual refund based upon six percent of 15 percent of their annual income, since the agreement holds that tribal members will spend an average of 15 percent of their income on retail goods. For a household earning $25,000 per year, this would result in a refund of $225.

Income tax withholding and reporting was also clarified by the agreement. Tribal members who live within the agreement areas will be exempt from paying state income taxes, and tribal employers will withhold and report the income of non-member employees. Prior to the agreement, six tribes and the state disagreed on what land was considered tribal land, which determined which tribal members were subject to the tax exemption. Also, the state could not require tribal employers to report the income of non-members.

The final tax covered by the document is the single business tax, or taxes paid on business ventures. The state and the tribes disputed over whether a business should be required to pay the single business tax if it has non-tribal partners or it operates outside of tribal lands. Under the agreement, the tax will be paid by any tribal business activity outside of the agreement areas, as well as on the portion controlled by non-member partners.

According to Tierney, non-tribal spouses and family members are not eligible for the tax exemptions, except in the case of jointly titled vehicles that meet all other requirements of the agreement. Also, Teirney added, new lands that Bay Mills may acquire will also be included in the agreement area.

In terms of revenue, Michigan will see little change in the amount of tax dollars that come into the state coffers. According to estimates from the governor’s office, Michigan will lose between $8 million and $14 million in revenue annually because of the agreement areas, but will gain revenue ranging from $8.5 million to $14.5 million from the collection of taxes clearly owed to the state.

Despite the lack of monetary benefits, the state government strongly supports the agreements because of the comprehensive way that tribal tax issues have been addressed in the deal and for the precedent that the agreements set for the rest of the nation.

“These agreements are a model for the country,” Gov. Engler said in a Dec. 20 press release. “Nowhere else have a state and tribes been able to come together to reach similar agreements like we have here in Michigan.”

Lance Baldrey, deputy counsel to the governor, felt that Michigan is blazing the trail for other states and tribes that have disputes over taxation.

“Michigan is on the cutting edge of a lot of the issues surrounding tribes and taxes,” Baldrey said after the signing. He added that western states in particular are facing similar issues regarding taxes, and that tax agreements between them and the western tribes could head off possible litigation. “We would rather make these agreements with the tribes instead of fighting it out in the courts,” Baldrey said.

Tierney agreed, saying “Both Bay Mills and the state got more out of this agreement than we would have if we had gone to court.” Tierney said that Bay Mills has held tax agreements with the state before, but that the most recent one expired in April 1999. Bay Mills continued to operate under the provisions of the deal, but that practice became too costly for the tribe, and a new agreement was needed.

According to Tierney, Bay Mills was instrumental in moving the agreements along for all of the tribes in Michigan. “Terry Carrick, Mickey Parish, and Mike Brooks really carried the water for the other tribes,” Tierney said.

Brooks, Bay Mills CFO, Carrick, Bay Mills Executive Council Secretary, and Parish, BMCC President and past Bay Mills policy analyst, were present at the signing with Chairman Lufkins, Tierney, and Bay Mills Councilperson Norma Bennett.