An Overview of Tax Advantages (2016)

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Catawba

Indian Nation

Tax and Investment

Benefit Survey:

An Overview of Tax Advantages

Available to the Catawba Nation and

its Business Partners

February 1, 2016

Tax and Investment Benefit Survey

An Overview of Tax Advantages available to

the Catawba Nation and its Business Partners

EXECUTIVE SUMMARY ........................................................................... i

Introduction................................................................................................... 1

Section 1.

The Tribe and its Federal Tax Immunities,

Exclusions and Credits............................................................. 3

a. Federal Immunities & Exemptions ...................................................... 4

1. Income earned by the Tribe is not subject to federal

tax regardless of where that income is generated.

(IRS Revenue Ruling 94-16)................................................. 4

2. Income earned by the Tribe's Section 17 Corporation

is not subject to federal tax regardless of where that

income is generated. (IRS Revenue Ruling 94-16) ............. 4

3. Income earned by tribally-owned corporations

chartered under tribal law may be immune from

federal tax under some circumstances, but that tax

treatment remains uncertain .................................................. 5

4. Income earned by tribally-owned corporation

chartered under state law is subject to federal

income tax, regardless of the location of the

activity generating the income .............................................. 5

b. Application of the Indian Tribal Governmental Tax Status

Act of 1982 .......................................................................................... 6

1. Charitable Contributions, Estate Donations

and Gift taxes – 26 U.S.C. § 7871(a)(1) ............................. 6

2. Federal Excise Taxes - 26 U.S.C. § 7871(a)(2) .................... 7

3. Deductions for Local (Tribal) Taxes –

26 U.S.C. §7871(a)(3)........................................................... 8

4. Tax-Exempt Tribal Bonds (26 U.S.C. § 7871(a)(4)

and (c)) and Tribal Economic Development Bonds

(TEDBonds) (26 U.S.C. § 7871(f))....................................... 8

5. Tribal Charitable Foundations –

26 U.S.C § 7871(a)(7)(B).................................................... 10

c. Federal Tax Exclusions Applicable to Tribal Members .................... 12

1. Benefits Paid to Tribal Members for the

Promotion of the General Welfare ...................................... 12

2. Distributions of Trust Income ............................................. 13

3. Distributions of Taxable Tribal Income is not

Exempt from Federal Tax ................................................... 14

4. The Tribal Fishing Rights Tax Exemption Does Not

Apply to the Tribe or its Members...................................... 14

Section 2.

State and Local Taxation

(State: SC Code Ann 27-26-130) ........................................... 15

a. State and Local Income Tax ............................................................. 15

1. The Tribe ............................................................................ 15

2. Tribally-owned enterprises ................................................. 16

3. Tribal Members .................................................................. 16

4. Non-members ...................................................................... 17

b. Real Property taxes ........................................................................... 17

1. Trust land on the Reservation.............................................. 17

2. Non-Trust land on the Reservation ..................................... 18

3. Off-Reservation land held in trust....................................... 18

4. Off-Reservation, non-trust land .......................................... 18

5. Tribal member occupied on-Reservation residences

exempt from state and local property taxes ........................ 19

6. Business Partners of the Tribe ............................................ 19

7. Lessees ................................................................................ 20

c. Personal Property taxes...................................................................... 20

1. Tribally owned property...................................................... 20

2. Tribal Member owned property .......................................... 21

d. The Property Tax Enforcement Regime ............................................ 21

e. State and Local Sales and Use Taxes................................................. 21

1. Purchases made by the Tribe for tribal

Governmental function........................................................ 22

2. Catawba Pottery and Artifacts ............................................ 22

3. On-Reservation sales........................................................... 22

4. Use Taxes ............................................................................ 22

Section 3. Tribal Tax Authority................................................................ 22

a. Tribal property taxes on reservation.................................................. 23

b. Tribal sales taxes for on-Reservation sales ....................................... 23

c. Tribal use taxes .................................................................................. 23

Section 4.

Financing and Commerce Advantages through

Federal Economic Development Programs ......................... 23

a. Development Zones ......................................................................... 24

1. Enterprise Zone ................................................................... 24

2. Foreign Trade Zone............................................................. 24

3. HUBZone ............................................................................ 26

b. Funding .............................................................................................. 27

1. DOI Loan Guaranty Program.............................................. 27

2. DOE Loan Guarantee Program ........................................... 28

3. Treasury CDFI Fund ........................................................... 28

4. USDA Housing Guaranteed Loan Program........................ 28

5. DOI Energy and Mineral Development Grant and

Tribal Energy Development Capacity Grant....................... 29

c. Technical Assistance.......................................................................... 29

1. White House Promise Zone................................................. 29

2. Commerce Native American Export and

Trade Promotion Program.................................................. 30

d. Other Considerations ......................................................................... 30

Section 5.

Federal Tax Credits Available to Tribal Partners.............. 31

a. New Markets Tax Credit.................................................................... 31

b. Accelerated Depreciation................................................................... 32

c. Clean Renewable Energy Bonds........................................................ 33

d. Indian Employment Tax Credit ......................................................... 34

Section 6.

State and Local Tax Benefits/Credits................................... 34

a. South Carolina Motion Picture Cash Rebate Incentive..................... 35

b. South Carolina Hospitality Fee.......................................................... 36

c. Additional Tax Credits and Incentives .............................................. 37

1. Rehabilitation of Certified Historic Structures ................... 37

2. Abandoned Buildings Revitalization Act ........................... 38

3. Community Development Tax Credits ............................... 38

Appendix

1. Illustrative Scenario: On-Reservation Sales of

School Equipment and Supplies

2. Nexsen Pruet Memorandum for Burnet R. Maybank, III,

dated December 9, 2015

Executive Summary

The Catawba Indian Nation ("the Tribe") is the only federally-recognized tribe within the

state of South Carolina. The Tribe has 2800 members and its Reservation is located in York

County. As a federally-recognized tribe, the Tribe maintains a government-to-government

relationship with the United States, exercises sovereign authority over its members and territory

and has access to federal programs promoting economic development on Indian reservations.

Although Catawba Indians have lived on their ancestral lands along the banks of the

Catawba River for at least 6000 years, in the 1950s the Tribe's federal trust relationship was

severed under the national policy known as termination. In the 1970s, the Tribe sought

restoration of its federal status and the return of lands taken by the state of South Carolina.

Twenty years later, pursuant to a settlement with the State and the federal government, the

Catawba's relinquished claims to lands in exchange for federal recognition and funding for

economic development, education, social services, and land purchases. The settlement was

legislatively adopted by Congress through the Catawba Indian Tribe of South Carolina Land

Claims Settlement Act of 1993 ("the Settlement Act") and by the State through the South

Carolina Catawba Indian Claims Settlement Act ("the State Act").

The tenets of federal Indian law and the terms of the federal and state Settlement Acts

govern the application of federal and state tax laws and economic development programs

available to the Tribe. While this intersection of federal tax law, federal Indian law and the

provisions of the federal and state Settlement Acts create a complex legal framework for

economic development, the Tribe is committed to harnessing the valuable tax and investment

benefits that this framework makes available to the Tribe, its members and its business partners.

The accompanying study discusses the taxation and economic development elements of the legal

framework, while this executive summary lists several of the advantages offered under that

framework.

Income of the Tribe (and its Tribal Corporations) is not subject to federal, state or local

tax. Under IRS Revenue Ruling 94-16, income earned by the Tribe and its tribal corporations

organized under Section 17 of the Indian Reorganization Act (IRA) is not subject to federal tax

regardless of whether that income is generated on or off reservation. The provisions of the State

Act expressly exempt the Tribe and tribal entities from state and local income tax.

The Indian Tribal Governmental Tax Status Act of 1982 applies to the Tribe and its

political subdivisions. Under that Act, the Tribe is treated in the same manner as states and their

political subdivisions in many areas of federal tax law. For example, the Tribe, its agencies and

departments may receive charitable donations that are tax-deductible by the donor. Additionally,

the Tribe may issue tax-exempt governmental bonds.

The Tribe's Reservation lands held in trust are not subject to state and local real property

taxes. All nonresidential buildings and improvements owned by the Tribe on the Reservation are

exempt from state and local real property taxes. The Tribe has authority to levy tribal property

taxes on buildings, fixtures, improvements, and personal property located on the Reservation and

corresponding authority to abate or waive these tribal taxes.

Tribal property made available to its business partners through a narrowly-tailored

license agreement would not be subject to state and local taxation. Under the State Act,

however, a private lessee of tribal property would be subject to state tax.

Purchases made by the Tribe for tribal governmental functions are exempt from state and

local sales and use taxes. SC Code § 27-16-130(H)(1).

Retail sales made on the Reservation are exempt from state and local sales taxes. A

special tribal sales tax applies to on Reservation retail sales at the rate equivalent to the state and

local sales tax that would otherwise apply. The tribal sales tax does not apply to retail sales

occurring on the Reservation as a result of delivery from outside the Reservation when the gross

proceeds of a sale are one hundred dollars or less.

The Tribe is also eligible for several federal economic development and loan guarantee

programs and its business partners are eligible for federal and state tax credits. These federal

programs include the Reservation's HUBZone designation, Enterprise Zones and Foreign Trade

Zones. Among the federal tax credits available to the Tribe's business partners are the New

Markets Tax Credit, accelerated depreciation under the Accelerated Cost Recovery System, and

the Indian Employment Credit. State tax credit programs include the South Carolina Motion

Picture Incentive Act and the Community Development Tax Credit program.

These taxation and economic development advantages are discussed in detail in this tax

and investment benefit survey. This survey also addresses legal and programmatic conditions

and limitations where applicable. The appendix includes additional materials, including an

illustrative scenario identifying considerations and provisions that would be taken into account as

the Tribe examines economic development options that maximize revenue generating

opportunities in a particular commercial context.

Tax and Investment Benefit Survey

An Overview of Tax Advantages available to

the Catawba Nation and its Business Partners 1

Introduction

The Catawba Indian Nation ("the Tribe") is a federally-recognized tribe whose federal

trust relationship was restored by Congress through the Catawba Indian Tribe of South Carolina

Land Claims Settlement Act of 1993 (Settlement Act). 25 U.S.C. §§ 941–941n. As a recognized

tribe, under the U.S. Constitution and numerous federal laws, treaties and federal court decisions,

the Catawba Nation has the power and responsibility to enact laws regulating the conduct and

affairs of tribal members within its territory. The Tribe provides a broad range of governmental

services to their citizens, including education, transportation, public utilities, health, economic

assistance, and domestic and social programs. Like states and local governments, the Tribe, as a

political body, is not subject to federal income tax.

As a sovereign government, the Tribe has the right and authority to tax economic activity

within its territories. Given the limited tax base, however, the Tribe also relies upon the

operation of its own enterprises and economic development activities to generate revenues to

meet and supplement vital programs and services. The Settlement Act, as well as the South

Carolina Catawba Indian Claims Settlement Act ("the State Act") each contains specific

provisions governing the manner that federal and state tax laws and economic development

programs may apply to the Tribe. As a result, the Catawba Nation's economic development

activities are impacted by this complex intersection of federal tax law, federal Indian law and the

specific provisions of the federal and state Settlement Acts.

The discussion below examines the intersection of these federal and state laws to provide

an overview of the tax and investment benefits available to the Tribe, its members and its

business partners. Although the terms of the Settlement and State Act demarcate areas where

certain Catawba-specific rules govern instead of the general federal Indian law provisions, both

the applicable general Indian tax provisions and the specific Catawba provisions offer

advantages to the Tribe consistent with its governmental status and the federal policy promoting

tribal self-determination and self-government. Like other tribes, however, the Tribe faces

challenges, including poverty and historic traumas, such as the dispossession from its homelands,

the termination of the Tribe and forced assimilation. Overcoming these challenges is made more

difficult when competing and sometime conflicting layers of law and regulation add costs that

can burden tribal initiatives or chill potential partnerships and investments from outside

enterprises.

This document was prepared for the Catawba Nation by the law firm of Hobbs Straus Dean & Walker,

LLP. Its principal authors are Michael Willis and Greg Smith with assistance from Katie Klass and Lisa

Meissner. This booklet provides an overview of applicable provisions of law related to economic

development, including matters of federal, state and local taxation. The booklet itself does not provide or

purport to provide tax advice and the discussion in this booklet should not be relied upon as tax advice.

The discussion in the six subject areas set forth in this document is intended to respond to

the Tribe's request for greater clarity on the manner these various laws fit together to provide a

framework from which the Catawba Nation can more effectively advance its economic

development and tribal government activities.

In reviewing the intersection of applicable tax and investment provisions, the Settlement

Act includes terms that suggest that the federal and state law provisions operate at the same level

of priority.2 Importantly, however, other terms of the Settlement Act establish an order of

priority when these intersecting laws conflict.3 For instance, the Federal Tax Code is understood

to predominate above all other provisions. See 25 U.S.C. § 941n, which provides:

"Notwithstanding any provision of the State Act, the Settlement Agreement, or

this subchapter (including any amendment made under section 941m(f) of this

title), nothing in this subchapter, the State Act, or the Settlement Agreement-(1)

shall amend or alter title 26, as amended, or any rules or regulations promulgated

thereunder, or (2) shall affect the treatment under title 26 of any person or

transaction other than by reason of the restoration of the trust relationship between

the United States and the Tribe."

Section 1 of this report discusses the federal tax code provisions and their

applicability to the Tribe. That Section explains that although the federal tax code

applies to the Tribe, general principles of federal Indian tax law developed through

precedent established by federal court cases, such as those with regard to the

preemption of state taxation, do not. Instead, many of those tax protections are

expressly set out in the State Act and are treated as exceptions to the general rule under

the State Act that the Tribe and its members are subject to state and local tax. See SC

Code § 27-16-130(A). These statutory exceptions are discussed in detailed in Section 2

of this document. Among the exceptions are the following:



The tribe and tribal entities are exempt from state and local income tax

Tribal members employed by the Tribe to perform governmental functions on the

Reservation are not subject to state and local income tax

Tribal members are exempt from state and local tax on income earned from the sale

of Catawba pottery and artifacts made by Catawba members

See 25 U.S.C. § 941m(e) ("Consistent with the provisions of section 941b(a)(2) of this title, the

provisions of South Carolina Code Annotated, section 27–16–40, and section 19.1 of the Settlement

Agreement are approved, ratified, and confirmed by the United States, and shall be complied with in the

same manner and to the same extent as if they had been enacted into Federal law").

Specifically, the federal Settlement Act terms apply when they conflict with the state settlement act or

settlement agreement. Meanwhile, the state settlement act governs over the settlement agreement. 25

U.S.C. § 941m(b). Although federal Indian laws passed after October 27, 1993, will generally apply to

the Tribe, any such law that would affect or preempt state laws relating to the Tribe's lands would not

displace Settlement Act terms unless the new law specifically applies to South Carolina. 25 U.S.C.

§ 941m(c); see also 25 U.S.C. § 941l (stating that the Indian Gaming Regulatory Act "shall not apply to

the Tribe").



Per Capita Trust Fund payments are not subject to state or local income taxes on

distributions

Lands held in trust are not subject to state and local real property taxes

Buildings owned by the Tribe on the Reservation are not subject to state and local

real property taxes

Personal property owned by the Tribe and used solely on the Reservation is exempt

from state and local personal property taxes.

Motor vehicles owned by the Tribe are exempt from state and local personal property

taxes, even when used off the Reservation.

Residences on the Reservation, subject to specified conditions, are exempt from all

state and local property tax levies

Purchases made by the Tribe for tribal governmental functions are exempt from state

and local sales and use taxes

Retail sales made on the Reservation are exempt from state and local sales taxes. (A

tribal sales tax applies).

While the Settlement and State Act provide specific terms regarding the Tribe's authority

to tax its members and non-members, the Tribe also has its inherent authority to tax transactions

occurring on trust lands. See Merrion v. Jicarilla Apache Tribe, 455 U.S. 130 (1982); KerrMcGee Corp. v. Navajo Tribe of Indians, 417 U.S. 195 (1985). The State Act contains additional

terms that clarify the Tribe's tax authority over non-members. Section 3 of this report sets forth

the Tribe's taxation authority under statutory and case law.

The Settlement Act also expressly makes certain federal statutes applicable to the Tribe

to facilitate economic development, including: Title VII of the Housing and Community

Development Act, 25 U.S.C. § 941m(d), and the Foreign Trade Zones Act, 25 U.S.C. § 941m(d).

Section 4 of this report summarizes these and other federal economic development programs

available to the Tribe. Furthermore, federal tax credit programs are available to the Tribe on the

same terms as are available to other federally-recognized Indian tribes. These programs are set

forth in Section 5 of this report. Meanwhile, state tax credit programs available to the Tribe to

that could be utilized to generate revenue and create jobs are discussed in Section 6 of this report.

Section 1. The Tribe and its Federal Tax Immunities, Exclusions and Credits

Explicit terms in the Catawba Land Claims Settlement Act (25 U.S.C. § 941n) provide

that the federal tax code fully applies to the Tribe and its members. The clarifying terms in this

provision explain that the federal tax code, amendments to the tax code, and "any rules or

regulations promulgated thereunder" apply to "any person or transaction" regardless of any terms

set forth in the Settlement Act, the State Act or the Settlement Agreement." 4 As a result, the tax

code and the IRS rules and Treasury regulations interpreting and implementing the tax code take

priority over other laws relating to the Tribe, its members and transactions of the Tribe and its

25 U.S.C. § 941n states as follows: "…nothing in this subchapter, the State Act, or the Settlement

Agreement-(1) shall amend or alter title 26, as amended, or any rules or regulations promulgated

thereunder, or (2) shall affect the treatment under title 26 of any person or transaction other than by

reason of the restoration of the trust relationship between the United States and the Tribe."

members.5 The only "exception" to this predominance of the federal tax laws is for matters

governing "the restoration of the trust relationship between the United States and the Tribe."

25 U.S.C. § 941n.

Federal Immunities & Exemptions

Income earned by the Tribe is not subject to federal tax regardless of where

that income is generated. (IRS Revenue Ruling 94-16)

In IRS Revenue Ruling 94-16, the IRS concluded that Indian tribes are not taxable

entities. IRS Rev. Rul. 94-16, 1994-1 C.B. 19. Under this ruling, the income earned by a tribe,

regardless of whether that income is generated on reservation or off reservation, is not taxable by

the federal government. Id. ("Because an Indian tribe is not a taxable entity, any income earned

by an unincorporated tribe, regardless of the location of the business activities that produced the

income, is not subject to federal income tax.") This Revenue Ruling applies to the Tribe as it is

official guidance published by the IRS to interpret and implement the tax code. See 25 U.S.C.

§ 941n. An IRS Revenue Ruling serves as an official rule that taxpayers may rely upon

regarding the IRS' determination of how the federal tax law applies to a specific set of facts.6

With respect to the income earned by the Catawba Indian Nation, IRS Revenue Ruling 94-16 is

the governing federal tax law.

Income earned by the Tribe's Section 17 Corporation is not subject to federal

tax regardless of where that income is generated. (IRS Revenue Ruling 9416)

Revenue Ruling 94-16 further clarified that a tribe's immunity from federal tax also

extends to tribal corporations organized under Section 17 of the Indian Reorganization Act

(IRA). See id. (citing Revenue Ruling 81-295, 1981-2 C.B. 15, relying on Mescalero Apache

Tribe v. Jones, 411 U.S. 145, 157, n.13 (1973)). Those rulings held that an Indian tribal

corporation organized under Section 17 of the IRA shares the same tax status as the Indian tribe.

IRS Revenue Ruling 94-16 further clarified that the federal tax immunity of a Section 17

corporation applies to revenue generated outside the reservation. Like the Tribe, the IRS

explained, the location of the Section 17 corporation's income (whether on or off reservation) has

no bearing on its federal tax status. As a result, "any income earned by [a Section 17]

The sources of federal tax law start with the Internal Revenue Code (IRC), enacted by Congress in Title

26 of the United States Code (26 U.S.C.). Treasury regulations (26 C.F.R.), also referred to as the

Federal tax regulations, provide the official interpretation of the IRC by the Department of the Treasury.

In addition to these regulations, the IRS also publishes other forms of official tax guidance, including

revenue rulings, revenue procedures, notices, and announcements.

As the IRS explains, "[a] revenue ruling is an official interpretation by the IRS of the Internal Revenue

Code, related statutes, tax treaties and regulations. It is the conclusion of the IRS on how the law is

applied to a specific set of facts. Revenue rulings are published in the Internal Revenue Bulletin for the

information of and guidance to taxpayers." IRS, "Understanding IRS Guidance - A Brief Primer"

(www.irs.gov/uac/Understanding-IRS-Guidance-A-Brief-Primer).

corporation, regardless of the location of the business activities that produced the income, is not

subject to federal income tax." IRS Rev. Ruling 94-16 (emphasis added). This ruling applies to

the Section 17 corporation(s) of the Catawba Indian Nation.

Income earned by tribally-owned corporations chartered under tribal law

may be immune from federal tax under some circumstances, but that tax

treatment remains uncertain.

Tribally chartered corporations wholly owned by an Indian tribe are largely exempt from

state regulation. These corporations, depending where they operate, are more likely to be

immune from taxation than state-chartered corporations. The IRS has issued unofficial guidance

(through private letter rulings) that considered certain tribally chartered entities as the same as

the tribe for tax purposes because those entities functioned as an "integral part" of an Indian

tribe. See Karen Atkinson and Kathleen Nilles, Tribal Business Structure Handbook (2008) at

III-6.

Nevertheless, the federal tax status of tribal law corporations remains uncertain. Revenue

Ruling 94-16 discussed tribally-chartered corporations but did now clarify the federal tax

treatment of those entities. The IRS has acknowledged the uncertainty associated with the

federal tax treatment of tribal law corporations since 1996, when Treasury and IRS first stated

that they were reviewing this question. In 2001, Treasury and IRS promised to issue guidance,

but despite the topic's listing on the IRS's Priority Guidance Plan for many years, such guidance

has been delayed. See National Taxpayer Advocate, Annual Report to Congress 2013, "Indian

Tribal Taxpayers: Inadequate Consideration of Their Unique Needs Causes Burdens," at 7; see

also Priority Guidance Plan (2006-2007).7 The Taxpayer Advocate described the IRS delay in

issuing guidance as "another broken promise" and pointed out the IRS could treat tribal

corporations just like tribes under the federal tax rules (based on the "integral part" analysis of

the private letter rulings), but simply has not done so.8 Id.

Income earned by a tribally-owned corporation chartered under state law is

subject to federal income tax, regardless of the location of the activity

generating the income.

Revenue Ruling 94-16 explained that a state law chartered corporation owned by a tribe

is not provided the tax advantages that the tribe itself and Section 17 corporations enjoy, but is

subject to federal income tax. See IRS Rev Ruling 94-16 ("… a corporation organized by an

Indian tribe under state law does not share the same tax status as the tribe for federal income tax

purposes and is subject to federal income tax on any income earned, regardless of the location of

the business activities that produced the income").

Available at http://www.irs.gov/pub/irsutl/2006-2007gp.pdf.

The National Taxpayer Advocate explained, "Historically, a series of IRS rulings has exempted from tax

certain entities that are integral parts of governments, which as such are themselves tax-exempt. This

patchwork of rulings could affect a variety of entities, including recent forms such as charter schools, as

well as enterprises of tribes."

Application of the Indian Tribal Governmental Tax Status Act of 1982

As noted above, the Catawba Land Claims Settlement Act specifically provides that the

federal tax code fully applies to the Tribe and its members. See 25 U.S.C. § 941n. The State Act

also expressly confirms that that "The Indian Tribal Government Tax Status Act, 26 U.S.C.

Section 7871, applies to the Tribe and its Reservation for South Carolina income tax purposes to

the same extent as provided in the federal implementing legislation." SC Code § 27-16-130(K).

Additionally, the Catawba Indian Nation is a federally recognized Indian tribe that is listed in

IRS Revenue Procedure 2002-64 as an organization that may be treated as a government entity in

accordance with Section 7871.

The Indian Tribal Governmental Tax Status Act of 1982 was enacted as part of the tax

code in order to treat Indian tribal governments and their subdivisions in certain circumstances in

the same manner that federal tax law treats states and their political subdivisions. 26 U.S.C.

§ 7871. Congress recognized that both state and tribal governments perform similar functions

for their citizens and sought to make the tax treatment of these governments more equitable. See

S.Rept. 97-646, at 11 (1982). ("[I]n order to facilitate these efforts of Indian tribal governments

that exercise such sovereign powers, it is appropriate to provide these governments with a status

under the Internal Revenue Code similar to what is now provided for the governments of the

States of the United States."); see also Yule Kim, Congressional Research Service, The Indian

Tribal Governmental Tax Status Act (2007).9 While the Act provides favorable tax treatment in

several areas, as explained in detail below, those benefits are limited to the specific situations set

forth in the statute and several limitations and restrictions apply to tribal governments that do not

apply to their state counterparts. The Act includes the provisions that follow.10

Charitable Contributions, Estate Donations and Gift taxes –

26 U.S.C. § 7871(a)(1)

Charitable donations made to Indian tribal governments are deductible from federal

income, estate, and gift taxes. 26 U.S.C. § 7871(a)(1)(A), (B), (C). These gifts, however, must

be made for '"exclusively public purposes," in the same manner that this restriction applies to

state governments. S. Rep. No. 97-646, at 15.

In a letter to Chief Donald Rogers in 2008, the IRS discussed the applicability of Section

7871 to the Tribe and pointed out that the Tribe "is eligible to receive charitable contributions

Available at

http://congressionalresearch.com/RL34290/document.php?study=The+Indian+Tribal+Governmental+Tax

+Status+Act+An+Overview

There are other provisions, not discussed in detail here, whereby the Act treats tribes like states in

several other ways, such as authorizing the application of the unrelated business income tax to tribal

colleges (§ 7871(a)(5)); permitting tribal employees to exclude contributions to certain retirement plans

from their gross income for federal income tax (§ 7871(a)(6)(B); § 403(b)(1)(A)(ii)); and making

expenditures that seek to influence tribal government legislation to the tax on excessive lobbying

expenditures (§ 7871(a)(7)(A)).

that are deductible for federal income, estate, and gift tax purposes by the donor."11 In that letter

the IRS explained that private charitable foundations request proof of tax-exempt and taxdeductible status as part of a grant application in order to comply with their restrictions under the

tax code, but that, "[p]rivate foundation grants to governmental units for public or charitable

purposes are not subject to these restrictions."12 The letter advises that when a private

foundation seeks documentation proving the Tribe's tax status the Tribe may reference Section

7871 of the code to note that the Tribe is treated as a state for the purpose of deductibility of

contributions under Section 170(c)(1) of the code (as authorized by Section 7871(a)(1)(A)).

Federal Excise Taxes - 26 U.S.C. § 7871(a)(2)

The IRS has held that "Indian tribal governments have no inherent exemption from

federal excise taxes." Rev. Rul. 94-81, 1994-2, C.B. 412 (citing Federated Tribes of the Warm

Springs Reservation of Oregon v. Kurtz, 691 F.2d 878 (9th Cir.1982)). As a result, unless a

specific statutory exemption applies, Indian tribal governments must purchase taxable articles or

services on a tax-paid basis and must pay tax on their sale or use of taxable articles or services.

Id.

Congress has provided Indian tribal governments with exemptions from certain federal

excise taxes similar to the exemptions applicable to states. See 26 U.S.C. § 7871(a)(2)(A)-(D).13

The applicable exceptions from excise taxes include the following exemptions from taxes:



fuel used exclusively by the tribal government or its subdivisions;

a manufacturers' excise taxes for products sold to a tribal government or its subdivisions;

communication taxes if the communication services or facilities are furnished for the use

of a tribal government or its subdivisions; and

the highway use tax for any use of a highway motor vehicle used by a tribal government

or its subdivisions. 26 U.S.C. § 7871(a)(2)(A)-(D).

The tribal exemptions, however, are expressly limited to transactions that involve "the

exercise of an essential governmental function of the Indian tribal government." 26 U.S.C.

§ 7871(b); Rev. Rul. 94-81, 1994-2, C.B. 412. As a result of the Act, purchases made in

furtherance of an essential governmental function will qualify for an exemption when there is a

provision in the act covering the transaction. Rev. Rul. 94-81, 1994-2, C.B. 412. The IRS has

also observed that even if a statutory provision in the Act expressly grants an exemption, if the

Letter from Rose Jones, Indian Tribal Government Specialist to Chief Donald Rodger of July 18, 2008,

at page 1.

Id., at 2 (noting that grants to governments for charitable purposes are not taxable expenditures under

Section 53.4942(a)-3(a) of the Treasury regulations and that certification of 501(c)(3) status "is not

legally required when the prospective grantee is a governmental unit and the grant is for qualifying

(public or charitable) purposes."

The applicable exemptions in 7871(a)(2):

(A) chapter 31 (relating to tax on special fuels),

(B) chapter 32 (relating to manufacturers excise taxes),

(D) subchapter D of chapter 36 (relating to tax on use of certain highway vehicles).

item was purchased for the purpose of resale to consumers, that purchase is not eligible for the

exemption because a purchase for resale does not serve an essential governmental function. See

id.; see also Yule Kim, Congressional Research Service, The Indian Tribal Governmental Tax

Status Act (2007).

Deductions for Local (Tribal) Taxes – 26 U.S.C. §7871(a)(3)

Under Section 164 of the Internal Revenue, taxpayers may deduct from their federal

income taxes those payments they make to state, local and foreign governments for real property,

personal property and income taxes. Under Section 7871(a)(3), payments made by taxpayers to

tribal governments for certain taxes are deductible from federal income taxes in the same manner

as state (local and foreign) taxes. Under this section of the tax code the taxes imposed by tribal

government and their subdivisions are treated as local taxes and are fully deductible. These taxes

include real property taxes, personal property taxes and income taxes.

Tax-Exempt Tribal Bonds (26 U.S.C. § 7871(a)(4) and (c)) and Tribal

Economic Development Bonds (TEDBonds) (26 U.S.C. § 7871(f))

The Indian Tribal Government Tax Status Act establishes tribal government authority to

issue tax-exempt bonds in a manner similar to states. Tax-exempt financing lowers financing

costs for tribes while making the investment appealing to bondholders. As the interest earned by

the bondholder is excluded from their gross income, the tribal government is able to pay lower

yields bondholders and the investors benefit from the after-tax value of their investment.

Under current law, Congress has limited the type of projects tribes may finance with taxexempt bonds. Tribal governments may use "governmental bonds" to finance a project that

furthers an "essential governmental function" or issue "private activity bonds" to finance certain

commercial activities, but those private activity bonds are generally not tax-exempt. See Yule

Kim, Congressional Research Service, The Indian Tribal Governmental Tax Status Act (2007).

Governmental bonds. The "essential governmental functions" standard limits tribes to

issuing governmental bonds only for functions "customarily" performed by states and local

governments with general taxing powers. 26 U.S.C. § 7871(e). As such, tribal "governmental"

bonds are subject to a restrictive standard that does not apply to states and local governments.14

Furthermore, in order for a tax-exempt bond to be issued for an essential governmental function,

"substantially all" ( 90% or more) of the proceeds of the bond must go to the essential

governmental function. 26 U.S.C. § 7871(c)(1). Although states and municipalities frequently

use tax-exempt bonds for the development of facilities that generate revenue or serve the public,

such as convention centers, gaming facilities, public golf courses and swimming pools, etc.,

Treasury and the IRS have not allowed tribes to use tax-exempt bond authority for the

The IRS essential governmental functions test evaluates (1) whether many state or local governments

practice the activity, (2) whether state or local governments have practiced the activity for a long period

of time, and (3) whether the activity is industrial or commercial. See I.R.S. Tech. Adv. Mem. 200704019

(October 24, 2006).

development of gaming facilities or gaming-related infrastructure or tribally-owned golf

courses.15

Private Activity bonds. States and their political subdivisions can authorize the issuance

of tax-exempt "qualified private activity" bonds to finance a variety of projects that have a

private business use, for example, the construction of qualified residential rental projects.16 This

option is generally not available to tribal governments. The only exception allowing for tribes to

issue tax-exempt qualified private activity bonds involves financing construction of certain

manufacturing facilities on lands held in trust by the United States. 26 U.S.C. § 7871(c)(3)(B).

To qualify, 95 percent or more of the bond proceeds must be used to acquire, construct, or

improve property that is part of a manufacturing facility that will be owned and operated by the

tribe on located on lands held in trust by the United States for the benefit of the tribe. 26 U.S.C.

§ 7871(c)(3)(B)(i).

In the American Recovery and Reinvestment Act of 2009 (ARRA), Congress established

a new (and temporary) Tribal Economic Development Bond (TEDBond) program, which is now

codified as 26 U.S.C. § 7871(f). The TEDBond program was authorized to remain in effect until

the $2 billion bond authority is exhausted. As of December 1, 2015, the volume cap limit is

$272.9 million, well below the $2 billion limit. The IRS updates the volume cap on its website

every two to three months. Please see https://www.irs.gov/Tax-Exempt-Bonds/PublishedVolume-Cap-Limit-for-Tribal-Economic-Development-Bonds.

Congress created the TEDBond in order to provide tribes with the opportunity to issue

bonds for economic development on the same terms as states and local governments. In

particular, the "essential government functions" requirement does not apply to the TEDBond

program. See 26 U.S.C. § 7871(f)(2)(A) ("notwithstanding subsection (c) [the essential

government function limitation], such bond shall be treated for purposes of this title in the same

manner as if such bond were issued by a State"). The bonds are a loan, not a grant, and must be

paid back as principal plus interest. In other words, a tribe is not receiving money from the

federal government under this program. Rather, a tribe is receiving the authority to borrow a set

amount – the TED Bond allocation – from private investors by issuing bonds.

Issuance of a bond is subject to three specific requirements. First, the financed project

must be located on a reservation. This designation encompasses "Indian reservations, public

domain Indian allotments, former Indian reservations in Oklahoma, and land held by

incorporated Native groups, regional corporations, and village corporations under the ANCSA."

26 U.S.C. § 7871(f)(3)(B)(ii) (adopting the definition of "reservation" stated in 25 U.S.C.

§ 1452(d)). Second, property physically used in gaming or for housing or conducting Class II or

Class III gaming activities is disqualified, unless the building in which gaming activities are

taking place has a structurally independent foundation, outer walls, and roof. IRS Notice 200951 (July 13, 2009). Third, a tribe must apply to the IRS and receive a TEDBond allocation

See I.R.S. Tech. Adv. Mem. 200704019 (October 24, 2006) (explaining that the issuance of bonds to

finance industrial or commercial facilities was not an essential governmental function. Activities

customarily financed with governmental bonds, such as schools, roads, and governmental buildings, did

fall within the scope of the definition).

See CRS Report RL31457, Private Activity Bonds: An Introduction, by Steven Maguire.

before issuing such bonds to private investors. Tribes are currently limited to receiving the

greater 20% of the total unallocated volume cap or $100 million. IRS Notice 2012-48 (July 30,

2012).

The IRS allocates the available volume cap on a first-come, first-served basis by order of

the submission date. The application must describe the project for § 7871(f) qualification,

estimate the expected project cost and financing sources, include a plan of financing, and certify

the project's location and non-gaming purposes. IRS Notice 2012-48 at Section 3(f). A tribe can

submit: (a) a single application that covers multiple projects; (b) individual applications on a

project-by-project basis; or (c) a joint project application "provided the project is located entirely

on one or more of the reservations of any of the Indian tribal governments receiving an allocation

to such project." Id. at Section 3(m). It is important to note that a tribe has only 180 days to

issue the proposed bonds after receiving an allocation. Id. at Section 4(g)-(h). Failure to do so

results in a forfeiture of the allocation. A tribe may then reapply for the same allocation,

however, the quantity of available funds is not guaranteed. It is therefore critical that tribes have

a financing plan in hand before applying for a project to better ensure a project is accomplished.

Congress, in ARRA, also required Treasury to submit a report to Congress on the effects

of the TEDBond program and to make recommendations as to whether the existing tribal taxexempt bond program should eliminate the essential government functions standard. In its

December 2011 report, Treasury recommended that the TEDBond program be made permanent

(and that the $2 billion cap be removed, but that the restriction from financing gaming facilities

or off-reservation facilities remain the same).17 With respect to governmental bonds, Treasury

recommended several provisions to increase flexibility in the use of tribal governmental bonds

and specifically recommended that the "essential governmental functions" standard should be

repealed.18 The Obama Administration has included these recommendations in annual budget

submissions. Additionally, Section 3 of the Tribal Tax and Investment Reform Act of 2013

(H.R. 3030) included the repeal of the essential government functions standard, however,

Congress has not taken action on these recommendations.

Tribal Charitable Foundations – 26 U.S.C § 7871(a)(7)(B)

The Act permits tribes to be treated like states for purposes of exemptions from certain

requirements and taxes applicable to private foundations. The way this provision has been

drafted, however, does not provide tribes with the same advantages provided to states. When the

tribal government or an IRS recognized political subdivision of a tribal government operates as a

public charity, the tax advantages provided to states apply.

These benefits, however, do not extend to nonprofit entities formed and funded by a tribe

for charitable purposes in the same manner that they do for state-formed and -funded nonprofit

organizations. Section 5 of the Tribal Tax and Investment Reform Act of 2013 (H.R. 3030) was

introduced in the previous Congress to address this disparity. That section would treat tribal

government funding as "public support" for purposes of Code section 170(b)(1)(A)(vi) and

Department of the Treasury, Report and Recommendations to Congress regarding Tribal Economic

Development Bond provision under Section 7871 of the Internal Revenue Code (Dec. 2011).

Id., at 2.

would treat charitable organizations formed to support the charitable and public purposes of

Indian tribal governments just like similar organizations formed to support state and local

governments under Internal Revenue Code Section 509(a)(3). H.R. 3030 was not enacted. As

result, § 7871 charitable organizations formed as part of a tribal government (a non-profit entity,

§ 17 corporation, political subdivision, etc.) receive the full benefit of the § 170 charitable

contributions rules, however, separate private entities formed independently of a tribal

government do not. Charitable entities that are not part of the Tribe would need to comply with

§ 501 rules for charitable organizations.

The IRS Internal Revenue Manual provides additional guidance on the current law

governing § 7871 tax exemptions for tribal entities. Internal Revenue Manual, Part 7, Chapter

25: Section 3.12.19.01 (02-23-1999). According to the Manual, § 7871 tax benefits may extend

to federally recognized tribes, their political subdivisions, and a "variety of Native American

related organizations" including § 17 tribal corporations, entities formed under state law by a

tribal government recognized by a particular state but not the federal government, and a

separately organized tribal entity under state law that conducts charitable and education

activities, such as tribal history research, cultural activities, and community development

projects.

Charitable contributions and gifts made to a tribal government or tribally-owned entity

are tax-deductible if made for a public purpose. 26 U.S.C. § 7871 (a)(1)(A) (establishing that a

tribal government be treated as a State for purposes of § 170 charitable contribution income tax

deductions). In addition to tax-deductible donations to a tribal non-profit or governmental

subdivision or organization, donors can choose to give in-kind contributions, a property or other

type of asset donation. In-kind contributions can include tangible property such as vehicles or

equipment, and intangible property such as intellectual property or an interest in real property.

See IRS Publication 526 (Jan. 13, 2015). A donor is generally able to deduct the equivalent of

the fair market value of the property at the time of the contribution. Percentage limitations apply

based on the type of contribution. 26 U.S.C. § 170(b).

So long as a donor has not earmarked a contribution for a particular use, the contribution

becomes the property of the tribal government or corporation and the donor retains limited or no

authority over how the donation is subsequently used or expended, including if an asset is

converted into cash through sales or other means. In the absence of an earmarked donation, the

IRS and Treasury Department recognize only two specific situations in which a donor would

otherwise retain control over the funds: by establishing either a community trust or a select form

of a private foundation to manage the assets. Reg.1.170A-9(e)(10)-(13); 26 U.S.C. §

170(b)(1)(A)(vii); 26 U.S.C. § 170(b)(1)(E)(iii). Consequently, once a charitable contribution or

property donation has been made to a tribal government or corporation, a tribe can pass on those

funds or assets to meet the needs of its community. A tribe does not receive any tax break or

credit for charitable donations (since a tribe is not a taxable entity). By distributing outside

donations out to smaller or perhaps otherwise unqualified organizations, however, a tribe can

positively impact community development.

Many tribes make charitable donations through an application process that enables them

to set parameters on eligible recipients. For instance, the Shakopee Mdewakanton Sioux

Community accepts charitable donation applications on a monthly cycle with preference given to

requests from tribes in the Northern Plains and Minnesota regions. Tribal giving can also

support the conservation of important cultural resources. For example, the Puyallup Tribe of

Washington State donated over $600,000 to the Point Defiance Zoo and Aquarium in Tacoma,

Washington to strengthen red wolf conservation efforts, an animal and symbol of great

importance in Northwest Coast art and culture. Tribal governments, political subdivisions, and

corporations that receive charitable donations can thus pass the benefits on the greater

community through a charitable giving program of financial assistance or asset donations.

Federal Tax Exclusions Applicable to Tribal Members

Under the tax code "gross income means all income from whatever source derived." 26

U.S.C. § 61. For more than 50 years, the IRS has relied on the Supreme Court ruling in Squire v.

Capoeman for the principle that Indians are U.S. citizens subject to the requirement to pay

income taxes. Squire v. Capoeman, 351 U.S. 1 (1956), 1956-1 C.B. 605. As a result, exemption

of individual Indians from the payment of tax "must derive from treaties or agreements with the

Indian tribes concerned or an act of Congress." IRS Notice 2015-67 (2015) (citing Rev. Rul. 67284, 1967-2 C.B. 55). The Catawba Nation has agreements in place as well as acts of Congress

that affect the taxation of tribal members. Moreover, several statutory provisions and

administrative interpretations by the IRS applicable to Indian tribes and their members apply to

exclude certain income from federal taxation.

Benefits Paid to Tribal Members for the Promotion of the General Welfare

Payments made to individuals under governmental programs are treated as gross income

and subject to tax unless an exclusion applies. The IRS has concluded that, under the general

welfare exclusion, certain payments made to individuals by governmental units under social

benefit programs for the promotion of the general welfare are not included in the recipient's gross

income. In 2014, IRS issued Revenue Procedure 2014-35 to establish terms under which

benefits provided by tribal governments to their members would be treated as excluded from

gross income (and federal income tax) pursuant to the general welfare exclusion. The guidance

affirmed the applicability of the longstanding general welfare doctrine (noting that it applies "no

less favorably" to tribal programs than to state and local government programs) and added new

favorable provisions applicable only to tribal government benefits programs. The tribal-specific

provisions included "safe harbors" whereby tribal benefits programs meeting certain governance

and program criteria would be conclusively presumed to meet the requirements for application of

the exclusion from income.

Later in 2014, Congress passed and President Obama signed the Tribal General Welfare

Exclusion Act into law as Pub. Law No. 113-168 (codified as 26 U.S.C. § 139E). The intent of

that Act was to codify and enhance Rev. Proc. 2014-35 in part by expanding the safe harbors to

all tribal program areas. In 2015, the IRS issued Notice 2015-34, which explained that the Tribal

General Welfare Exclusion Act (§ 139E) "codifies (but does not supplant) the general welfare

exclusion for certain benefits provided under Indian tribal government programs." The Notice

serves to clarify that both the administrative guidance and the statutory provisions represent valid

authority under which tribal general welfare program benefits payments may be excluded from

the recipients' income.

To the extent that Catawba Indian Nation programs providing benefits payments to

members for the promotion of the general welfare conform to the governance criteria set forth in

§ 139E or Rev. Proc. 2014-35, those benefits will not be treated as income to the tribal member

and therefore not subject to tax. While there are terms in the Settlement Act that may appear to

limit this right, these limitations are overcome by express terms of the Settlement Act itself.

Specifically, 25 U.S.C. § 941m(c) states that federal law benefiting Indians enacted after October

27, 1993 will not apply unless made applicable to South Carolina. Although §139E is a law

benefitting Indians that was enacted in 2014, the basis for its application to the Catawba Nation

is twofold. First, another provision of the Settlement Act itself establishes that notwithstanding

any other provision of the Settlement Act or the State Act, the terms of the federal tax code, as

amended, applies to the Tribe. 25 U.S.C. § 941n. As it is part of the tax code, §139E applies.

Second, the general welfare exclusion derives from a longstanding administrative doctrine whose

application to tribal government programs has been recently clarified and codified by a Revenue

Procedure and a tax code amendment. Even if § 139E were deemed not to apply to the Tribe, the

IRS would still be bound to rely on its administrative guidance in determining whether benefits

payments that a tribal member receives from the Tribe are excluded from gross income under the

general welfare exclusion.

Distributions of Trust Income

The Per Capita Act (25 U.S.C. §§ 117a-117c) authorizes Indian tribes to make per capita

distributions to members of the tribe out of funds held in a tribal Trust Account. The Indian

Tribal Judgment Funds Use or Distribution Act (25 U.S.C. §§ 1401-1408) further provides that

funds distributed per capita or held in trust by the United States, including all interest and

investment income accrued on the funds while held in trust, are not subject to federal income

taxes. See IRS Notice 2015-67. As a result "per capita distributions made from funds the

Secretary of the Interior holds in a tribal Trust Account are generally excluded from the gross

income of the members of the tribe receiving the per capita distributions." IRS Notice 2015-67.

Notice 2015-67 points out, for example, that proceeds from timber sales or an agricultural lease

deposited into a tribe's tribal Trust Account from which the tribe subsequently makes a per capita

distribution, the per capita distributions are excluded from the tribal members' gross income. Id.

The Catawba Settlement Act established several trust funds on behalf of the Tribe. They

include the following funds:



Land Acquisition Trust - 25 USC 941i(d)

Economic Development Trust - 25 USC 941i (e)

Education Trust - 25 USC 941i (f)

Social Services and Elderly Assistance Trust - 25 USC 941i (g)

Per Capita Payment Trust Fund - 25 USC 941i (h)

The Settlement Act also authorized certain income-generating activities associated with

the Tribe's trust land, including the authorization to "sell, exchange, or lease lands within the

Reservation, and sell timber or other natural resources on the Reservation." 25 U.S.C. § 941j(j).

Furthermore, the Settlement Act provides for the Tribe to administer "periodic distributions of

current and accumulated income." 25 U.S.C. § 941i(a). The Tribe was given the option to

maintain its trust accounts with the Department of the Interior or, subject to federal approval,

place any of its trust funds in accounts managed by a private financial institution. 25 U.S.C.

§ 941i(b)(1).

Administering the exclusion from income of trust fund distributions to tribal members

requires taking into account additional guidance from the IRS, which distinguishes the tax

treatment of trust funds and interest held by the Department of Interior (at the Office of the

Special Trustee) in a tribal trust account and tribal trust funds that have been transferred and held

in a private financial institution. When held by the Department, the trust funds and all interest

generated by the trust fund is excluded from tax when distributed to members. For funds

transferred to a privately-managed account, however, only the portion of the distribution that

represents the original trust fund amount is tax-excluded income. Distribution of privatelygenerated interest is taxable to the recipient. See IRS Notice 2012-60. Thus, when the Tribe

receives an amount of income from a timber sale on trust lands and deposits that amount into a

privately managed trust account, the Tribe may distribute that amount tax-free to its members. If

that amount generates interest before the distribution, the distribution of interest is taxable as part

of the recipient's gross income.

South Carolina state law adds another layer of tax treatment that must be considered.

Under SC Code 1976 § 27-16-130(C)(2), the distribution of the one-time non-recurring per

capita fund payment is not subject to state/local or local income tax, however, once a tribal

member receives his or her distribution, any income subsequently earned on that distribution is

subject to state and local income tax.

Distributions of Taxable Tribal Income Is Not Exempt from Federal Tax

IRS Rev Ruling 94-16 explains that "tribal income not otherwise exempt from federal

income tax is includible in the gross income of the Indian tribal member when distributed to, or

constructively received by, the tribal member." IRS Rev Ruling 94-16 (Citing "Revenue Ruling

67-284, 1967-2 C.B. 55, 58, modified on another issue by Rev. Rul. 74-13, 1974-1 C.B. 14).

Thus, for distributions to tribal members to be excluded from federal tax, a clear source of

authority must provide terms defining that tax treatment.

The Tribal Fishing Rights Tax Exemption Does Not Apply to the Tribe or its

Members

Tribes and tribal members are not taxed on income derived from activities related to

fishing rights. 26 U.S.C. § 7873(a). This tax exception applies only when carrying out activities

associated with the exercise of a recognized fishing right, which requires such fishing right to be

secured by a treaty, executive order, or statute. 26 U.S.C. § 7873(b)(2).

Tribes have heavily litigated establishment of their fishing rights. In the treaty rights

context, courts examine whether the waters in question are the "usual and accustomed fishing

grounds" of the tribe. See, e.g., Tulalip Tribes v. Suquamish Indian Tribe, 794 F.3d 1129 (9th

Cir. 2015); United States v. Washington, 384 F.Supp. 312 (W.D. Wash. 1974). These cases

examine the breadth of treaty provisions in which tribes reserved their fishing rights. In some

circumstances, tribes have also asserted fishing rights reserved through their settlement acts or

through executive order. See, e.g., Motion of Penobscot Nation for Summary Judgment,

Penobscot Nation v. Mills, 1:12-cv-00254-GZS (D. Me. 2015) (No. 121) (examining whether

settlement act included river within reservation and thereby preserved sustenance fishing rights);

Parravano v. Babbitt, 70 F.3d 539 (9th Cir. 1995).

The Tribe seeks to establish jurisdiction over coastal waters for fishing purposes. The

Settlement Act, however, expressly extinguishes the Tribe's claims to fishing rights. It states:

This extinguishment of claims shall also extinguish title to any hunting, fishing, or

water rights or rights to any other natural resource claimed by the Tribe or a

Member based on aboriginal or treaty recognized title, and all trespass damages

and other damages associated with use, occupancy or possession, or entry upon

such lands.

25 U.S.C. § 941d(d)(2); see also 25 U.S.C. § 941a(2). Therefore, the Tribe's Settlement Act

provisions are distinct from those of other tribes, such as the Penobscot Nation, that have

successfully litigated to enforce and reaffirm their fishing rights based on their reserved treaty or

settlement act terms. Due to the specific terms of the Settlement Act, the Tribe has ceded its

claims to reserved fishing rights. Therefore, the tax exception for reserved treaty fishing rights is

not applicable to the Tribe.

Section 2. State and Local Taxation (State: SC Code Ann 27-26-130)

State and Local Income Tax

The Tribe.

Under the State Act, the Tribe and any of its subdivisions that are exempt from federal

income tax are also exempt from state and local income tax. SC Code § 27-16-130(C)(1)

provides as follows:

"Income of the Tribe, subdivisions and governmental agencies of the Tribe,

including entities owned by the Tribe or the federal government on behalf of the

Tribe, the Tribal Trust funds, and tax revenues collected by the Tribe by levy or

assessment which are nontaxable for federal income tax purposes because of the

Tribe's status as a recognized or restored Indian tribe also are nontaxable for

purposes of state income taxes or local income taxes."

As a result, income generated by the Tribe, its subdivisions and agencies are exempt from

federal, state and local taxation. Moreover, as noted below, this State Act provision also clarifies

the state and local tax immunity applies to those tribally-owned entities that are immune from

federal tax, such as its Section 17 corporations.

Tribally-owned enterprises

The terms of the State Act (SC Code § 27-16-130(C)(1)) extend the Tribe's immunity

from state and local income tax to "entities owned by the Tribe… which are nontaxable for

federal income tax purposes because of the Tribe's status as a recognized or restored Indian

tribe." This immunity applies to the Tribe's Section 17 corporation(s). As noted in Section

1(a)(3) above, under certain circumstances, this immunity would also apply to certain entities

formed under tribal law. Tribally-owned entities chartered under South Carolina's corporations

code, which are not immune from federal income tax, would not be immune from state or local

income tax.19

Tribal Members

The general rule is that since federal adjusted gross income is generally the starting point

for calculating state taxable income, the federal exclusions noted above in Section 1(c) are also

excluded from federal adjusted gross income and thus not subject to state or local income tax.

[Please note, we have not researched individual state income tax reporting requirements in South

Carolina and rely upon the general rule here.] The State Act provides several additional

exemptions and exclusions from state and local tax that benefit tribal members.



The income earned by tribal members employed to perform governmental functions

on the Reservation is exempt from state and local taxation. SC Code § 27-16130(C)(2)).

The income earned by tribal members from the sale of Catawba pottery and artifacts

(whether the sale takes place on or off reservation) is exempt from state and local tax

(provided the pottery and artifacts are made by Catawba members). SC Code § 2716-130(C)(2).

The Per Capita Payment Trust Fund distribution is not subject to state or local income

tax at the time of distribution to state or local income taxes. SC Code § 27-16130(C)(2).

Otherwise members are required to pay state and local income taxes to the same extent as

any other person in the State,20 including state and local tax on earnings a tribal member

generates from investing his/her Per Capita Trust Fund distribution. Id.

It should be noted that even though the Tribe, its Section 17 Corporation or other tribally-owned

entities incorporated under tribal law that is immune from federal taxation is immune from state and local

tax even if the State requires these tribally-owned entities to register with the State in order to conduct

business there. Registration of a tribally-owned and tribally-chartered or federally-chartered entity as a

business operating within the State has no bearing on the income tax immunity of that entity. When a

tribally-owned entity, however, forms under the laws of a state by filing a certificate of incorporation or

articles of incorporation according to that jurisdiction's laws, that tribal entity loses its tax immunity and

is subject to federal, state and local income tax just as any other entity incorporated under state law.

Furthermore, "Members of the Tribe are liable for payment of all estate and inheritance taxes, except

the undistributed share of a member in the Per Capita Payment Trust Fund established by the federal

The State Act also provides a state law exclusion associated with the fees that the Tribe

pays to a local school district from tribal funds or from the federal Impact Aid program. See

discussion below in Section 2(b) for further details regarding local school district fees. The

provision clarifies that to the extent these contributions to local school districts are attributed to

any individual student, the amounts contributed are not included as income of the student or the

student's family and is therefore not subject to state tax. SC Code § 27-16-130(I)(2).

Non-members

The State Act clarifies that the state and local tax exemptions and exclusions that apply to

the Tribe and its members, do not apply to any others who reside upon or conduct business on

the reservation. SC Code § 27-16-130 (C)(3). As a result non-members employed to provide

governmental services on the Reservation or engaged in the sale of Catawba pottery and artifacts

are subject to all state and local income taxes. SC Code § 27-16-130 (C)(3).

Real Property taxes

Trust land on the Reservation

Trust lands on the Tribe's Reservation and permanent improvements are exempt from

property taxes. SC Code § 27-16-130 (D)(1). The rule is generally consistent with the

provisions of Section 5 of the Indian Reorganization Act, 25 U.S.C. § 465, which preempts state

and local taxation of trust land and permanent improvements on trust land. Mescalero Apache

Tribe v. Jones, 411 U.S. 145 (1973); Confederated Tribes of the Chehalis Reservation v.

Thurston County, 724 F.3d 1153 (9th Cir. 2013). The State Act establishes an exception to the

Tribe's exemption from any property tax levied by state or local governments on trust lands. The

State Act requires the Tribe to pay a "fee in lieu of school taxes" to the county school district(s)

serving Catawba students. SC Code § 27-16-130(I). The Tribe is to pay this fee to county

school districts based on the amount that is paid by students from outside the county. The

federal funds generated by the Tribe for the school district (through the Impact Aid program or

other federal programs that compensate school districts for the loss of revenues due to

nontaxable tribal lands within their districts) are taken into account so that the Tribe's fee is

reduced by the amount of those federal funds. SC Code § 27-16-130(I) (1) (citing 20 U.S.C.

§ 236 et seq.).

Another distinction from the general preemption rule created by the State Act involves

tribal partnerships with non-tribal entities in owning a business or property on the Reservation.

The State Act provides that "[i]f the Tribe owns a partial interest in property or a business, the

property tax exemption provided in this section is applicable to the extent of the Tribe's interest."

SC Code § 27-16-130 (D)(1). As a result, the State Act establishes that the portion of the interest

owned by the non-tribal entity would be subject to property taxes. The Ninth Circuit recently

considered whether a county could impose its real property tax on the non-Indian share of a

jointly-owned hotel located on trust lands. It concluded that Section 5 of the IRA preempts state

implementing legislation and the Settlement Agreement are exempt from state estate and inheritance

taxes." SC Code § 27-16-130(K).

and local taxes on the trust lands and any permanent improvements located on that land "without

regard to the ownership of the improvements." Chehalis, 724 F.3d at 1159 (rejecting the

County's argument that because a non-tribal entity, Great Wolf Lodge, owned 49% of the

improvements, the County could, at a minimum, impose its property tax on the portion of the

improvements owned by Great Wolf Lodge, if not the portion owned by the Tribe). For the

Catawba Indian Nation, however, the State Act provision asserts that when the Tribe partners

with a non-tribal entity to jointly own improvements on trust lands located on the Reservation

that the non-tribal entity's ownership interest would be subject to real property taxes.

Non-Trust land on the Reservation

The State Act provides that land on the Reservation not held in trust is exempt from real

property taxes, however, buildings, fixtures and improvements on that property is subject to all

real property taxes. SC Code § 27-16-130 (D)(3).21 To the extent that the buildings, fixtures and

improvements on these lands are subject to real property taxes, local county rules for tax

abatements or temporary exemptions would apply just as to other such properties located within

the county. Id.

Off-Reservation land held in trust

Although under the Settlement Act certain land claims were relinquished (25 U.S.C.

§ 941d(b)–(d)), this would not preclude an effort by the Tribe to place non-Reservation lands

into trust under the IRA. For example, the State Act acknowledges non-Reservation trust lands

by noting that "any non-Reservation real property held in trust by the Secretary is not taxable for

property tax purposes, it is subject to the payment of a fee or fees by the Tribe…". SC Code

§ 27-16-130 (D)(6). Moreover, federal courts have established that tribes that have relinquished

land claims through settlement acts may still petition for land under the IRA. Akiachak Native

Community v. Salazar, 935 F.Supp.2d 195, 204–06 (D.D.C. 2013).

Because the payment in lieu of taxation set forth in the State Act would require the Tribe

to pay to the local taxing jurisdiction the same amount that would otherwise be levied in property

taxes, the tax advantages of the land-into-trust process would be offset by the required payment

in lieu of taxation. See SC Code § 27-16-130 (D)(6).22

Off-Reservation, non-trust land

The State Act treats real property and improvements owned by the Tribe or by tribal

members just as any other real property within the State thereby making them fully subject to

real property taxes. SC Code § 27-16-130(D)(5).

Further research may be needed here. Terms are not explicit but are clearly implied.

This is another area for further analysis as key terms are not explicit but implied.

Tribal-member occupied on-Reservation residences exempt from state and

local property taxes

Residences owned by the Tribe or tribal member and occupied by a tribal member (or

surviving spouse) are exempt from all state and local property tax levies. SC Code § 27-16130(D)(2).23 Furthermore, when the Tribe constructs rental property on the Reservation through

an Indian Housing Authority financed by the Department of Housing and Urban Development

(HUD), that property is exempt from all property taxes. SC Code § 27-16-130(D)(2)(a)(iv). The

Tribe's Housing Authority may, but is not required to, "agree to make payments to the county or

a political subdivision for improvements, services, and facilities furnished by the county or

political subdivision for the benefit of the housing project." Id.

Business Partners of the Tribe

As noted in the discussion above, even with regard to on-Reservation trust lands, the

State Act suggests that the real property interests of non-tribal entities are subject to real property

taxes imposed by state and local governments. SC Code § 27-16-130 (D)(1). This provision,

however, does not expressly authorize such taxation. Rather, the taxation is implied by the terms

stating that for jointly owned property, the tax exemption applies to the Tribe to the extent of its

interest (and by implication the non-tribal interest would not be exempt). Further ambiguity is

created, however, by State Act terms authorizing the Tribe to "levy taxes on buildings, fixtures,

improvements, and personal property located on the Reservation, even though the properties may

be exempt from property taxation by the State or its subdivisions..." SC Code § 27-16-130

(D)(4) (emphasis added). As to the exempt properties upon which the Tribe would levy its tax,

this provision may be read as applicable to those residences of tribal members that are exempt

from local government property taxes (see discussion above). SC Code § 27-16-130 (D)(2).

With respect to non-tribal interests, it could be argued that this provision simply authorizes the

Tribe to impose an additional tax on top of applicable real property taxes, as subparagraph (D)(3)

makes any ownership not exempt under (D)(1) and (D)(2) subject to state/county real property

taxes. This does not necessarily resolve the question of whether the Tribe's business partners

under (D)(1) may be exempted.

Case law does not help resolve this question. For example, a recent federal court case

held that the IRA preempts state and local taxes on the trust lands and any permanent

improvements located on that land "without regard to the ownership of the improvements."

Chehalis, 724 F.3d at 1159. But that case law involves the IRA, but here the Tribe's Reservation

trust lands were acquired under the terms of the Settlement Act. To the extent the Tribe acquires

off-Reservation lands in trust under the IRA instead of the Settlement Act, there may be

additional ambiguity as to whether the IRA rules on the exemption of permanent improvements

from real property taxes may apply. We expect that ambiguity would likely be resolved,

however, by reference to the Settlement Act terms which provide that "[a]ll properties acquired

by the Tribe shall be acquired subject to the terms and conditions set forth in the Settlement

Agreement." 25 U.S.C. § 941j(f). The Settlement Agreement provides that "all non-reservation

properties, and all activities conducted on such properties, shall be subject to the laws,

For multi-unit dwellings, tribal member occupied units are exempt, while nonmember occupied units

are subject to tax.

ordinances, taxes and regulations of the State and its political subdivisions…" Settlement

Agreement, § 15.2. Furthermore, given that the State Act requires the Tribe to make payments in

lieu of taxation on those non-Reservation trust lands, we would expect a non-tribal business

partner, even if not subject to property taxes, would be subject to payments in lieu of taxation, as

the non-tribal entity would not have been intended to receive more favorable tax treatment than

the Tribe itself.

Lessees

The Tribe's leasing of trust lands is another area where the Settlement Act and

State Act limit the tax benefits that would otherwise be available under federal Indian law.

Under the BIA leasing regulations (25 C.F.R. Part 162) that implement 25 U.S.C. § 415,

permanent improvements on leased land, leasehold or possessory interests, and activities under

the lease are exempt from state and local tax and subject only to the applicable tribal tax. See 25

C.F.R. § 162.017; see also Seminole Tribe of Florida v. Stranburg, 799 F.3d 1324 (11th Cir.

2015) (discussing preemption of state rental tax imposed on lessees of the Tribe). The Tribe's

Settlement Act specifically states that the Leasing Act (25 U.S.C. § 415) and the Leasing

Regulations (25 C.F.R. Part 162) do not apply. 25 U.S.C. § 941j(l) and (m). The Settlement Act

makes clear that the underlying land or leasehold in the land is not subject to real property

taxes." SC Code § 27-16-130 (D)(3). The Settlement Act also provides that the Tribe has the

flexibility to "sell, exchange, or lease lands" for up to 99 years with or without Secretarial

approval (25 U.S.C. § 941j(j)). The Tribe, however, is unable to harness the tax benefits that

federal Indian law bestows on the improvements and activities conducted under tribal leases.

See 25 U.S.C. § 941k(b) (the "Tribe as land owner shall be subject to the same obligations and

responsibilities as other persons and entities under State, Federal, and local law").

South Carolina imposes an ad valorem tax on property leased by a public authority to a

private lessee when the lease is for a definitive term. See Memorandum from Burnet Maybank

of Dec. 9, 2015, at 8 [attached as Appendix 2 of this Survey]. In discussing the South Carolina

rules applicable to the Tribe's leases to private parties, Mr. Maybank identifies a precedent under

which another public authority has conveyed the right to use and occupy the land through an

instrument other than a lease. By making property use and occupancy rights available to the

private party through a license rather than a lease, the State's ad valorem tax on the lease would

not apply. See id. Under State law, when the Tribe leases property for a definite term, the lessee

would be subject to property taxes on the lease. If the Tribe were to issue a license rather than a

lease for the private party's use of that property, however, there would be no lease for the State to

tax. See id.

Personal Property taxes

Tribally owned property

Under the State Act, all personal property owned by the Tribe and used solely on the

Reservation is exempt from personal property taxes levied by the State and its local taxing

jurisdictions. SC Code § 27-16-130(E)(1). While personal property used off-Reservation would

be subject to property taxes, tribally-owned motor vehicles are exempted from any personal

property taxes regardless of whether those vehicles are used off-Reservation. Id.24

Tribal Member owned property

Personal property owned by tribal members, however, is subject to personal property

taxes levied by "the State, a county, a school district, a special purpose district, and any other

political subdivisions where the property is deemed to be located." SC Code § 27-16-130(E)(2).

Tribal members' personal property is to be assessed and taxed on the same terms and amounts as

other person property in that jurisdiction. Id. (E)(3).

The Property Tax Enforcement Regime

The State Act sets forth specific relief available to state and local taxing authorities to

recover unpaid taxes. SC Code § 27-16-130(F). In situations where a taxpayer required to pay

real or personal property taxes failed to do so, the State Act authorizes the local tax authority "to

levy against personal property subject to personal property taxes owned by the taxpayer within

the county, on or off the Reservation, in order to satisfy the taxes due." Id. To the extent that

there is a deficiency after that levy, the tax jurisdiction may certify the amount of the deficiency

to the State. The State is then required to levy against other taxable property of the taxpayer in

the State and remit the proceeds from that levy to the taxing authority that is owed the tax. SC

Code § 27-16-130(F)(1).

In a situation where the taxing authority cannot satisfy its tax lien, the State Act provides

that the affected taxing authority "may require the Tribe to cease allowing the taxpayer to do

business on the Reservation." SC Code § 27-16-130(F)(2). This provision would appear

designed to address a situation where a non-tribal entity is conducting business on the

Reservation in order to obtain an unlawful tax haven. Yet, it would also appear to be applicable

to tribal members who for any number of reasons may be able to meet their tax obligations and

may not have any other taxable property in the state. Moreover, the provision is remarkable in

providing an outside jurisdiction with discretion to require the Tribe to take an enforcement

action on behalf of that outside taxing authority. It is not clear what mechanism would be

available to this outside entity to enforce its demand that the Tribe revoke the taxpayer's

authority to conduct business on the Reservation. What is clear, however, is that no state or local

jurisdiction may seize real property located on the Reservation in order to satisfy a tax lien. SC

Code § 27-16-130(F)(4).

State and Local Sales and Use Taxes

Although the Tribe and its members are generally liable for state and local sale and use

taxes, the State Act establishes the statutory exceptions identified below. SC Code § 27-16130(H).

Although the Tribe's motor vehicles are exempt from personal property taxes, the Tribe and its

members are subject to state and local government motor fuels taxes and are required to pay license,

registration and inspection fees and meet license and inspection requirements. SC Code § 27-16-130(G).

Purchases made by the Tribe for tribal governmental functions.

Purchases made by the Tribe for tribal government functions are exempt from state and

local sales and use taxes. SC Code § 27-16-130(H)(1).

Catawba Pottery and Artifacts

Catawba pottery and artifacts made by members of the Tribe and sold on or off the

Reservation by the Tribe or members of the Tribe are exempt from state and local sales and use

taxes. SC Code § 27-16-130(H)(2).

On-Reservation sales

On-Reservation sales of any other item (whether made on or off the Reservation) are

exempt from state and local sales and use taxes. SC Code § 27-16-130(H)(3). The

administration of this exemption, however, involves several additional requirements. First, the

Tribe must levy a "special tribal sales tax" that is equivalent to the state and local sales tax that

would otherwise apply. Id. The special tribal sales tax, however, is to be administered and

collected by the South Carolina Tax Commission in accordance with State rules and is to be

periodically remitted to the Tribe. SC Code § 27-16-130(H)(3)(a) & (b). Lesser value sales

items of $100 or less, however, are not subject to the special tribal sales tax. For transactions of

$100 or less, the state sales tax applies. SC Code § 27-16-130(H)(3)(c).

Use Taxes

The Tribe is authorized and responsible for imposing a tribal use tax "on the storage, use,

or other consumption on the Reservation of tangible personal property purchased at retail outside

the State when the vendor does not collect the tax." SC Code § 27-16-130(H)(3)(d) (emphasis

added). Use taxes collected by a vendor not located in the State are subject to state use taxes,

and the use tax must be remitted to the State and not the Tribe.

Section 3. Tribal Tax Authority

As noted in Section 1, the tax revenues collected by the Tribe are not taxable for federal,

state, or local income taxes. See SC Code § 27-16-130(C)(1). The Tribe's taxation authority

includes specific provisions set forth in the Settlement Act and State Act as discussed below.

Additionally, the Tribe retains its inherent authority to impose taxes on members and

nonmembers (subject to certain limitations). See Merrion v. Jicarilla Apache Tribe, 455 U.S.

130 (1982); Kerr-McGee Corp. v. Navajo Tribe of Indians, 417 U.S. 195 (1985). More recent

Supreme Court cases, however, have significantly curtailed tribal authority to tax non-members.

See, e.g., Atkinson Trading Co., Inc. v. Shirley, 532 U.S. 645 (2001). Several provisions in the

State Act, however, reinforce and clarify the Tribe's tax authority over non-members.

Tribal property taxes on reservation

Under the State Act, the Tribe is authorized to levy taxes "on buildings, fixtures,

improvements, and personal property located on the Reservation." SC Code § 27-16-130(D)(4).

The State Act also requires York and Lancaster Counties and the South Carolina Tax

Commission to assist the Tribe in assessing tribal real property taxes. Id. In federal Indian law,

often while a tribe may be authorized to assess taxes on those doing business on the reservation,

other state and local jurisdictions may tax the same transactions, thereby creating multiple layers

of taxation that chill outside investment. The State Act suggests that certain properties on the

Reservation are exempt from state and local tax, thereby providing opportunities for the Tribe to

tax at a rate that may be economically viable for the Tribe and those conducting business on the

Reservation.25

Tribal sales taxes for on-Reservation sales

State Act provisions governing the Tribe's authority to levy taxes on the sales of goods on

the Reservation are set forth in direct, clear terms. As discussed above in Section 2(e)(3), a

special tribal sales tax applies to sales whose gross proceeds are more than $100. Rather than

being administered by the Tribe under tribal law, however, the State Act requires the special

tribal sales tax to be administered and collected by the South Carolina Tax Commission. SC

Code § 27-16-130(H)(3). The terms would provide the Tribe with sales tax revenues for such

commercial items as cell phones and computer-related goods and other retail items in which

inventory items are generally priced at above $100. The terms, however, require the tribal tax to

be equivalent to the otherwise applicable state and local sales tax. As a result, the Tribe would

not be able to reduce or waive that tax in order to attract vendors or buyers based solely on lower

sales tax rates.26

Tribal use taxes

As noted above, the Tribe is authorized and responsible for imposing a tribal use tax "on

the storage, use, or other consumption on the Reservation of tangible personal property

purchased at retail outside the State when the vendor does not collect the tax." SC Code § 27-16130(H)(3)(d) (emphasis added). When the vendor is delivering tangible personal property to the

Reservation from a location outside the state and the vendor does collect the tax, however, the

State's use tax will apply. Id.

Section 4. Financing and Commerce Advantages through Federal Economic Development

Programs

The Settlement Act also specifically makes certain federal statutes applicable to the

Tribe, including: Title VII of the Housing and Community Development Act, 25 U.S.C.

Please see discussion in Section 2(b)(6) noting that the non-tribal property interests exempt from state

and local taxation are unclear.

Appendix 1 sets forth an illustrative scenario where sales tax benefits are combined with other tax and

governance advantages to maximize the tax and revenue efficiencies of a tribally-owned school

equipment and supplies business.

§ 941m(d), the Foreign Trade Zones Act, 25 U.S.C. § 941m(d), the Indian Child Welfare Act,

25 U.S.C. § 941h(3), and the Indian Self Determination and Education Assistance Act, 25 U.S.C.

§ 941h(6). Additionally, the Settlement Act affects jurisdiction of the Tribe and the State over

the Tribe's land. See 25 U.S.C. §§ 941m(e), 941h(1).

Development Zones

Enterprise Zone

Title VII of the Housing and Community Development Act of 1987, 42 U.S.C.

§§ 11501–11505, was the first Enterprise Zone legislation enacted. The Act did not create tax

incentives, but rather it permitted the Department of Housing and Urban Development (HUD) to

waive regulatory rules in areas it designated as Enterprise Zones to encourage development. 42

U.S.C. § 11504.

The Settlement Act states that the Tribe is eligible to become an Enterprise Zone under

Title VII of the Housing and Community Development Act of 1987 or any other applicable

federal laws or regulations. 25 U.S.C. § 941m(d). However, the designation timeframe was

short under 42 U.S.C. § 11501(a)(4)(B), and HUD never designated any Enterprise Zones before

it expired.27 Therefore, the Act is now effectively defunct.

Under more recent legislation, such as the Empowerment Zones and Enterprise

Communities Act of 1993 and Community Renewal Tax Relief Act of 2000, Empowerment

Zones, Renewal Communities, and Enterprise Communities receive tax incentives, grants,

bonding authority, and other benefits in order to bring new business to the designated areas.28

These are new statutes rather than amendments to the Housing and Community Development

Act. HUD manages the programs for Renewal Communities and urban areas and the

Department of Agriculture (USDA) manages the programs for rural Empowerment Zones and

Enterprise Communities. These programs have been carried out and communities, including

some tribes, have received designations. However, designation under these programs no longer

appears available.

The Tribe may be eligible for designation under other newer federal programs meant to

draw business into economically disadvantaged areas using tax incentives. Upon request, we can

research the availability of similar programs. If a new program is available, the Tribe can utilize

it to both draw new businesses to its reservation land and to operate its own businesses using the

benefits of the program.

Foreign Trade Zone

Under the Foreign Trade Zones Act of 1934, as amended, 19 U.S.C. §§ 81a–81u, foreign

and domestic merchandize may be brought into a Foreign Trade Zone or Subzone to be stored,

sold, manufactured, assembled, or otherwise manipulated without application of customs laws or

http://www.referenceforbusiness.com/encyclopedia/Eco-Ent/Empowerment-Zones.html.

http://portal.hud.gov/hudportal/HUD?src=/program_offices/comm_planning/economicdevelopment/pro

grams/rc.

taxes—thereby permitting manufacturers to gather parts, assemble the product within the Foreign

Trade Zone, and pay taxes on the manufactured product as a whole. 19 U.S.C. § 81c(a); 19

C.F.R. Part 146.29 Those operating Foreign Trade Zones function as public utilities, making a

profit by leasing storage or distribution space and providing access to various modes of

transportation. 19 U.S.C. § 81n; 15 C.F.R. § 400.42(a).

To gain status as a Foreign Trade Zone, one must apply to the Foreign-Trade Zones

Board (Board). 19 U.S.C. §§ 81b, 81f; see also 15 C.F.R. 400.11–400.38. The Board grants the

application if it finds the proposed plans and location are suitable for accomplishment of the

purpose of a Foreign Trade Zone. 19 U.S.C. § 81g; see also 15 C.F.R. § 400.26.

Foreign Trade Zones must be located in or adjacent to ports of entry. 19 U.S.C. § 81b(a);

15 C.F.R. § 400.11(b)(1). However, the implementing regulations found at 15 C.F.R. Part 400

state the adjacency requirement is met if the Foreign Trade Zone is "located within 60 statute

miles or 90 minutes' driving time" from the outer limits of a port of entry, as determined or

concurred upon by the U.S. Customs and Border Protection. 15 C.F.R. § 400.11(b)(2)(i). In an

application to become a Foreign Trade Zone, an applicant must show "the land and water or land

or water area or land area alone if the application is for its establishment in or adjacent to an

interior port" as well as "the fitness of the area for a zone." 19 U.S.C. § 81f(a)(1). The

application must include a statement regarding the distance and, if distance exceeds 60 miles,

driving time. 15 C.F.R. § 400.21(d)(2)(iii). Subzones require only sufficient U.S. Customs and

Border Protection supervision, including through electronic means. 15 C.F.R. § 400.11(b)(2)(ii).

Generally, each port is permitted one Foreign Trade Zone. 19 U.S.C. § 81b(b); 15 C.F.R.

§ 400.11(a)(1)(i). However, the Board may approve more than one Foreign Trade Zone per port

in certain circumstances, including "if the Board finds that existing or authorized zones will not

adequately serve the convenience of commerce." 19 U.S.C. § 81b(b); see also 15 C.F.R. §

400.11(a)(2). Additionally, the Board may designate Subzones, which are established for a

specific rather than general use. 15 C.F.R. § 400.2(s).

The Settlement Act states that the Tribe is eligible to become a Foreign Trade Zone or

Subzone under the Foreign Trade Zones Act of 1934, as amended, and the applicable

regulations. 25 U.S.C. § 941m(d). Nowhere does the Foreign Trade Zones Act refer to tribes,

but some tribes have received Foreign Trade Zone status, including the Lummi Indian Business

Council and the Puyallup Tribal Foreign-Trade Zone Corporation.30

There are five ports of entry in South Carolina, and they are located in Charleston,

Columbia, Georgetown, Greer, and Myrtle Beach.31 There are currently three Foreign Trade

Zones in the State, one of which serves the port in Greer.32 The port in Greer is located

approximately an hour and 45 minutes' or a 90 mile drive from the Tribe. The other ports of

entry are located along the coast and farther from the Tribe's land.

http://www.cbp.gov/border-security/ports-entry/cargo-security/cargo-control/foreign-trade-zones/about.

http://www.gdi-solutions.com/directory/ftz_usa.htm

https://www.cbp.gov/contact/ports/SC.

http://enforcement.trade.gov/ftzpage/letters/ftzlist-map.html.

The Tribe could seek designation as a Foreign Trade Zone associated with the Greer port

within its reservation land. This would involve submitting an application to the Board arguing

the existing Foreign Trade Zone does not adequately serve the convenience of commerce and

thus the Greer port should receive a second Foreign Trade Zone. Although the Greer port is

farther than a 90 minutes' drive from the Tribe's land, the Tribe could attempt to establish that it

is within 60 miles if measured as the crow flies and is thus sufficiently adjacent to the Greer port.

In the alternative, the Tribe could attempt to establish its reservation land's status as a Subzone.

Designating its land as a Foreign Trade Zone or Subzone would provide the Tribe with a

business opportunity and would also bring other business to the Tribe's reservation.

In the alternative, the Tribe could purchase land closer to one of the State's ports, whether

it is a port that already has a designated Foreign Trade Zone of one of the two ports that does not.

If the Tribe acquired land near a port and gained status as a Foreign Trade Zone, the Tribe could

operate a Foreign Trade Zone business venture at that location. Although this would not

necessarily draw business to the Tribe's lands, it could serve as a separate tribal economic

development opportunity.

HUBZone

Under the Small Business Reauthorization Act of 1997, as amended, 15 U.S.C.

§ 657a(b)(2), certain businesses located in communities designated as historically underutilized

business zones (HUBZones) receive government contracting preferences.33 Although the

program is managed by the Small Business Administration, it applies to all federal departments

that contract. 13 C.F.R. § 126.101(a).

A business seeking to establish that it operates in a HUBZone must obtain certification

from the Small Business Administration. See 13 C.F.R. §§ 126.200–126.207, 126.300–126.309.

Any land meeting the definition of Indian country may qualify as a HUBZone, but land located

in a state in which a tribe did not exercise jurisdiction as of December 21, 2000, and offreservation and non-contiguous land acquired after that date cannot qualify. 13 C.F.R.

§ 126.103.

A tribally owned business may qualify for preferential contracting when 35% of its

employees reside in a HUBZone, including a reservation. 13 C.F.R. § 126.103; 13 C.F.R.

§ 126.200(a); see also 15 U.S.C. § 637. Non-tribally owned small businesses may also qualify

for preferential contracting when located in a HUBZone and when 35% of their employees reside

in the HUBZone. 13 C.F.R. § 126.200(b).

Land located within the Tribe's reservation is eligible to qualify as a HUBZone, but trust

land acquired outside and non-contiguously to the reservation after December 21, 2000, is not

eligible. The Tribe may utilize its HUBZone reservation status to gain government contracts as a

source of revenue. It may also work to make its eligibility as a HUBZone known in order to

encourage other small businesses engaged in government contracting to locate on the Tribe's

reservation. The Small Business Administration maintains an interactive map for public use in

https://www.sba.gov/content/understanding-hubzone-program.

determining whether an address or particular area is categorized as a HUBZone.34 The Catawba

Indian Nation Reservation is currently a Qualified Indian Reservation HUBZone.35

Funding

DOI Loan Guaranty Program

The Department of the Interior (DOI) under the Indian Financing Act of 1974, as

amended, 25 U.S.C. §§ 1481–1499, operates the Loan Guaranty, Insurance, and Interest Subsidy

Program, which encourages lending institutions to provide loans to Indian businesses.36 The

Office of Indian Energy and Economic Development (IEED) manages the program.37

Through the program, DOI can guaranty up to 90% of the principal amount of a loan.

25 U.S.C. § 1481(a)(1); 25 C.F.R. § 103.6(a). An economic enterprise may borrow $250,000 or

more with DOI's approval, 25 U.S.C. § 1484, and DOI has interpreted this authority to extend to

sums over and above $500,000, 25 C.F.R. § 103.5. Typically, the Indian business applies for a

loan from the lending institution, and the institution requests a loan guarantee from the federal

government. 25 C.F.R. § 103.9. The IEED has indicated that funding is available under the

program and that many tribes that apply receive funding.

DOI guarantees loans for any lawful business organized for profit. 25 C.F.R. § 103.4.

Thus, although the program is run by IEED, funding may be obtained for projects unrelated to

energy. The businesses borrowing funds must be at least 51% Indian owned. 25 C.F.R. §

103.25.

Neither the statute nor its implementing regulations at 24 C.F.R. Part 103 dictate that a

tribe cannot use its borrowed funds on fee land. The only reference to land status in the statute is

a restriction on trust acquisition of lands located outside a reservation and purchased using loan

funds. 25 U.S.C. § 1495. The implementing regulations contain more detailed restrictions, and

they require the business borrowing funds to contribute to the economy of a reservation or

service area. 25 C.F.R. § 103.4(a). If a business borrowing funds moves any significant portion

of its business operations to a location not on or near a reservation or service area, the lender

must obtain written DOI approval before modifying the loan guaranteed. 25 C.F.R. § 103.34(7).

IEED's promotional material further requires a borrower's business to be located on or near a

reservation or service area.38 None of the guidance addresses whether the land on which the

business is located must be held in trust or whether there are restrictions on where the funds are

actually used.

Available at maps.sba.gov/hubzone/maps. Lancaster, Chester, Union, and Cherokee County are

currently designated HUBZones; while Rock Hill and the City of York (but not York County) are listed

as qualified census tracts.

https://www.sba.gov/sites/default/files/2014_QualifiedIndianLands.pdf.

http://www.bia.gov/cs/groups/xieed/documents/document/idc-034739.pdf.

http://bia.gov/WhoWeAre/AS-IA/IEED/LoanProgram/index.htm.

http://bia.gov/cs/groups/public/documents/text/idc-001933.pdf.

The Tribe seeks to use funding acquired through the loan guarantee program to construct

a hotel on fee land within its service area. This project would contribute to the economy of its

service area. Further, the Tribe as borrower is located on its reservation land, and it plans to

expend the funds borrowed within its service area. Thus, it can likely acquire and use funds

from the loan guarantee program to gain financing for the hotel.

DOE Loan Guarantee Program

The Energy Policy Act of 1992 as amended in 2005, 25 U.S.C. § 3502, authorizes the

Department of Energy (DOE) to operate the Tribal Loan Guarantee Program.39 The Office of

Indian Energy Policy and Programs runs the program, which closely resembles DOI's loan

guarantee program. Thus, its application and benefits to the Tribe are discussed above.

Treasury CDFI Fund

The Riegle Community Development and Regulatory Improvement Act of 1994, 12

U.S.C. §§ 4701–4719, authorizes Treasury to operate the Community Development Financial

Institutions (CDFI) Fund.40 Through the Native Initiatives Program, Treasury disburses grants or

loans of up to $75,000, which the grantee must match with non-federal funds, and grants of up to

$150,000 for technical assistance.41 The program is meant to remove Native communities'

barriers to accessing capital and financial services.

To receive financial assistance through the program, an organization must be certified as

a CDFI by the CDFI Fund and at least 50% of its activities must serve Natives. Recipients for

FY 2015 have already been announced, and the deadline for the next round of applications has

not been posted. The Tribe could utilize this program to encourage financial institutions to work

with the Tribe and its members or to create a financial institution to serve tribal members run by

the Tribe.

USDA Housing Guaranteed Loan Program

The Doug Bereuter Section 502 Single Family Housing Loan Guarantee Act of 1949, 42

U.S.C. §§ 1472(h), authorizes USDA to operate the Single Family Housing Guaranteed Loan

Program. Funding is available to low income applicants to provide assistance with housing in

eligible rural areas.42

Applicants contact lenders, and lenders work with USDA to secure loan guarantees. The

program is available to those living on tribal land. See 7 C.F.R. § 3555.6. However, it appears

that this particular program, unlike other USDA funding programs, see 42 U.S.C. § 1471(c),

applies only to individuals seeking loans for their residences rather than to tribal entities as a

whole.

http://www.energy.gov/indianenergy/mission.

https://www.cdfifund.gov/about/Pages/default.aspx.

http://www.mycdfi.cdfifund.gov/what_we_do/programs_id.asp?programID=3.

http://www.rd.usda.gov/programs-services/single-family-housing-guaranteed-loan-program.

The Tribe's land is located in an eligible rural area. Therefore, those seeking to purchase

or improve their homes on the Tribe's land are eligible for loans under the program. Thus, the

Tribe may be able to encourage businesses seeking to construct homes to build on its reservation

land, as individuals seeking home ownership will have access to funding.

DOI Energy and Mineral Development Grant and Tribal Energy

Development Capacity Grant

The Energy Policy Act of 1992 as amended in 2005, 25 U.S.C. § 3502, authorizes DOI to

establish and implement an Indian energy resource development plan, which includes provision

of grant money. Under this authorization, DOI has created grant programs designed to aid tribes

in evaluating and developing energy resources on their lands. DOI has created the Energy and

Mineral Development Grant, designed to aid tribes with the technical side of resource

development,43 and the Tribal Energy Development Capacity Grant, designed to aid tribes with

the commercial and legal side.44

Both grants are available annually and require grant submissions, and both are managed

by IEED.45 IEED makes technical assistance available while applicants prepare their

submissions. However, the deadline for both grants passed in June. It appears Congress has

provided funding for both grants for FY 2016, and therefore the grants should be accessible

again this coming summer. The Tribe may use these grants to develop natural resources on its

reservation.

Technical Assistance

White House Promise Zone

President Obama in his 2013 State of the Union Address announced his Promise Zone

Initiative, which provides for a partnership in selected communities between local leaders and

federal government officials in order to address community revitalization.46 The program aims

to increase economic activity, improve educational opportunities, leverage private investment,

reduce violent crime, enhance public health, and address other priorities identified by the

community. Chosen communities receive five designated AmeriCorps VISTA members, a

federal liaison, preferences for certain grant programs and technical assistance, and tax

incentives if enacted by Congress at a later date.47

http://www.bia.gov/WhoWeAre/AS-IA/IEED/DEMD/TT/TF/index.htm.

http://www.bia.gov/WhoWeAre/AS-IA/IEED/DEMD/TEDCP/index.htm

http://www.bia.gov/cs/groups/xbia/documents/document/idc1-029754.pdf (2015 solicitation of

proposals for Energy and Mineral Development Grant);

http://www.bia.gov/cs/groups/xbia/documents/document/idc1-030803.pdf (2015 solicitation of proposals

for Tribal Energy Development Capacity Grant).

http://www.usda.gov/wps/portal/usda/usdahome?contentid=2015/04/0116.xml;

http://portal.hud.gov/hudportal/HUD?src=/program_offices/comm_planning/economicdevelopment/progr

ams/pz/overview.

http://portal.hud.gov/hudportal/HUD?src=/program_offices/comm_planning/economicdevelopment/pro

grams/pz/overview.

USDA manages the program, and communities are selected through competitions.48

USDA has designated 13 Promise Zones thus far, with the Choctaw Nation selected in 2014 and

the Oglala Sioux Tribe selected in 2015. In the Choctaw Nation, the program has enabled 19

Head Start classrooms to receive support from the Department of Health and Human Services to

provide early education, nutrition, and health services to 310 children and their families.

The third round of competition should begin shortly with one new tribal community

eligible for designation as a Promise Zone by USDA.49 However, HUD and USDA have not yet

opened the application process. Instead, they took comments this summer on how better to

structure the competition process, with plans to issue new guidance on what submissions should

contain. The second round required an application that set out goals and activities accompanied

by maps and a narrative.50 Once USDA begins accepting submissions, the Tribe could apply for

designation as a Promise Zone in order to gain access to grants and technical assistance from the

federal government for a wide array of revitalization projects.

Commerce Native American Export and Trade Promotion Program

The Native American Business Development, Trade, Promotion, and Tourism Act of

2000, 25 U.S.C. § 4304, creates the Native American Export and Trade Promotion Program

aimed at facilitating government coordination and technical assistance to tribes on marketing

Indian goods and services. It does not provide funding or other business development incentives,

but legislation has been introduced that would strengthen the program. The program is managed

by the Office of Native American Business Development within the Department of Commerce

(Commerce).51

The Office of Native American Business Development seems to focus its efforts on

acting as a tribal liaison and creator of the Department's tribal consultation policy rather than

providing technical assistance under the program. However, the Tribe could still contact the

Office to request technical assistance on exporting or importing its goods and services.

Other Considerations

As shown above, the Tribe has access to multiple programs it can use to encourage

economic development and revenue generation, both through its own economic enterprises and

through drawing other Indian and non-Indian businesses to its reservation lands. However, these

programs are highly technical, and each has its own advantages and shortcomings. If the Tribe is

interested in pursuing any of the above programs, we can work with the Tribe to generate

application material and to coordinate with the relevant federal agencies.

http://www.usda.gov/wps/portal/usda/usdahome?contentid=2015/04/0116.xml.

http://portal.hud.gov/hudportal/HUD?src=/program_offices/comm_planning/economicdevelopment/pro

grams/pz.

http://portal.hud.gov/hudportal/documents/huddoc?id=PZ_R2_App_Guide_Urban.pdf.

http://www.mbda.gov/main/programs/office-native-american-business-development-onabd.

Additionally, IEED is a resource the Tribe can utilize, as its employees have developed

expertise in helping tribes navigate applying for federal funding for economic development.52

Securing a meeting with IEED to discuss possible funding sources may be a good first step.

Section 5. Federal Tax Credits Available to Tribal Partners

The Federal Government currently runs a variety of tax incentive programs known as

"tax extenders" that may be interest to the Catawba Nation, its non-Indian partners, and to

individual tribal member enterprises. It is important to note that tax extenders are authorized on

a temporary basis, meaning they are not guaranteed tax credits but instead rely on Congress for

annual support. It is therefore necessary to periodically verify that the tax extender programs

described below are still active before including them in business transactions.

New Markets Tax Credit

The New Markets Tax Credit Program (NMTC) is designed to increase the flow of

capital to low-income communities – including an identifiable group of individuals such as an

Indian Tribe – by providing private investors tax rewards for investing in qualified Community

Development Entities (CDEs). 26 U.S.C. § 45D (2000). Such entities must have a primary

mission of serving low-income communities, maintain public accountability through community

representation on a governing board, and be certified by the Treasury Department as a qualified

community development agency. The tax credit itself is based on the amount of a Qualified

Equity Investment (QEI) an investor makes in such an entity. Investors receive a tax credit of

5% of the QEI in the first three years and 6% per year in the final four years, for a 39% tax credit

over a seven-year period. Id. at § 45D(a)(2).

For purposes of the NMTC, "low-income community" (LIC) means any population

census tract that has a poverty rate of at least 20% or where the median family income does not

exceed 80% of the statewide median family income or the metropolitan area median family

income. 26 U.S.C. § 45D(e). Additionally, the NMTC treats "targeted populations" as lowincome communities. A "targeted population" refers to "individuals, or an identifiable group of

individuals, including an Indian tribe, who are low-income persons; or otherwise lack adequate

access to loans or equity investments." 26 U.S.C. § 45(e)(2) (as defined in 12 U.S.C. § 4702(20)

and 12 C.F.R. § 1805.201). A LIC designation thus includes Indian reservations and

communities and HUBZones.

Designation as a NMTC low-income community does not require an active certification

by the Tribe. Further, because LIC status includes targeted populations within its definition, an

entire tribe may be eligible for this classification as one entity, rather than obtaining the

classification on an area-by-area basis. The CDFI Fund maintains a census population tract

database that automatically designates an area for NMTC qualification, referenced above, as well

IEED has even compiled information on other agencies' grant programs for tribal energy development.

http://energy.gov/indianenergy/federal-grant-loan-and-technical-assistance-programs-tribal-energydevelopment-0.

as other eligibility mapping tools.53 For the purposes of this tax credit, the Catawba Indian

Nation's has an established LIC status because it is both targeted population group and a

Qualified Indian Reservation HUBZone, which itself is located within the greater Lancaster

County HUBZone and the qualified census tract of Rock Hill.

This program has the potential to provide the Catawba Nation with two-fold benefits for

both investors and the Tribe. First, flexible financing will make business partnerships on tribal

lands more appealing. CDEs are required to offer flexible financing terms that allow for greater

cash flow management with the benefit of below market interest rates or underwriting terms.

Second, increased capital flows will improve access to services and employment for the tribal

community. Revitalization projects provide communities with new construction and permanent

employment, and encourage future development by building on the improved access to goods

and services following each QEI investment. As a result, the New Markets Tax Credit Program

will appeal to private investors and tribal member enterprises alike by providing greater access to

loans or equity investments under flexible financing terms.

On October 23, 2015, the Treasury's Community Development Financial Institutions

(CDFI) Fund released a Notice of Allocation Availability of up to $5 billion of NMTC

investment for the CY 2015. 80 Fed. Reg. 64495 (Oct. 23, 2015). New to this year's application

is the inclusion of Native Areas – i.e., federal Indian reservations, off-reservation trust lands,

Hawaiian home lands, and Alaska Native village statistical areas – in the list of "innovative uses"

of an NMTC allocation.54 Applicants are directed to use the CIMS3 to geocode addresses and

determine whether potential qualified low-income community businesses are located within

Native Areas by visiting https://www.cims.cdfifund.gov/preparation/?config=config_nmtc.xml.

The electronic application submission deadline for the CY 2015 period was December 16, 2015.

The application deadline for the CY 2016 cycle will likely be scheduled for a date in December

of 2016.

Accelerated Depreciation

Depreciation is a general income tax deduction that allows a taxpayer to recover the cost

of wear and tear or deterioration of certain property. In order to qualify for a depreciation tax

credit, a taxpayer must own the property for use in an income-producing activity, and the

property must have a useful life of more than one year, i.e., it cannot be first used and fully

depreciated within the same year. Depreciation begins when property is first introduced to an

income-producing activity, and ends when either the cost has been fully recovered or the

property is removed from service. Accelerated depreciation under the Accelerated Cost

Recovery System (ACRS) allows for the deduction of wear and tear faster than the property's

value actually declines. 26 U.S.C. § 168. Accelerated depreciation allows companies to claim

"Maps and Data Tables," New Markets Tax Credit Resource Center (Updated for 113th (2013-2014)

Cong. Districts), available at http://www.novoco.com/new_markets/resources/maps_data.php#target.

"Innovative use" refers to investments in unrelated Community Development Entities that do not have

NMTC allocations; target states identified by the CDFI Fund; inventory or equipment purchase, qualified

low-income community investments of $2 million or less, etc. "NMTC 2015 Allocation Application,"

Question 18, available at

https://www.cdfifund.gov/Documents/2015%20NMTC%20Application%20FINAL.pdf.

higher expenses and thus lower their short-term taxable income with higher interest savings on

investment returns.

Diverse categories of property are eligible for accelerated depreciation tax credits. Most

forms of real property such as buildings, machinery, or vehicles are depreciable; however, land is

not. Some forms of intangible property, like patents or computer software are also depreciable.

For a full list of property categories and recovery periods, see Appendix B of the Internal

Revenue Service's Publication 946 on How to Depreciate Property.55

The wide range of eligible property types coupled with the low tax rate on capital

investments serve as a strong incentive to engage in business projects in Indian Country. For

example, a non-Indian partner or tribal member enterprise could provide a loan to a qualified

CDE under the New Markets Tax Credit program to finance and retrofit the expansion of a

community or business facility. Wear and tear on the building, machinery used in construction,

vehicles purchased for the project, and other items would then be eligible for property

depreciation deductions. Consequently, the investor would benefit from the NMTC and the

accelerated depreciation income tax reduction for any property the investor owned that was

involved in the project. The broad applicability of the accelerated depreciation system and its

easy coupling with other tax incentives makes this a profitable addition to any business

partnership.

Clean Renewable Energy Bonds

Clean renewable energy bonds (CREBs) may be used to finance renewable energy

projects. CREBs differ from traditional tax-exempt bonds because CREBs tax credits are treated

as taxable income for the bondholder. The bonds work by substituting federal tax credits for a

portion of the traditional bond interest, which results in an ability to borrow at a 0% interest rate.

For new CREBs, issued after March 2010, a bondholder can choose to receive a direct

refundable tax credit equal to and in place of the non-refundable tax credit which would

otherwise be applied. 26 U.S.C. §§ 54(A), 54(C); IRS Notice 2010-35. While Congress limits

the volume of bonds available, CREBs may be issued to qualified public entities by tribal

governments, government entities, and certain lenders. Essentially, CREBs allow non-taxpaying

entities such as Tribes to borrow capital for making loans without paying interest. Issuers must

apply to the Internal Revenue Service for a CREBs allocation, and then issue the bonds within

three years.

In order to qualify for CREBs financing, a project must involve public sector renewable

energy production in a facility owned by a qualified borrower – a governmental entity, including

States and Tribal governments, or a mutual or cooperative electric company. Types of eligible

facilities include: wind, biomass, geothermal or solar energy, landfill gas, small irrigation power,

qualified hydropower, marine renewables, or municipal solid facilities. 26 U.S.C. §§ 54C(d)(1);

45(d).

It is important to note that a CREBs tax credit is not movable, meaning it must be used

within the year in which arises and cannot be carried forward to future tax years. The amount of

Available at https://www.irs.gov/publications/p946/ar02.html#en_US_2013_publink1000107772.

the tax credit cannot exceed the taxpayer's regular tax liability. The benefit, then, of holding a

CREBs tax credit is that it can be used to offset a holder's current-year tax liability on a dollarfor-dollar basis, in contrast to excluding interest from gross income.56 CREBs therefore has the

potential to reduce the financing challenges associated with renewable energy projects and attract

investors to undertaking such projects in diverse landscapes, including Indian Country.

Indian Employment Tax Credit

The Indian Employment Credit is intended to provide businesses with an incentive to hire

certain individuals living on or near a reservation. To qualify, an employee must be an enrolled

tribal member (or an enrolled member's spouse), who lives on or near the reservation, and

performs substantially all (greater than 50%) of his or her employment services within an Indian

reservation. 26 U.S.C. § 45A(c)(1). Certain restrictions exist that render an otherwise qualified

employee ineligible for tax credits. These include employees who earn an annual wage of more

than $30,000 (adjustable to reflect inflation), any 5% owner, services involving particular

gaming activities, and services performed in a building housing certain gaming activities. 26

U.S.C. § 45A(c)(2)-(5). Employers receive a credit equal to 20% of the total qualified wages and

qualified employee health insurance costs paid in the current tax year minus the total qualified

wages paid in the calendar year 1993. The aggregate amount of qualified payments taken into

account cannot exceed $20,000 per employee, which means that an employer could receive a

maximum credit of $4,000 per employee under this program.

The businesses themselves do not have to be located on a reservation to qualify for the

credit. Such flexibility in a business's physical location opens the tax credit to a relatively broad

application. So long as the majority of the employee's services are performed on an Indian

reservation, the employer can benefit from significant payroll savings. Outsourcing accordingly

becomes an attractive option for both specialized industries and general services. Moreover, the

credit can be claimed retroactively to 1994 and is renewable every year an eligible individual is

employed (pending congressional reauthorization of the tax extender overall). The Indian

Employment Credit represents an opportunity that should be marketed for its flexibility and

layering ability. The credit can easily be layered upon other incentives, such as the South

Carolina Wage Rebate or the federal New Markets Tax Credit, in order to increase a business's

profitability while simultaneously enhancing the economic growth of the Catawba Indian Nation.

Section 6. State and Local Tax Benefits/Credits

Tax credits and community development incentive programs have the potential to both

reduce an individual's tax liability and make business partnerships more profitable endeavors. In

the state of South Carolina, numerous tax incentive programs exist that may be interest to the

Catawba Nation, its non-Indian partners, and to individual tribal members enterprises.

Edwin Oswald and Michael Larsen, "An Explanation of Clean Renewable Energy Bonds," 1 (2006),

available at http://www.orrick.com/fileuploard/636.pdf.

South Carolina Motion Picture Cash Rebate Incentive

The South Carolina Motion Picture Incentive Act creates incentives for a motion picture

production company – i.e., "a company engaged in the business of producing motion pictures

intended for a national theatrical release or for television viewing"57 – to film all or part of its

project in-state, primarily through the use of cash rebates.58 S.C. Code Ann. §§ 12-62-10, 12-6220(4) (2004). There are no rebates available for unscripted productions or reality shows. The

South Carolina Film Commission will set up a meeting with members of the production team to

go over the available incentives in detail. Once the production company has completed all

production-related work in South Carolina (SC), a rebate check is distributed within thirty days

of the final audit and compliance check.

There are three main financial incentives for film production in South Carolina. First, a

30% Supplier Rebate is available based on total in-state expenditures obtained from SC vendors.

As a general rule, if the service is taxable in South Carolina, it qualifies. A pass-thru company

specifically set up to order out-of-state items does not qualify, and an order cannot come from a

SC vendor that has no relation to the company's customary stock. For example, a production

entity cannot obtain a lighting platform from a wardrobe supply shop and have it count as a

rebate expenditure. Internet orders do not qualify for supplier rebates. Second, a Wage Rebate

of 25% for all resident wages and 20% for non-residents—including all actors and stunt

performers—is available. The Wage Rebate is capped at the first $1,000,000 of earnings taxed

in SC per individual. And third, all productions that spend an in-state minimum of $250,000

within a 12-month period are exempt from state and local sales and use tax on supplies at the

point of purchase, including services and rentals of personal and real property. Eligibility for the

Supplier and Wage Rebates requires an in-state expenditure of at least $1 million in a single

taxable year, while the tax exemption requires in-state spending of at least $250,000.

In order to qualify for any of the incentives, the production company must complete a

Qualifying Motion Picture Application, which must be approved before in-state principal

photography begins. The application requires information concerning the "production company,

the production and its associated timelines, total anticipated expenditures, anticipated South

Carolina expenditures, and other pertinent information."59 If the application is approved for the

sales and use tax exemption and Wage and Supplier Rebates, the production company must then:

Limited traditional tax credits are available for certain categories of investors: (a) production companies

that produce qualifying commercials; for (b) investors that construct production or post-production

facilities; and (c) individual taxpayers who invest cash in the development of a single South Carolina

motion picture. See "Policies and Procedures," South Carolina Film Commission (1 June 2015),

available at http://www.filmsc.com/incentives/policies/default.aspx.

To qualify for the maximum amount of rebates, a production company must anticipate expenditures of

at least $1 million in South Carolina and be intended for national viewing. In the case of a TV series, the

production must be intended for national distribution and project a minimum spend of at least $1 million

per episode and $10 million in overall expenditures. See Incentives for Economic Development, SC

Department of Revenue 88-93 (2014), available at https://dor.sc.gov/resourcessite/publications/Publications/SC%20Tax%20Incentive%202014%20Edition-Web.pdf.

"Policies and Procedures," South Carolina Film Commission, at subsection "An Overview of the Act

and Incentives Available."

(1) Establish a staffed and functioning production office in South Carolina

within sixty days of signing the Incentive Agreement Letter, and;

(2) Maintain a functioning South Carolina production office until the

production's final Supplier Rebate request has been audited by the South

Carolina Film Commission.60

South Carolina's motion picture incentives enjoy a broad applicability. Because the

incentives operate as cash rebates and not as traditional tax credits, non-Indian partners, tribal

member enterprises, and even the Tribe itself will benefit from this program, provided the latter

is a tribally owned production studio. The only requirement is that the entity applying for the

incentive(s) be engaged in the business of producing motion pictures, defined as "feature-length

film, video, television series, or commercial[s]," and does not include the production of

television coverage of news or athletic events. S.C. Code Ann. § 12-62-20(3). The straightforward incentive requirements and relatively simple application of qualification make this

program an appealing avenue of economic development. As just one example, a non-Indian

partner would potentially be able to benefit from both the Federal Indian Employment Tax Credit

and the Wage Rebate incentive if the company for each Tribal Member employed as part of the

production crew or cast. In light of these considerations, the South Carolina Motion Picture

Incentive Act has the potential to start the film rolling on promising new partnerships with the

Catawba Indian Nation.

As an illustration, consider the benefits to area businesses that recent filming of the

Cinemax television series "Outcast" has brought to York and Chester counties. According to the

Rock Hill Herald, since production began in June 2015, the local economy has been energized by

over $2 million in expenditures, the use of 626 local South Carolina vendors (so far), local

purchases of approximately 35-50% of a production crew's expenses, and an average

employment of 150-175 crew members weekly.61 The show is set in Rome, West Virginia,

however, downtown Chester has doubled as Rome for most of the filming, with Rock Hill and

the surrounding areas serving as additional locations. Barbara D'Alessandro, a unit production

manager, noted that a deciding factor in choosing to film in South Carolina was the state's film

incentive program, offering Supplier and Wage Rebates and tax exemptions that made filming

here a lucrative enterprise – for both the production company and the local economy.

South Carolina Hospitality Fee

In York County, a 2% Hospitality Tax applies to the gross proceeds of sales of prepared

food and beverages sold in eating/drinking establishments – such as restaurants or hotel cafés –

located within the county's unincorporated areas. However, such businesses located within the

city limits of Rock Hill, Fort Mill, Tega Cay, Clover, and York are not required to submit the

county hospitality tax because their municipality is, at present, remitting the tax requirement. It

is important to emphasize that a hospitality tax is paid by the consumer of services and the

proceeds are used to develop tourism-related facilities and advertisements, as well as

Id.

See Don Worthington, "Filming of TV show 'Outcast' boosts Rock Hill businesses," The Herald,

October 30, 2015.

infrastructure providing access to tourist destinations – such as highways, bridges, streets, sewer

lines, or beach renourishment. S.C. Code Ann. §§ 6-1-700, 6-1-730 (1997).

Establishments and communities in unincorporated areas of York County can apply for

capital projects intended to expand tourism within the county. Priority in allocating funds from

the hospitality tax is given to projects that promote, among others, "[p]romote and highlight

York County's historic and cultural venues, recreational facilities, and events."62 York County's

Hospitality Tax Advisory Committee considers grant requests in the spring and reviews capital

expenditures in the fall.

The unique hospitality tax program set up in York County has the potential to benefit the

Catawba Nation and its partners. Applications for capital projects are open to any applicant that

has been in operation for at least one year before applying for capital funds to support tourism

development. This would include dining establishments, cultural facilities, or even Tribal road

construction projects, so long as the project is demonstrably related to expanding tourism.

Capital grants from the Hospitality Advisory Committee could offset the costs of infrastructure

development or facilities management and make doing business in Indian Country more

profitable. Thus, while the hospitality tax is not a tax credit per se, it has the ability to benefit the

Tribe and its business partners.

Additional Tax Credits and Incentives

In addition to the opportunities described above, South Carolina hosts numerous other tax

incentive programs that may be of interest to the Tribe. Of particular note are the Rehabilitation

of Certified Historic Structures tax credit, the South Carolina Abandoned Buildings

Revitalization Act, and the Community Development tax credit program, each of which is

described in brief below. As tax credits, however, the beneficiaries of these programs will be

non-Indian partners and tribal member enterprises and not the Tribe, as the Tribe is a non-taxable

entity that cannot benefit from a tax credit.

Rehabilitation of Certified Historic Structures

The income tax credit for making qualified rehabilitation expenditures on a certified

historic structure is intended to benefit property owners and preserve historic buildings in local

communities. To qualify, a taxpayer must satisfy the requirements of Section 47 of the Internal

Revenue Code (IRC), i.e., it must be a qualified rehabilitated building that was first placed in

service before 1936. 26 U.S.C. § 47(a)-(c). A certified historic structure is "any building (and

its structural components) which is listed in the National Register, or is located in a registered

historic district and is certified by the Secretary of the Interior…as being of historic significance

to the district." 26 U.S.C. § 47(c)(3)(A)-(B). The rehabilitation tax credit available for capital

expenditures is 10% for any qualified rehabilitated building other than a certified historic

"York County Hospitality Tax Grant Application – Capital Projects," York County Hospitality Tax

Program, YORK COUNTY GOVERNMENT (Jan. 16, 2015), available at

https://www.yorkcountygov.com/_fileUploads/files/York%20County%20Capital%20Projects%20Grant%

20Application%202015.pdf.

structure; and 20% of the qualified rehabilitation expenditures for any certified historic structure.

26 U.S.C. § 47(a)(1)-(2).

A South Carolina taxpayer who qualifies under the federal requirements is allowed to

claim a state credit against a combination of income taxes and license fees imposed by this title.

Subsequently, a taxpayer may choose a 25% tax credit instead of the 10% tax credit derived from

qualified rehabilitation expenditures, however, the value of the tax credit cannot exceed $1

million for each certified historic structure. S.C. Code Ann. § 12-6-3535 (9 June 2015). A

taxpayer who does not qualify for the federal income tax credit under Section 47 of the IRC is

nonetheless allowed to claim a credit of 25% of the rehabilitation expenses by submitting

documentation that a historic structure has been rehabilitated. Id. at § 12-6-3535(A)-(B).

Abandoned Buildings Revitalization Act

South Carolina also provides tax credits for the rehabilitation of an abandoned building in

order to encourage the restoration of such facilities into "productive assets" for local

communities. An "abandoned building" is a structure "at least 66% of the space in which has

been closed continuously to business or otherwise nonoperational for income producing purposes

for a period of at least five years immediately" before a "Notice of Intent to Rehabilitate" is filed.

S.C. Code Ann. § 12-67-120(1)(2013).

To qualify for this tax credit, a taxpayer must spend rehabilitation expenses of more than:

(a) $250,000 if the building is located in the unincorporated areas of a county with more than

25,000 people; (b) $150,000 for a building located in the unincorporated areas of a county with

at least 1,000 people; or (c) $75,000 for a building located in a municipality with a population of

less than 1,000 people. Id. at § 12-67-130(A)(1)-(3). A taxpayer can choose either a credit

against income taxes, corporate license fees, or taxes on associations (or a combination thereof),

or a credit against real property taxes imposed by local taxing entities. The amount of the tax

credit is scaled depending on the actual rehabilitation expenses incurred. The Abandoned

Buildings tax credit applies only to abandoned buildings that will be used for income producing

purposes, and not for construction of facilities such as educational institutions or family

residences.

Community Development Tax Credits

The South Carolina also supports the development of low-income communities through

partnerships under its Community Development Tax Credit program. The program allows a

taxpayer to claim a 33% credit against state income tax or bank tax for all amounts invested in a

community development entity. If the tax credit exceeds the taxpayer's liability to the state, the

difference can be carried forward for up to nine year from the date of the investment

contribution. To qualify for the tax credit, the community development entities must be certified

by the South Carolina Department of Commerce, and be either a: (a) Community Development

Corporation, a non-profit organizations focused on economic opportunity creation; or (b)

Community Development Financial Institutions, a non-profit, community-based financial

institutions.63 S.C. Code Ann. § 12-6-3530(2000). It is important to note that a fixed amount of

revenue of $5 million was dedicated to the tax credit, however, at present, that funding has not

yet been exhausted and is still available for credit distribution.

There are currently twenty-three certified community development entities in South Carolina, see

http://communitydevelopmentsc.org/uploads/Certified_Organizations_Addresses_with_Phone_Numbers_

10.3.pdf.

2120 L Street, NW, Suite 700

Washington, DC 20037

T 202.822.8282

F 202.296.8834

HOBBSST RAUS.CO M

Appendix 1

Catawba Economic Development and Taxation Considerations

Illustrative Scenario

On Reservation school equipment and supplies sales: possible mechanisms to address

School District fees and generate revenue

Issue: The Tribe is required to pay the local school district a fee in lieu of school taxes at

the same amount that out of district students pay. SC Code § 27-16-130(I). The Tribe

has not been able to meet these payment requirements and the school district has recorded

a substantial balance due from the Tribe.

Opportunity: The school district must pay sales taxes on equipment and supplies and is

looking for mechanisms to cut costs, such as possible on-reservation purchases of

supplies.

Considerations:



To establish a mutual benefit from this opportunity, the Tribe would need to

create a business or invite an existing business onto the Reservation under terms

that would allow for overall pricing of school equipment and supplies to be lower

than that available off-reservation.

The Tribe may not waive or otherwise reduce the applicable sales taxes for onreservation purchases because the special tribal sales tax must be set at the rate

that is equivalent to the off-reservation sales tax. SC Code § 27-16-130(H)(3).

Other mechanisms, however, may be available to the Tribe to offer lower

operating and sales costs by maximizing the other tax advantages available to the

Tribe so that a school equipment and supply vendor (most effectively operated by

the Tribe or a tribal corporation) could offer the school district savings while

generating revenue for the Tribe.

The savings and/or revenue generated could be designated by tribal resolution and

by compact or other agreement with the school district as a mechanism to pay,

reduce, or otherwise off-set the Tribe's financial obligations to the school district.

Potential Approaches and Applicable Tax Provisions:

(1) The Tribe or its Section 17 Corporation would take on the role as the vendor of

school equipment and supplies (so the income of the vendor is not subject to

federal or state income taxes). IRS Rev. Rul. 94-16, 1994-1 C.B. 19; SC Code §

27-16-130(C)(1).

HOBBS STRAUS DEAN & WALKER, LLP

WASHINGTON, DC | PORTLAND, OR | OKLAHOMA CITY, OK | SACRAMENTO, CA | ANCHORAGE, AK

(2) The operations of the school equipment and supplies business would be housed in

a building owned by the Tribe and located on trust lands (so it is not subject to

any real property taxes). SC Code § 27-16-130(D)(1).

(3) Alternatively, the Tribe could operate without a separate brick and mortar site;

provided that the sale of the equipment and supplies is made by the tribal

enterprise to the school district on Reservation lands (triggering the special tribal

sales tax to the exclusion of the state sales tax).

(4) The tribal enterprise, operating pursuant to a sales purchase agreement with the

school district, would accept orders from the school district for goods at a set

purchase price (total price plus special tribal sales tax). The tribal enterprise

would order the equipment and supplies from the vendor and arrange for the

product to be delivered to enterprise on the Reservation. The school district

would complete the purchase through payment to the tribal enterprise and by

picking up the goods or arranging for their delivery to the school district. Under

this scenario, the tribal enterprise would not be subject to federal or state income

taxes or any real property taxes. SC Code §§ 27-16-130(C)(1) and (D)(1).

(5) The Tribe or tribal business entity would own all personal property associated

with the school equipment and supplies business such as vehicles, computers,

cash registers, shelving, etc. (so that no personal property taxes would apply). SC

Code § 27-16-130(E)(1).

(6) The purchase of all items sold on the Reservation by the tribal school equipment

and supplies business would be subject to the special tribal sales tax, which the

Tribe will periodically receive from the State. SC Code §§ 27-16-130(H)(3) and

(H)(3)(b). No state sales taxes would apply.

(7) In estimating the revenue and/or profit the business would generate for the Tribe,

the Tribe has the advantage that both profit from the sale and revenue from the

special tribal sales tax would directly benefit the Tribe. Allocation of the receipts

of the special tribal sales tax would be designated under tribal law. The Tribe

could determine whether to remit a portion of those receipts to the business

enterprise, a portion to the school district fee and/or to other tribal government

purposes.

(8) A business plan incorporating these elements would be developed and analyzed to

establish the extent to which the Tribe or its corporation would be able to offer the

sales of school equipment and supplies to the school district at a lower overall

cost than would be available off-reservation. The plan would enable the Tribe to

determine whether the activity would generate sufficient revenues for the Tribe to

justify designating some portion to the payment of the school district fee.

(9) With regard to the purchase agreement between the Tribe and the school district,

the terms would include assurances that if the Tribe advances this approach that

the school district will purchase from the Tribe. The school district would likely

insist upon some terms in the agreement that would obligate the Tribe to dedicate

some portion of the revenue stream generated by the sales of school equipment

and supplies toward the payment of the school district fees. The Tribe could also

request terms in that agreement under which savings to the school district

attributed to on-reservation purchases would be credited to the Tribe's payment of

school district fees.

HOBBS STRAUS DEAN & WALKER, LLP

WASHINGTON, DC | PORTLAND, OR | OKLAHOMA CITY, OK | SACRAMENTO, CA | ANCHORAGE, AK

Additional considerations:

The most effective approach for this scenario would appear to be for the Tribe to

structure the activity so that the Tribe is operating both as the governmental entity that

receives the sales tax for the sale of school equipment and supplies while also being the

vendor selling those goods at a profit (as the Tribe or under a tribal corporation). This

arrangement could provide the Tribe with the ability to market school equipment and

supplies at a lower rate than other vendors who would have to price goods to meet all

costs and allow for a profit, since those vendors would not have the benefit that the Tribe

would of receiving any share of the sales tax proceeds.

On this last point, however, an alternative approach would be feasible where the Tribe

could entice an existing school equipment and supply company to locate a

store/warehouse on the Reservation (e.g., Staples or Office Depot). The Tribe would still

receive the tribal sales tax (a portion of which the Tribe could dedicate to paying school

fees). It could also help the vendor make pricing attractive to the school district

purchasers by offering the vendor favorable terms to occupy a tribal building through

some form of license that would not be subject to state tax. The Tribe could also consider

remitting a portion of the special tribal sales tax back to the vendor as some type of grant

encouraging its location on the Reservation. Additionally, if the discount on the products

is not in itself motivation for the school district to purchase there, the Tribe could agree to

dedicate a higher percentage of the tribal sales tax to paying the school fees in the

purchase agreement with the school district.

HOBBS STRAUS DEAN & WALKER, LLP

WASHINGTON, DC | PORTLAND, OR | OKLAHOMA CITY, OK | SACRAMENTO, CA | ANCHORAGE, AK

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.