American Indian sales tax exemptions on lands

American Indian sales tax exemptions

The U.S. Constitution grants Congress the exclusive power to regulate “commerce with the Indian tribes,” a general term used to describe indigenous Native American groups. The federal government presently recognizes 562 American Indian tribes representing nearly 2 million individuals. The secretary of the interior oversees tribal reservations, and federal law exempts such lands from state and local taxes, including sales tax.

American Indian sales tax exemptions The scope of American Indian sales tax exemptions is presently the subject of a dispute between Florida’s Department of Revenue and the Seminole Tribe of Florida, a group of about 2,000 Native Americans with six reservations located throughout the state. The Seminole lease parts of their land to outside commercial businesses. The department’s executive director, Marshall Stranburg, argued these leases are subject to Florida’s 6% “transient rental tax,” a form of sales tax on commercial property. The Seminole replied federal law prevents Stranburg from requiring the tribe to collect such a tax.

On Sept. 5, 2014, U.S. District Judge Robert N. Scola, Jr., of Miami agreed with the Seminole and granted the tribe’s motion for summary judgment against Stranburg. Scola said the secretary of the interior’s regulations governing Indian tribes clearly prohibit a state from assessing any form of tax on the “permanent improvements” or “activities conducted” on restricted reservation lands, including leases to non-Indians. While acknowledging higher federal courts, including the U.S. Supreme Court, have not directly addressed this particular situation, Scola was confidant current law preempted Florida’s authority to collect sales tax on the Seminole leases.

Scola said the courts should defer to the secretary’s “comprehensive analysis” of the impact of state taxes on Indian tribes. Scola noted the Interior Department, through its Bureau of Indian Affairs, deals with tribes on a day-to-day basis and therefore understands the “chilling effect” Florida’s sales taxes could have on Seminole lands. At a minimum, such taxes reduce the amount of money available to the Seminole for the benefit of its members.

Scola also rejected the Department of Revenue’s efforts to tax the utility services provided to the Seminole. Florida assesses a 2.5% tax on the “gross receipts” of the delivery or sale of gas or electricity to a “retail consumer.” Scola determined that this was an “impermissible direct tax” on the Seminole Tribe, which could not be collected on any utilities delivered to reservation lands.

The Florida Department of Revenue may still appeal Scola’s decision to the U.S. Eleventh Circuit Court of Appeals in Atlanta.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

Voter control over local sales tax policy upheld in Alaska

local sales tax

local sales tax

Alaska local sales tax

Sales taxes range from 3% to 7.5% between the six cities of Alaska’s Kenai Peninsula Borough. A recent case over a seasonal exemption on groceries in certain general law cities in the borough upheld the voter’s right to amend sales tax policy through referendum.

Sales taxes may be assessed at multiple levels of government. In Alaska’s Kenai Peninsula, for example, the borough (county) government levies a 3% tax on all retail sales. But each of the six cities within the borough may add their own local sales tax, so the actual rate varies between 3% and 7.5%.

Alaska allows citizens to amend local laws through referendum. In 2008, Kenai Peninsula Borough voters approved Proposition 1, which exempts “nonprepared food” (groceries) from the borough sales tax during the nine-month period lasting September 1 to May 31. Normally this exemption would also apply to four of the six Kenai Peninsula cities, because their taxing power is directly tied to the borough. These are known as “general law cities” in Alaska. But prior to the referendum, the borough’s assembly adopted an ordinance permitting general law cities to maintain their own year-round sales tax on groceries.

In 2010, a Kenai Peninsula resident, James Price, moved to place a second referendum on the local ballot, this one repealing the ordinance restoring the general law cities’ year-round taxation power. The borough said the referendum could not proceed because it conflicted with the state constitution. A state superior court judge sided with the borough, but on August 8 of this year, the Alaska Supreme Court disagreed and reversed.

Justice Craig Stowers, writing for a unanimous court, rejected the borough’s view that Price’s proposed referendum violated a constitutional prohibition on using a referendum to approve or reject “local or special legislation”. The borough said the proposed repeal would only affect general law cities, yet everyone in the borough would be permitted to vote. Nonetheless, Stowers said, the sales tax question “is of borough-wide interest” and “affects all borough residents” who shop in the general law cities. Therefore it was not a “special or local” initiative as defined by state law.

Stowers also dismissed the borough’s claim the proposed referendum is “unenforceable” because it improperly transfers legislative powers from the elected borough assembly to the voters. The borough said only the assembly could “determine whether cities may tax sources not taxed by the borough.” Stowers said this flew in the face of both Alaska law and the state’s constitution, which “expressly empowers voters to nullify the exercise of legislative power by rejecting legislative acts.” The assembly, he said, could not restrict the voters’ rights to amend sales tax policy through referendum.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

Courts battle over wholesale or retail sales to fast food chains

wholesale or retail sales

wholesale or retail sales

Are disposable utensils sales tax exempt for fast food restaurants?

cutlery

Are disposable utensils considered
wholesale or retail sales when sold to fast food restaurants for use with prepared meals? Alabama courts found the sale was a retail transaction and later reversed the decision finding for the wholesale, tax free argument.

Sales tax is usually assessed at the retail level. Most states exempt wholesale transactions from sales tax. But distinguishing retail from wholesale can be problematic. An Alabama appeals court recently had to decide whether the sale of certain supplies to a chain restaurant constituted a final, retail sale or merely a wholesale transaction exempt from tax.

Kelly’s Food Concepts is a restaurant supplier based in Selma, Alabama. Its customers include popular national chains like KFC and Popeye’s. Kelly’s sells items including plastic utensils, napkins and straws to these restaurants.

In 2011, the Alabama Department of Revenue audited Kelly’s and determined the company failed to collect state and local sales taxes on the sale of these supplies. Kelly’s argued these were wholesale transactions exempt under state law. But in 2012, Bill Thompson, the department’s chief administrative law judge, said Kelly’s was incorrect. As he saw it, the restaurants did not “resell” the utensils or napkins to their customers, but rather provided them free with the purchase of food. Relying on a 1984 decision by New York’s highest appeals court, Thompson said only items necessary to package the food should be considered part of the sale. Furthermore, under a prior Alabama appeals court decision, additional items like utensils must be factored into the price of the food. Thompson said Kelly’s presented no such evidence that was the case here; therefore it was liable for uncollected retail sales taxes on its sales of utensils, napkins and straws.

An Alabama Circuit Court judge later reversed Thompson’s decision and held “the purpose of the sale of cutlery and tableware … to the restaurants was for the restaurants to include the items with food and drink the restaurants sold to their customers.” These were, in fact, wholesale transactions not subject to sales tax. The department of revenue appealed this decision.

On June 20 of this year, the Alabama Court of Civil Appeals upheldthe circuit judge’s decision. Presiding Judge William C. Thompson, writing for a unanimous court, said when a restaurant sells “prepared food” to the public, that includes any cutlery or tableware. They are “critical elements of the food and drink items sold by the fast-food restaurants to their customers, and, thus, [Kelly’s], as a wholesaler, is neither liable for nor required to collect sales tax from the fast-food restaurants.” The sales tax is properly collected by the restaurant when the customer buys a meal.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

U.S. Supreme Court to consider whether a sales and use tax CSX

tax discriminates

tax discriminates

CSX versus Alabama Department of Revenue

The U.S. Supreme Court will re-hear a case between the Alabama Department of Revenue and CSX Transportation. The railroad disputes Alabama’s policy of charging them but not their competitors the state’s 4% sales and use tax on diesel fuel.

Before adjourning for the summer, the U.S. Supreme Court agreed to hear an important sales and use tax case when it returns in the fall. This will actually be the second time the justices address a dispute between the Commissioner of the Alabama Department of Revenue and CSX Transportation, one of the nation’s largest railroad companies. In 2011, the Court reinstated CSX’s lawsuit challenging Alabama’s policy of charging the railroad, but not its competitors, a 4% sales and use tax on diesel fuel. CSX subsequently won its challenge before the lower courts, so now Alabama has asked the Supreme Court to reverse in its favor.

Although sales and use taxes are normally a state matter, the federal Railroad Revitalization and Regulatory Reform Act of 1976 (known as the 4-R Act) preempts a state from imposing any “tax that discriminates against a rail carrier.” CSX’s complaint here is Alabama’s 4% sales and use tax does not apply to either interstate water carriers—who are exempt under a 1959 state law—or trucking companies that purchase fuel for road vehicles, which instead pay a 19¢-per-gallon tax on diesel fuel. CSX argues these exemptions amount to illegal discrimination under the 4-R Act.

The lower courts initially dismissed CSX’s lawsuit on the grounds the 4-R Act could not be used to challenge “exemptions” to a general sales tax law. Three years ago, the Supreme Court rejected that argument and said the lawsuit could proceed. A majority of the Court did not take a position on whether CSX proved Alabama’s rules were discriminatory. Two justices, Clarence Thomas and Ruth Bader Ginsburg, wrote in a separate opinion they believed Alabama’s rules did not violate the 4-R Act.

Thomas and Ginsburg said a tax discriminates only if it “targets or singles out railroads as compared to other commercial and industrial taxpayers.” Alabama endorses this approach. CSX argues a tax discriminates if it favors a “railroads’ competitors.” The 11th U.S. Circuit Court of Appeals adopted this view in its July 2013 ruling for CSX, which is now before the Supreme Court. The Obama Administration also weighed in, at the Court’s request, and said the justices should consider whether “other aspects of the state’s tax scheme” might justify the disparate tax treatment afforded railroads.

The Supreme Court will hear oral arguments from all parties when its new term begins this October. A final decision is expected by early 2015.

S.M. Oliva is a writer living in Charlottesville, Virginia. He edits the international legal blog Bonham’s Cases.

Minnesota telecom & TV equipment tax exemption in effect

Equipment tax exemption

Equipment tax exemption

Minnesota issued an equipment tax exemption for machinery used in telecommunications or pay television services, effective April 1. The legislation, signed by Governor Mark Dayton, states that the equipment must be sold primarily at retail to the end user, a contractor or a subcontractor.

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