Indian tribes are sovereign governments recognized by the U.S. Constitution, laws and treaties. Tribal governments, like state governments, are not subject to taxation by the federal government, because governments do not tax other governments. (Please see Tribal Governments for more information.)
Taxation of Tribal Government Gaming
Just like local, state and federal governments, tribal governments are not taxed on the revenue they generate. Rather, their duty is to provide healthcare, education and social programs on the reservation, the same basic services that other governments are charged with providing. Revenues earned on the reservation help to support and build infrastructure such as housing, electricity, water and other basic services.
The federal government is responsible, along with tribal governments, for the health, education and welfare of Indian people, just as it shares responsibility with state governments, for the health, education and welfare of the citizens of each state. If the IRS taxed tribal gaming income, it would only mean that the burden for providing tribal government programs that the gaming revenues provide would be shifted to the federal government and all U.S. taxpayers.
If tribal members live on the Pechanga reservation, they pay no state income tax. Individual Pechanga tribal members pay federal income tax. Pechanga tribal members living off the reservation also pay all of the same taxes as other California residents. Just as the federal government does not tax state government lottery income, it does not tax tribal government gaming income.
Gaming Revenues for Governmental Purposes and Benefits to Nonnative Neighbors via Taxation
The Indian Gaming Regulatory Act of 1988 (IGRA) requires tribes to use gaming revenues for governmental purposes. All tribal gaming revenues must be used as required by IGRA for:
- tribal government programs,
- the general welfare of the tribe and its members,
- economic development,
- charitable purposes
- and assisting in funding programs of local agencies.
Tribal decisions to use part of such revenues for individual payments to members must first be approved by the Secretary of the Interior. Since individuals pay federal taxes, the federal government taxes any gaming funds not being used directly for tribal government programs.
Revenue for Governmental Services to Tribal Members
Revenue from tribal economic development enterprises, including tribal gaming, is used to provide needed governmental services to tribal members. Just as state governments use income from lotteries and other economic development enterprises for the public good, tribal governments use gaming dollars for a variety of governmental purposes, including health, housing, education, welfare, community services, judicial and law enforcement services, day care and elderly services, job training and governmental infrastructure, as well as construction of facilities, such as clinics, schools, office buildings and roads. Tribal governments also give a substantial portion of gaming revenues each year to charitable contributions that benefit neighboring communities and nonprofit organizations.
Paying Federal Taxes— and State Taxes, too.
Like every other United States citizen, individual Indian people are subject to federal income tax on all income, no matter how it is earned. If Indian people receive income from gaming because of tribal membership, that income is fully taxable. Indian people are very often subject to state income tax too, depending on whether they live on or off a reservation, and whether the source of the income is tribal or not. Tribal employers pay all required Federal and State Employer taxes.
Reservations: Federal Lands Held in Trust
State and local governments have no taxing authority over federal land, whether military bases, national parks, forests or other lands, such as Indian reservations. Indian reservations are federal lands held in trust for Indian Nations governed by tribal governments, in accordance with applicable federal law.
Gaming Players Paying Taxes
The Internal Revenue Service requires that all patron's with winnings at or above $1,200 on a slot machine file a W2-g on their tax return. Tribal gaming operations are subject to Title 31 of the Federal Bank Secrecy Act, which was made applicable to all tribal gaming facilities in 1994.