Appeal of Robert and Ruby Johnson
Jul 24, 2012OUTCOME: CA Franchise Tax Board Concede Case and Withdrew Tax Assessment
Mr. and Mrs. Johnson are Native Americans. They live on their Indian Reservation and work on their Reservation. As such, their income is tax-exempt. Nonetheless, the CA Franchise Tax Board attempted ... to tax my clients' income on the basis that Mrs. Johnson was getting paid by a federally funded hospital in the reservation and therefore that income was not derived from an Indian Reservation. I argued this case before the Board of Equalization and the CA FTB ultimately conceded the case and withdrew the tax assessment on my clients. As a result, the CA FTB has published revised information regarding reservation source income. It can be found at: https://www.ftb.ca.gov/individuals/Native_Americans/Reservation_Source_Income.shtml An excerpt is reproduced below: FTB’s clarification and recent decision In response to several recent court cases and questions, we examined the issue of whether “reservation source income” should be interpreted as income paid by any employer (public or private) and earned by a tribal member while that member is physically located within the geographic borders of the reservation, or more narrowly limited to income earned on the reservation and paid only by a tribal payer. After reviewing legal authority, we determined that income earned for services performed on the reservation by tribal members who live on their tribe’s reservation is tax-exempt, whether it is paid by the tribe or by a third party. The FTB also updated FTB Form 674 - Income Taxation of Native Americans to clarify that income earned for services performed on the reservation by tribal members who live on their tribe’s reservation is tax-exempt, whether it is paid by the tribe or by a third party.
