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There are many opportunities and advantages to building a business that serves Native American communities. This guides will address major considerations related to tribal law, tribal sovereignty, and differences in tax law.
Property located on tribal lands is subject to special rules for accelerated depreciation. This means that property located on tribal lands will depreciate faster when calculating asset-based taxes, saving the business more money in the long-term. In order to qualify, the property must meet the following conditions:
Used predominantly in to conduct business within a reservation.
Not used or located outside the reservation on a regular basis.
Not acquired from a person who is related to the taxpayer, whether through gift, inheritance, or sale.
Not used for conducting gaming activities.
There are additional benefits available in the form of direct tax credits related to the hiring of tribe members on tribal land, referred to as the Indian Employment Credit. Employers may gain a tax credit for employer expenses towards the first $20,000 of wages or healthcare benefits paid to an employee who is also a tribe member. In order to qualify, the employee must reside in the reservation and performs substantially all their duties within the reservation. This credit also applies to employees whose spouse is a qualifying tribe member.
Reservation-based investments are often able to access a type of tax incentive called New Market Tax Credit. A business project is likely to qualify if it is based in tribal lands and focuses its business on serving tribe members. This credit provides federal tax breaks to businesses that invest in job creation or community improvement for low-income communities. While there are more specific requirements from the IRS, any investments that qualify are subject to a 39% tax credit, claimed over 7 years.
There are some advantages that tribal citizens or tribe members can access that are not available to non-tribe members. One of the most significant differences:
The state government cannot tax the income of tribe members if their income or business originates from within tribal lands.
This includes both income taxes and property taxes. However, tribe members may be taxed by the state if their income or business comes from outside the reservation lands.
Additionally, there may be differences in qualification for governmental and third-party programs designed to empower and enable American Indian entrepreneurs. Examples include the Guaranteed Indian Loan Program, administered by the US government’s Bureau of Indian Affairs. Programs like these are designed to benefit business owners who are tribal members themselves.
Taxes imposed by the individual tribal government
Regulations on business imposed by the tribal government
Standards for tribal membership (which could affect qualification for many federal tax incentives)
Property laws regarding non-trust tribal lands
Tribal governments may issue tax-exempt bonds to businesses that perform essential adminstrative functions or social welfare activities.
Tribal governments may also issue private tax-exempt bonds in order to finance manufacturing facilities that meet the following requirements:
95% of the proceeds from the tax-exempt bond go towards the acquisition, construction, or improvement of the business's manufacturing facility.
95% of the proceeds from the bond go towards facilities located on tribal lands owned and operated by the tribe issuing the bond.
The total amount of the bonds financing the facility will not exceed 20 times the total wages paid by the facility in a year, starting two years after the bond is issued.
It's important to cooperate and work with tribal authorities to explore the available growth incentives to benefit the community. Many tribal governments will have resources available for business owners attempting to navigate various opportunities.