CHAPTER 4 LUNCHEON TALK TRIBAL TAXATION: THE PRACTICAL CONSIDERATIONS

• Jurisdiction: United States

Mineral Development On Indian Lands
(Feb 1989)
CHAPTER 4
LUNCHEON TALK TRIBAL TAXATION: THE PRACTICAL CONSIDERATIONS
Scott A. Taylor
University of New Mexico School of Law
Albuquerque, New Mexico

INTRODUCTION

One of an Indian tribe's inherent governmental powers is the power to tax both members and non-members.¹ The legal limitations of this tribal power to tax certainly will be the subject of future litigation. And the practical ability of each tribe to impose tribal taxes ultimately will depend on the economic activity taking place within tribal boundaries. Notwithstanding these legal and practical limitations, tribes should always try to make their tax systems the best they can be. Simple, efficient, and well-administered tax systems help both the tribe and the taxpayer. Tribes should consider the following advice.

FOLLOW ADAM SMITH'S FOUR TAX CANONS

Adam Smith (1732-90) was a Scotsman who founded the "classical" school of economics. His still-read classic, The Wealth of Nations, was published in 1776, the year the American Colonies declared their independence from Britain because of their dissatisfaction with the British taxation of the colonies without their representation in Parliament. Smith's Wealth of Nations contains a chapter that discusses taxation and that recommends the adoption of four canons: equity, certainty, convenience, and efficiency. Adam Smith's canons, if followed, do produce better tax systems.

1. Equity

EQUITY requires that similarly situated taxpayers should shoulder a comparable tax burden. In such a way, each taxpayer feels that he is paying his fair share, but no more than his fair share. For business taxpayers, equity is especially important to ensure that no taxpayer enjoys a competitive advantage. Such an advantage occurs if one of the taxpayer's competitors has to pay a higher tax for the same activity.

[Page 4-2]

In appropriate circumstances, the tax system should consider the application of vertical equity. Vertical equity means that wealthier taxpayers should pay proportionately more in tax than those taxpayers who are not so wealthy. For tribal business activity taxes, an exemption for small taxpayers may be appropriate because of a limited ability to pay. As these small taxpayers grow, they could then be made subject to the tax like the wealthier taxpayer. In this way, taxpayers with comparable abilities to pay are treated equally.

In some cases, unfair competition may not be a factor...