Sales and rental of construction equipment to contractors for use on Indian reservations in Connecticut.

• Author: Joseph, Douglas A.

The rise of Indian gaming facilities around the country has been accompanied by a steady stream of business for non-Indian construction contractors operating on Indian reservations. Two recent Connecticut administrative rulings (Sales and Use Tax - Ruling No. 95-11, 11/29/95; Corporation Income Tax - Ruling 95-12, 12/20/95) are instructional for tax advisers of non-Indian contractors building on Indian reservations anywhere in the U.S. Because the rulings rely on US. constitutional principles, other states with similar statutes may arrive at similar conclusions.

The sales tax ruling differentiates construction work on an Indian reservation from identical work on governmental or charitable property. The corporate tax ruling concluded that sales within state (the sales numerator for apportionment purposes) includes sales to an Indian reservation contained within the state's borders.

Sales and Use Tax

Ruling 95-11 summarized Indian state tax immunity as follows: "[T]he United States Supreme Court has consistently ruled that pursuant to the United States Constitution, article 1, section 8, states are without power to tax Indian reservations and the Indians on them without clear congressional authorization to do so." Sales and rentals of tangible personal property (1) directly to federally recognized Indian tribes or their members, (2) delivered to the tribe's reservation and (3) for exclusive use on the reservation are not subject to any state's sales or use tax. The ruling addressed how far this constitutional immunity extends. It should be noted that tide transfers or deliveries to Indian tribes or members outside a reservation may be subject to a state sales tax. Conversely, tide transfers and deliveries that take place on die reservation may be subject to a state use tax if the purchaser intended to use the item outside die reservation. States are not totally consistent on this point. Generally, die same treatment applies to leases/rentals as for sales, except that there is no tide transfer in leasing/renting. Instead, there is a delivery and taking of possession concept that controls the locality of sales or use tax jurisdiction.

Contractors are generally held to be the consumers of materials, tools, equipment and supplies purchased, leased or rented by them. Many states exempt materials that are physically incorporated into and become a component part of an exempt entity's real property, but tax all other contractor purchases. Ruling...