McGirt decision raises issues of tribal taxation powers

It is now expected that the Five Tribes have greater power to levy taxes after the McGirt decision, but there are concerns about concurrent tax liabilities tribal citizens might face. 

TAHLEQUAH – While much attention has been given to division of criminal jurisdiction in the wake of the McGirt v. Oklahoma decision by the U.S. Supreme Court, there is also great uncertainty concerning revenue.

The case has opened questions about a tribe’s power of taxation, which Cherokee Nation Treasurer Tralynna Scott has discussed with the Tribal Council’s Executive & Finance Committee in recent months.

Telling the committee in November that the CN will always aggressively seek federal funding wherever available, Scott said the COVID-19 pandemic exposed some budget vulnerabilities that a “long-term solution” such as tribal taxation could address.

“I do think we are going to have to consider taxation,” Scott said. “We will have to exercise or taxation jurisdiction within our reservation. That will not happen overnight by any means. It requires a lot to set up those systems or functions.”

Taxation of CN citizens would most certainly follow an array of lawsuits. CN officials have said they don’t want Cherokees getting their paychecks double dipped by the CN and the state. If the CN were to assess an income tax, it would want its citizens exempt from state income taxes.

Though the McGirt decision concerned the Muscogee (Creek) Nation, it is widely assumed as applicable to each of the Five Tribes in Oklahoma – and perhaps other tribal governments. 

The state is unlikely to let Native taxpayers leave its revenue stream without a challenge, though the Oklahoma Tax Commission has suggested that a Native citizen earning income from a Native reservation would not be subject to state income taxes.

“There will be litigation over taxation issues on the reservations,” Scott said, adding that income, land and sales taxes were options and would need the approval of tribal councilors. “Where it gets tricky is with non-Natives or non-Cherokees earning their income on the reservation. That is where we’ll see the most litigation.”

Stacy Leeds, former CN Supreme Court justice, co-authored an abstract with Lonnie Beard of the University of Arkansas in the Tulsa Law Review. They wrote – and Scott also told committee members – of the “Bracker” analysis, which allows the possibility of concurrent tax jurisdiction. It would not apply to Cherokees on the Cherokee Reservation, but could be – and has been – applied to Natives when working or living on the reservation of a different tribe than their own.

The abstract is titled “A Wealth of Sovereign Choices: Tax Implications of McGirt v. Oklahoma and the Promise of Tribal Economic Development. It reads “…the Five Tribes will likely want to consider whether any new tribal taxes that may simply add to the tax burdens of those living and working within the reservation risk discouraging the economic investment and enterprise by nonmembers within the reservation.”

Another question raised in the abstract is whether a tribe’s sovereignty over its citizens has similar territorial limitations as those concerning non-citizens.

“That is, does the taxing jurisdiction of a tribe extend over only tribal citizen activity that occurs within areas under the territorial jurisdiction of the tribe, or does it extend also to tribal citizen activities that occur elsewhere?” the abstract asks.

The OTC released a report claiming lost tax revenue could amount to as much as $72.7 million per year if all Five Tribes reservations receive legal recognition, and that tribal citizens could request more than $200 million worth of state income tax refunds as a consequence.

In a Feb. 11 statement on the CN website’ attorney general section, regarding the McGirt ruling and taxation, Principal Chief Chuck Hoskin Jr. states the tribe’s reservation was never disestablished and that it’s the long-standing law of the land that the state cannot tax the income of tribal citizens who live on and derive their income wholly from sources of the CN reservation.

“My position is that this legal principle absolutely applies to the Cherokee Nation reservation and its citizens,” Hoskin states. “Although the law is clear, I anticipate future court decisions on this issue. I encourage Cherokee citizens to proceed carefully with respect to their own taxes on the advice of tax professionals. My administration will continue working to ensure that the Cherokee Nation reservation is protected from unlawful interference by the State of Oklahoma.”

To view the tribe’s FAQ section regarding McGirt and income taxation visit https://attorneygeneral.cherokee.org/media/yawem2rf/mcgirt-income-tax-faq.pdf