OTC rules Oklahoma can tax tribal citizens on their reservations
Oct. 19—The Oklahoma Tax Commission recently ruled the State of Oklahoma can tax tribal citizens living on their reservations, adding to the shock waves still reverberating in the wake of the Supreme Court's McGirt decision.
But many tribal officials believe that won't be the final word on the matter, and a number of legal experts say that while tribal citizens should pay federal taxes, they should be exempt from state levies.
"It's not surprising that the Oklahoma Tax Commission would reach a decision that would increase its ability to collect tax revenue, but the courts — and not the OTC — will ultimately decide these issues," said Cherokee Nation Attorney General Sara Hill.
The ruling was issued Oct. 4 in response to a taxpayer's protest of adjustments to her Oklahoma Resident Income Tax Returns for the 2017, 2018, and 2019 tax years, after her claims for Exempt Tribal Income Exclusion were denied.
According to Oklahoma Administration Code on this exclusion, the income of an enrolled member of a federally recognized Indian tribe shall be exempt from Oklahoma individual income tax when the member is living within "Indian Country" under the jurisdiction of the tribe to which the member belongs and the income is earned from sources within "Indian Country" under the jurisdiction of the tribe to which the member belongs.
Both parties in this matter agreed the taxpayer was employed from 2017 to 2019 by the Muscogee (Creek) Nation, of which she is also an enrolled member, so the point of dispute in this decision was whether she was living in "Indian County" under the jurisdiction of the Muscogee (Creek) Nation during these tax years.
The OTC said she was not.
During these years, the taxpayer lived within the boundaries of the Muscogee (Creek) Nation reservation — recently reaffirmed by McGirt, along with five other tribal reservations, including the Cherokee Nation, in eastern Oklahoma. But the OTC stated this land was personally owned and not part of "formal" or "informal" reservation held by the tribe.
"The Commission further finds that absent a decision by a court of competent jurisdiction holding that all lands within the McGirt defined boundaries of the Muscogee (Creek) Nation Reservation are exempt from taxation, the Commission does not have the authority to allow tribal members to claim the Exempt Tribal Income Exclusion because they may live and work within the McGirt defined boundaries," the OTC stated. " For the foregoing reasons, [the taxpayer's] income for these periods is fully taxable by the State of Oklahoma."
The OTC cited the recent Castro-Huerta Supreme Court decision in its ruling.
"The Castro-Huerta decision is important because it makes clear that the McGirt decision preempting state jurisdiction has very limited application, even in the scope of criminal matters, to a single federal law — the Major Crimes Act. And by its very language, the Major Crimes Act does not apply to taxation," the OTC stated. "Under Castro-Huerta, Oklahoma clearly has concurrent jurisdiction, even under the McGirt boundaries, unless otherwise preempted. There is no preemption for taxation established under McGirt, or otherwise."
