Tribal entrepreneurs frequently have only one avenue to charter a business, be it a sole proprietorship, corporation or limited liability company: state incorporation. That is because many tribal governments still do not have business structures laws or incorporation regimes in place. The problem with state incorporation of a tribal member-owned business, though, is that a state charter is the first thing a state tax collector will cite when attempting to tax the business. An Indian business' state incorporation should not matter. The U.S. Supreme Court has rejected the notion that state taxation arises from the form in which a tribal party chooses to conduct its business. Mescalero Apache Tribe v. Jones, 411 U.S. 145, 157 n.13 (1972). In Pourier v. South Dakota Dept. of Revenue, 658 N.W.2d 395, 405 (2003), a state supreme court explained:
Congress’ primary objective in Indian law for several decades has been to encourage tribal economic independence and development. By finding that incorporation under state law deprives a business of its Indian identity, we would force economic developers on reservations to forgo the benefits of incorporation in order to maintain their guaranteed protections under federal Indian law. This could hinder economic development.
State taxation or other regulation of tribal member businesses most certainly hinders -- it is in fact anathema to -- Indian economic development. Again, though, an Indian's state business charter becomes the proverbial Exhibit A in a state's case to tax or otherwise regulate the business. In fact, it may be all a state tax collector needs to assess the Indian business, deferring the (il)legalities until later, meaning when the business will find itself enmeshed in a costly tax litigation battle.
Section 17 of the Indian Reorganization Act, 25 U.S.C. § 461 et seq. (1934), provides that “[t]he Secretary of the Interior may, upon petition by any tribe, issue a charter of incorporation to such tribe . . . .” 25 U.S.C. § 477. Although the title of the IRA states that the statute was intended “to extend to Indians the right to form business and other organizations” (48 Stat. 984), and Section 19 defines an “Indian” as “all persons of Indian descent who are members of any recognized tribe now under Federal jurisdiction" (25 U.S.C. § 479), Interior takes the position that Section 17 itself mandates that charters only be issued to a “tribe” and not any tribal member.
That position, though technically correct perhaps, is myopic. It remains Congress’ primary objective relative to Indian Country to encourage tribal economic independence and development (at least on paper). As such, the Obama Administration, especially given its current campaign to protect the American middle class, should support legislation that would allow tribal member entrepreneurs to incorporate, while maintaining their guaranteed protections under federal Indian law to be free of state interference.
A narrow amendment to Section 17 that would allow Indian persons to federally charter businesses in fulfillment of the law's expressed intent, rather than incorporate under state law and thereby risk destruction via state taxation and other regulation -- yes, certainly easier said than done in this political moment -- should be proposed by the Obama Administration and considered by the Congress.
Gabriel "Gabe" Galanda is a partner at Galanda Broadman PLLC, of Seattle, an American Indian owned law firm. He is an enrolled member of the Round Valley Indian Tribes of Covelo, California. He can be reached at 206.691.3631 or gabe@galandabroadman.com.
