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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, March 28, 2006

Cowan on Double Taxation in Indian Country

Pittsburgh_tax_review_4 Cowan Mark J. Cowan (Boise State University, Department of Accountancy) has published Double Taxation in Indian Country: Unpacking the Problem and Analyzing the Role of the Federal Government in Protecting Tribal Governmental Revenues, 2 Pitt. Tax Rev. 93 (2005).  Here is the Conclusion:

Indian tribes are caught between a Supreme Court that allows states to tax within their borders and a federal policy that tells them they are independent and must raise their own revenue. They are caught between a desire to be sovereign and a need to go to the federal government, yet again, for protection from the states. This Article has attempted to shed light on the double tax problem by revealing that it represents not just another economic headache for tribes, but also a genuine deviation from sound tax policy principles such as tax neutrality and horizontal equity. As such, our tax system should work just as hard ameliorating the double tax problem in Indian country as it does in the international or multistate contexts.

Compacting has worked effectively in some areas, but differences in bargaining power between the tribes and the states, evidence of unfair compacts, and continued tribal calls for relief show that the double tax problem is still with us. Before any federal action is taken, however, a detailed study of the current compacting process should be undertaken to identify problems in the negotiation process and to guide federal action.

Federal answers each have their own difficulty, and more radical ones such as outright preemption of state taxes in Indian country are unlikely to be enacted. Of all the possible solutions, perhaps the best is a more limited one-preemption of targeted taxes on specific activity that would encourage the tribes and states to work out their problems amongst themselves. This limited role may well be the best hope for resolving the double tax issue in Indian country and for starting to remove at least one aspect of the Indian differential that keeps Indian tribes from realizing their full economic potential.

In any case, this Article has revealed at least one certainty in this otherwise confusing area: A solution to the double tax problem will not come easily, and when it does arrive, it will not be perfect. But then, when it comes to mixing tax law and Indian law, nothing ever is.

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