[Senate Hearing 112-619]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 112-619

  STATE AND FEDERAL TAX POLICY: BUILDING NEW MARKETS IN INDIAN COUNTRY

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON INDIAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 8, 2011

                               __________

         Printed for the use of the Committee on Indian Affairs










[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]











                  U.S. GOVERNMENT PRINTING OFFICE

75-356 PDF                WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001






                      COMMITTEE ON INDIAN AFFAIRS

                   DANIEL K. AKAKA, Hawaii, Chairman
                 JOHN BARRASSO, Wyoming, Vice Chairman
DANIEL K. INOUYE, Hawaii             JOHN McCAIN, Arizona
KENT CONRAD, North Dakota            LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            JOHN HOEVEN, North Dakota
MARIA CANTWELL, Washington           MIKE CRAPO, Idaho
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
TOM UDALL, New Mexico
AL FRANKEN, Minnesota
      Loretta A. Tuell, Majority Staff Director and Chief Counsel
     David A. Mullon Jr., Minority Staff Director and Chief Counsel
















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on December 8, 2011.................................     1
Statement of Senator Akaka.......................................     1
Statement of Senator Barrasso....................................     3
Statement of Senator Franken.....................................     1
Statement of Senator Tester......................................     3
Statement of Senator Udall.......................................     3

                               Witnesses

Gunn, Steven J., Attorney/Professor of Law (Adjunct), Washington 
  University in St. Louis........................................    14
    Prepared statement...........................................    15
Leecy, Hon. Kevin W., Chairman, Bois Forte Band of Chippewa 
  Indians........................................................     4
    Prepared statement...........................................     6
Ortego, Peter, General Counsel, Ute Mountain Ute Tribe...........     7
    Prepared statement...........................................     8

                                Appendix

Black Eagle, Hon. Cedric, Chairman, Crow Tribe, prepared 
  statement......................................................    25

 
  STATE AND FEDERAL TAX POLICY: BUILDING NEW MARKETS IN INDIAN COUNTRY

                              ----------                              


                       THURSDAY, DECEMBER 8, 2011


                                       U.S. Senate,
                               Committee on Indian Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 3:40 p.m. in room 
628, Dirksen Senate Office Building, Hon. Daniel K. Akaka, 
Chairman of the Committee, presiding.

          OPENING STATEMENT OF HON. DANIEL K. AKAKA, 
                    U.S. SENATOR FROM HAWAII

    The Chairman. I call this meeting of the Committee on 
Indian Affairs to order.
    Welcome to this oversight hearing on State and Federal Tax 
Policy: Building New Markets in Indian Country.
    Before I proceed with my statement, I would like to ask 
Senator Franken for any comments.

                 STATEMENT OF HON. AL FRANKEN, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Franken. Thank you. I appreciate that, Mr. 
Chairman, first of all that you are holding this hearing, and I 
thank the Co-Chairman, and I thank you for allowing me to make 
a brief opening statement, because we have a great chairman 
here, Kevin Leecy of Bois Forte. I just want to be able to say 
a few words about this topic and about their Band and about the 
chairman.
    As we continue to look for ways to support economic 
development in Indian Country, it is critical that we examine 
the role of State and Federal policy. When designed well, tax 
incentives can work to bring new businesses and jobs to low 
income communities, including to Indian Country. But 
overlapping, conflicting and unclear tax policies can stifle 
economic development. In short, bad tax policy can handcuff a 
Tribal government's ability to provide even the most basic 
services to their communities.
    It is easy to become discouraged when talking about the 
many obstacles to economic development in Indian Country. That 
is why I think it is also important to look at the success 
stories. I want to thank Mr. Chairman for inviting Chairman 
Leecy from Bois Forte to testify today. As I mentioned during 
last week's hearing, I have visited Bois Forte and seen first-
hand how economic development can transform a community.
    In 1997, the Bois Forte Reservation Tribal Council assumed 
full responsibility for the delivery of all government programs 
and services to its 3,000 members. The Tribal Council has 
worked tirelessly to strengthen the region's economy and 
increase job opportunities for Band members, all while 
preserving a strong sense of community and respect for 
traditions.
    Since first being elected chairman in 2004, Kevin Leecy has 
worked to diversify the Band's resources. In addition to the 
Fortune Bay Resort Casino and the Bois Forte Wild Rice Company, 
the Band now owns and operates a golf course, a radio station, 
convenience store, and a manufacturing company. The Band has 
also made numerous investments in education, housing, health 
care and infrastructure to serve the needs of the community.
    Chairman Leecy, thank you for your leadership and for 
coming today. Unfortunately, as I told you before the business 
meeting, I am unable to stay for the hearing. But I want to 
thank both witnesses for being here, and I also will submit 
questions in writing for the record. And I really thank the 
Chairman for allowing me to make these opening remarks. Thank 
you.
    The Chairman. Thank you very much, Senator Al Franken.
    In these difficult economic times, there has been a lot of 
discussion about how to improve our Federal and State tax 
policies. Some tax policy has the potential not only to sustain 
local economies, but to help them grow into vibrant job 
creators. This is especially true for Tribal communities who 
have disproportionately found themselves suffering the worst in 
the American economy. For tribes, double digit unemployment has 
been the norm for generations, not the exception.
    Today we will examine important Federal tax policies 
designed to promote economic development and drive job growth 
in Tribal communities. We will hear from Tribal witnesses today 
who have taken advantage of these Federal tax incentives and we 
will hear about tribes that use them to support their local 
economies. Some of those tax policies will expire at the end of 
this year if Congress does not act to extend them.
    We also will hear today about the role of the State 
taxation on Tribal economic development. Many tribes find it 
difficult to attract capital, sell goods and grow other 
enterprises when States attempt to tax their economic activity. 
Our witnesses will highlight some of these challenges, but also 
identify solutions in working with States to ensure vibrant 
Tribal economies that support their own members as well as 
enrich the economies of their neighboring communities.
    I look forward to hearing about the impact these policy 
issues have on our Tribal communities, as well as identifying 
promising practices in working with our State and Federal 
partners to remove barriers to Tribal economic development.
    Senator Barrasso, any statement that you may have, you may 
proceed at this time.

               STATEMENT OF HON. JOHN BARRASSO, 
                   U.S. SENATOR FROM WYOMING

    Senator Barrasso. Thank you very much, Mr. Chairman. I 
think you said it so very well, in the summary that you have 
just given, that I will keep my opening statement very brief so 
we can hear from our witnesses.
    This Committee has been hearing from Indian Country for a 
long time about the effects of taxation on Indian reservations. 
The tax issues came up last Congress, when Senator Dorgan 
introduced his energy bill. And several tribes raised the 
issues again this year, Mr. Chairman, when you and I worked 
together on S. 1684, the energy bill that I introduced and you 
were gracious enough to co-sponsor.
    So it is clearly an important economic development topic 
for the tribes, and it is one that we should look at very 
carefully. This oversight hearing will give Tribal 
representatives a formal stage to share their concerns with the 
Committee, and I thank you, Mr. Chairman, for making this all 
possible. Thank you.
    The Chairman. Thank you very much. Are there any other 
Senators with opening statements? Senator Tester.

                 STATEMENT OF HON. JON TESTER, 
                   U.S. SENATOR FROM MONTANA

    Senator Tester. Thank you, Mr. Chairman.
    We just passed the SAVE Native American Women Act out of 
this Committee. That is dealing with violence on one level. 
Dealing with violence on another level is dealing with it 
economically. The fact is, when you have poverty and you have 
cycles of poverty, the prevalence of violence is much, much 
higher.
    So what I would ask the witnesses for is what really works. 
We are at a time where we have to save some dough, but at the 
same time, we have to spend some money, too. So how do we spend 
it, and how do we spend it smartly to get the most bang for the 
buck in Indian Country? I can tell you, there are a lot of 
challenges out there. With challenges come opportunity and 
there is an incredible amount of opportunity, and there may be 
some things that we can do outside this bill, outside the tax 
code, that will also help. And we would appreciate those 
suggestions, too, at least from that perspective.
    Thank you both for being here. I appreciate your time, and 
appreciate your willingness to come to Washington, D.C. I look 
forward to your testimony.
    The Chairman. Thank you very much, Senator Tester.
    Senator Udall?

                 STATEMENT OF HON. TOM UDALL, 
                  U.S. SENATOR FROM NEW MEXICO

    Senator Udall. Thank you, Chairman Akaka, and once again, 
thank you for holding this hearing and focusing on this issue, 
which I think is important to all of the Native community.
    As my colleagues have said, this is an important issue for 
all of us. I am pleased we are here today to raise awareness 
about the need for improving tax policy affecting Indian 
Country. This year, taxes have been a popular subject to talk 
about, and we have all heard about possible tax code reform. 
Like you, I want to make sure in any piece of legislation that 
moves forward, it addresses the needs of Indian Country. It is 
not an area we can afford to ignore, and it deserves a place in 
every discussion.
    In New Mexico, we are the most familiar with the New 
Markets Tax Credit Program. It has been a real success, and has 
in recent years made strides in reaching Native communities.
    I would like to take a moment to highlight some of the 
recent awards that have gone to Tribal entities, like Isleta 
Pueblo Housing Authority, the Laguna Housing Development and 
Management Enterprise, and the San Juan Tribal Council. This 
program is making a real difference in the lives of Native 
Americans in New Mexico.
    Please be assured that I will work with the Committee to do 
everything I can to make sure that we are including the tax 
provisions important to Indian Country, especially the NMTC, in 
any tax legislation.
    With that, Chairman Akaka, I would yield back and look 
forward to hearing from the witnesses.
    The Chairman. Thank you very much, Senator Udall.
    With that, I welcome our witnesses. I appreciate that you 
have all traveled to be with us today and look forward to 
hearing your testimony on this very important matter.
    I ask that you limit your oral testimony to five minutes. 
Your full written testimony will be included in the record.
    Also, the record for this hearing will remain open for two 
weeks from today, so we welcome written comments from any 
interested parties. So thank you all for considering that.
    I would like now to welcome our first panel, the Honorable 
Kevin Leecy, Chairman, Bois Forte Band of Chippewa Indians; and 
Mr. Peter Ortego, General Counsel of the Ute Mountain Ute 
Tribe. Chairman Leecy, please proceed with your remarks.

  STATEMENT HON. KEVIN W. LEECY, CHAIRMAN, BOIS FORTE BAND OF 
                        CHIPPEWA INDIANS

    Mr. Leecy. Aloha. Good afternoon. I am Kevin Leecy, I am 
the Tribal Chairman of the Bois Forte Band of Chippewa in 
Northern Minnesota. I am pleased to provide testimony today on 
important issues that impact the ability of Indian tribes to 
finance development within their reservations.
    It is my understanding that the Committee is interested in 
hearing from Indian Country about Tribal experience with New 
Market Tax Credits and the tax incentives associated with 
accelerated depreciation and employment tax credits.
    Bois Forte was able to access the New Market Tax Credits 
program at a time when it was absolutely necessary to find a 
source of affordable financing. In the summer of 2009, our 
Tribal government building was burned to the ground by arson. 
It was a total loss and there was no place for Tribal 
government to work. Because we needed to continue to provide 
the services to our Tribal citizens, we immediately began to 
search for ways to finance the new Tribal government building.
    We decided that the New Market Tax Credit program promised 
to be a vital part of that financing. We used a loan from 
another Tribe, grants and our own resources to put the New 
Market Tax Credit program in place. As a result, we were able 
to plan, design and construct the new building in one year. We 
moved into our new Tribal government and community services 
center in August of 2010.
    Some observations of the New Market Tax Credit program, 
number one, is we could not have financed the projected without 
it. Two, although it is a complex process, both in financial 
structure and in terms of ongoing compliance, the fees were 
less than 2 percent of the overall project, and it was an 
affordable way to finance the project.
    Number three, the program reduced the cost of borrowing for 
a project that some lenders have usually considered to be too 
high of a risk and short on collateral, because it was located 
on Tribal trust land within the reservation.
    I urge Congress to reauthorize the New Markets Tax Credit 
program so that it remains accessible to Indian tribes 
throughout the Country. My reasons for supporting an extension 
include: New Market Tax is a program that has worked in Indian 
Country. For many tribes, they are just now learning about it. 
For example, Bois Forte hosted a delegation from the Red Lake 
Nation this summer and made a presentation on how it worked for 
us. In addition, the Fond du Lac Band of Lake Superior Chippewa 
followed our example of New Market success to finance a natural 
resources building.
    I foresee great opportunities in Indian Country if this 
program continues to be available.
    The New Market Tax program does not need to be reformed to 
continue to be successful in Indian Country. It will succeed 
because tribes are now in a better position to use this 
program.
    This Committee can help make the New Markets program even 
more successful if it encourages Executive Branch agencies to 
use this program to make their dollars go further. I believe 
that some agencies have the legal authority to re-lend into New 
Market structure, but have been reluctant to do so, simply 
because it is new to them. But if there is no statute or 
regulation that prevents participation by an agency, I hope 
they will embrace the possibilities presented by New Markets 
Tax Credits.
    The New Markets program is vital in Indian Country because 
more traditional lenders shy away from loans on trust land. 
When a lender knows that it cannot foreclose and sell the 
property in the event of default, the risk goes up and so do 
interest rates. Our experience was that the New Markets program 
provided the flexibility investors needed to make the project 
possible on trust land.
    Finally, I believe that the accelerated depreciation and 
employment tax credits should also be extended by Congress. 
Although we have not had specific instances at Bois Forte in 
which employers have taken advantage of those programs, 
entities that consider locating on reservations always ask for 
a list of advantages of doing business on the reservation. The 
existence of those programs may just make the difference for a 
new or expanding business and tip the scale in our favor.
    In short, we need to make every effort to develop 
reservation economies and those tools should include to 
continue to be available. So again, we support and wish to see 
that continued.
    Thank you very much.
    [The prepared statement of Mr. Leecy follows:]

Prepared Statement of Hon. Kevin W. Leecy, Chairman, Bois Forte Band of 
                            Chippewa Indians
    Good afternoon. I am pleased to provide testimony today on 
important issues that impact the ability of Indian tribes to finance 
development within their Reservations. It is my understanding that the 
Committee is interested in hearing from Indian country about tribal 
experience with New Markets Tax Credits and the tax incentives 
associated with accelerated deprecation and employment tax credits.
    Bois Forte was able to access the New Markets Tax Credit program at 
a time when it was absolutely necessary to find a source of affordable 
financing. In the summer of 2009 our tribal government building was 
destroyed in a fire set by an arsonist. It was a total loss and there 
was no place for tribal government to work. Because we needed to 
continue to provide services, we immediately began to search for ways 
to finance a new tribal government facility. We decided that the New 
Markets Tax Credit program promised to be a vital part of the 
financing.
    We used a loan from another Tribe, grants, and our own resources to 
put the New Markets Program in place. As a result, we were able to 
plan, design and construct the new building in about a year. We moved 
into our new Tribal Government and Community Services Center in August 
of 2010.
    Some observations of the New Markets Tax Credit program:

        1.  We could not have financed the project without it.

        2.  Although it is a complex process both in financial 
        structure and in terms of on-going compliance, the fees were 
        less than 2 percent of the overall project and it was an 
        affordable way to finance the project.

        3.  The program reduced the cost of borrowing for a project 
        that some lenders have usually considered to be high on risk 
        and short on collateral because it was located on tribal trust 
        land within the Reservation.

    I urge the Congress to re-authorize the New Markets Tax Credit 
program so that it remains accessible to Indian tribes throughout the 
country. My reasons for supporting an extension include:

   New Markets is a program that has proven to work in Indian 
        country, but many tribes are just now learning about it. For 
        example, Bois Forte hosted a delegation from the Red Lake 
        Nation this summer and made a presentation on how it worked for 
        us. In addition, the Fond duLac Band followed our example of 
        New Markets success to finance a natural resources building. I 
        foresee great opportunities in Indian country if the program is 
        available.

   The New Markets program does not need to be reformed to 
        continue to be successful in Indian country. It will succeed 
        because Tribes are now in a better position to use the program.

   This Committee can help make the New Markets program even 
        more successful if it encourages Executive Branch agencies to 
        use this program to make their dollars go further. I believe 
        that some agencies have the legal authority tore-lend into the 
        New Markets structure but have been reluctant to do so simply 
        because it is new to them. But if there is no statute or 
        regulation that prevents participation by an agency, I hope 
        they will embrace the possibilities presented by New Markets.

   The New Markets program is vital in Indian country because 
        more traditional lenders shy away from loans on trust land. 
        When a lender knows that it cannot foreclose and sell the 
        property in the event of default, risk goes up and so do 
        interest rates. Our experience was that the New Markets program 
        provided the flexibility investors needed to make the project 
        possible on trust land.

    Finally, I believe that the accelerated depreciation and employment 
tax credits should also be extended by Congress. Although we have not 
had specific instances on our Reservation in which employers have taken 
advantage of those programs, entities that consider locating on 
reservations always ask for a list of advantages of doing business on 
the reservation. The existence of those programs may just make the 
difference for a new or expanding business and tip the scale in our 
favor. In short, we need to make every effort to develop reservation 
economies and those tools should continue to be available.

    The Chairman. Thank you very much, Mr. Leecy.
    Mr. Ortego, will you please proceed with your remarks?

 STATEMENT OF PETER ORTEGO, GENERAL COUNSEL, UTE MOUNTAIN UTE 
                             TRIBE

    Mr. Ortego. Thank you, Mr. Chairman, Committee members. It 
is an honor to be invited to speak here today. Thank you.
    This topic is very important to the Ute Mountain Ute Tribe. 
I am here primarily today to talk about the effect of State 
taxation on the Ute Mountain Ute Tribe. Ute Mountain Ute Tribe 
is located in Colorado, New Mexico and in Utah. It is over 
500,000 acres of land. We have 2,000 Tribal members. We are the 
largest employer in Montezuma County.
    And what we have seen is that as the Tribe benefits and the 
Tribe seeks access to resources and seeks economic development, 
so does the community around us see that benefit. And so when 
there is a burden on us, and we cannot operate as effectively 
as we would like, that is a burden that ends up affecting our 
entire community, not just the Indian community, but the non-
Indian community as well.
    In New Mexico, our lands are not occupied by a person who 
lives there, but we do have oil and gas operations in New 
Mexico. The Tribe itself has a severance tax that it applies to 
oil and gas being severed from the lands. So does the State of 
New Mexico. So the Tribe in 1992, confronted with this dual 
taxation, passed a resolution stating that if the Tribe could 
eliminate the State severance taxes, then the Tribe's severance 
tax would be increased by a proportionate amount. What amount 
that would be would be determined at the time, but we reserved 
the right to increase it to the full extent of the State 
taxation.
    In 2009, the Ute Mountain Ute Tribe sued the State of New 
Mexico in Federal court, and we were seeking relief from those 
taxes. The trial court agreed with the Tribe. The trial court 
stated that the taxes, that the benefit that the Tribe received 
was de minimis from State activities, that the off-reservation 
services that the State provides to the oil and gas operators, 
the non-Indian oil and gas operators, is significant; however, 
it does not justify the taxation.
    We also argued with that court that the regulatory 
structure for oil and gas on the reservation is comprehensive. 
Between the Bureau of Land Management, the Bureau of Indian 
Affairs, and the Tribe's regulations, there is no need for the 
State to regulate oil and gas on the reservation. And the court 
agreed.
    The State of New Mexico appealed that to the Tenth Circuit 
of Appeals, and the Tenth Circuit Court of Appeals reversed. 
They found that the services were not de minimis, that the off-
reservation services that the State provides lend value to our 
resource. And in fact, the court went so far basically as to 
state that the only way a Tribe really can avoid State taxation 
is if it does all of it itself, if we did not use any off-
reservation resources.
    And that simply is not tenable to the Tribe, it is not 
tenable to the operators who work with us. What we would rather 
see is that the State and the tribes work together. We know 
that what we do on the reservation impacts the States, and we 
know that what the States do off our reservation impacts us on 
the reservation.
    So rather than us being forced to have a disadvantage 
because our operators both have to pay our tax and the State 
tax, something which they don't have to do off the reservation, 
we need to work with the States to come up with solutions as to 
how to resolve these issues, not to force us to have to have 
taxation on the reservation.
    The Tribe paid, in State taxes, three quarters of a million 
dollars. And that is what the Tribe paid, that is in payroll 
and cigarette taxes. We also have some fee lands where we pay 
property taxes. So we give a benefit to the State and we feel 
like we don't receive enough benefit back. And we can't tax 
operations that happen on the State, and we don't think they 
should be able to tax operations that happen on the 
reservation. And by working together, I think we can continue 
to see this benefit.
    About a year and a half ago, two years ago, the Tribe had a 
meeting with the local governments in Montezuma County. It was 
the first time we had ever had that meeting. Out of that came 
an economic development association, which is working with the 
Tribe and the communities off the reservation. And we are 
seeing some benefit now. We are starting to see that the area 
is becoming more attractive and that we can work together to 
bring economic development to the Indians and the non-Indians.
    So thank you for this opportunity today. These topics you 
are addressing are very important and I appreciate the hard 
work that you do. Thank you.
    [The prepared statement of Mr. Ortego follows:]

 Prepared Statement of Peter Ortego, General Counsel, Ute Mountain Ute 
                                 Tribe
    Mr. Chairman and Committee members, thank you for the opportunity 
to testify in regards to state and federal taxation in Indian country 
and its effects on tribal economic development. My name is Peter Ortego 
and I am the General Counsel for the Ute Mountain Ute Tribe. I reside 
in Lewis, Colorado, about thirty miles North of Towaoc, Colorado, the 
governmental seat for the Tribe. My testimony today is limited to the 
facts and circumstances as they relate to the Ute Mountain Ute Tribe, 
as this is where my experience lies, but I believe there are sufficient 
similarities between tribes so that these comments could apply to 
numerous tribes.
    The Ute Mountain Ute Reservation consists of over 500,000 acres 
located in Colorado, Utah, and New Mexico. The Tribe has just over 
2,000 members, most of whom reside on the Reservation either in Towaoc, 
Colorado, or White Mesa, Utah. No person resides within the New Mexico 
portion of the Reservation.
    According to the United States Census for 2000, the average annual 
income of an adult living on the Reservation was $8,159. By comparison, 
income for residents of San Juan County, New Mexico, where the New 
Mexico portion of the Reservation is located was $14,282 and $17,261 
for residents of the State of New Mexico. Income for residents of 
Montezuma County, Colorado, where Towaoc is located, was $17,003 and 
$24,049 for residents of the State of Colorado.
    The Tribe distributes $2,000 per year to each Tribal member 
(slightly more for elders). The distributions are made out of funds 
generated from oil and gas royalty and tax revenues. Additional 
financial benefits are paid to Tribal members under the general welfare 
doctrine. No gaming revenues are distributed to Tribal members on a per 
capita basis and all funds derived from economic development activities 
are used for governmental purposes and to defray the costs of 
government services.
    The Tribe has obtained funds from the settlement of water claims 
and uses these funds for economic development and resource enhancement. 
One fund is specifically restricted to economic development and the 
other is restricted to resource enhancement. The Tribe currently uses 
interest earned from the economic development fund for its economic 
development projects and has never spent any portion of the principal, 
to the best of my knowledge.
    The Tribe is engaged in numerous economic activities. The Tribe has 
a casino and hotel, a construction company, a farm and ranch 
enterprise, a pottery store, a guided tour service, and two travel 
centers. The Tribe also earns significant revenue from oil and gas 
operations in both Colorado and New Mexico. The Tribe is venturing into 
renewable energy and has several commercial scale projects under 
review, including a closed loop pump back storage project that is 
currently pursuing a FERC permit.
    The Tribe is the largest employer in Montezuma County and owns 
several ranches in the State of Colorado. The Tribe asserts Indian 
preference in employment, provides free employment training to its 
members, and provides financial literacy education to employees and 
members.
    The Tribe does not impose very many taxes; there is a severance tax 
and possessory interest tax imposed on oil and gas extraction, and 
there is a hotel tax that is charged to patrons of the hotel. The Tribe 
imposes fees for some services provided to its members, and charges 
non-members for access permits, rights-of-way, and leases over trust 
and non-trust properties.
    The Tribe pays numerous state and federal taxes, as well. The Tribe 
pays state fuel, excise, cigarette, property, and employment taxes and 
federal excise and employment taxes. The Tribe also pays for 
unemployment insurance and workman's compensation insurance.
    In fiscal year 2011, the Tribe's travel centers paid $561,570 in 
federal fuel-related taxes and $588,626 in state fuel-related taxes 
(Utah and Colorado). The Tribe's travel centers and casino paid $67,895 
in state cigarette taxes.
    I believe one of the best ways to understand and appreciate the 
impact of state taxes on Tribal economic development is to review the 
lawsuit that the Tribe filed in federal court in 2009 against the 
Treasurer for the State of New Mexico alleging that the state has no 
authority to collect taxes and impose regulations on oil and gas 
activities that occur within the boundaries of the Reservation. The 
basis of the Tribe's claim is that the taxes impose a significant 
economic burden on the Tribe, and, in light of the fact that the Tribe 
and its members receive no direct services from the state of New Mexico 
on the Reservation, the state has no justification to impose the taxes.
    The Tribe was successful in the District Court and received a 
judgment in its favor. (See Ute Mountain Ute Tribe v. Homans, 775 
F.Supp.2d 1259 (D.N.M. 2009).) The District Court made specific 
findings that were uncontested by the state and concluded that the 
services provided by the state to the Tribe and its members are de 
minimus and that the imposition of the taxes creates an economic burden 
to the Tribe. The Court found that in 2007, the total revenue earned by 
the Tribe was $16,052,092 with $4,426,741 being distributed to Tribal 
members on a per capita basis generated from oil and gas taxes and 
royalties, primarily from the New Mexico portion of the Reservation. 
Notably, in the same year, according to the Court's estimates, the 
state received approximately more than $1,300,000 in revenues from 
taxes imposed on onReservation oil and gas activities.
    In 1992, the Ute Mountain Ute Tribal Council passed a resolution 
stating that if state taxes imposed on oil and gas activities within 
the Reservation were reduced or eliminated, then the Tribal taxes 
imposed on the same activities would be increased by the amount that 
the state taxes were reduced. In 2007, this would have resulted in an 
increase in Tribal oil and gas revenues of approximately $1,300,000. 
This would mean that $650 could be distributed per capita to each 
Tribal member, increasing the average income of Tribal members by 8 
percent using 2000 Census income levels. The District Court found that 
if the state taxes were reduced or eliminated, the Tribe could exercise 
one of several alternatives, including amending the 1992 resolution to 
impose a lesser tax or no tax at all, and the result would be that oil 
and gas production on the Reservation would be more attractive to 
potential operators than it is with the burden of the state taxes.
    The State of New Mexico appealed the decision of the District Court 
to the Tenth Circuit Court of Appeals. Unfortunately for the Tribe, the 
Tenth Circuit did not agree with the findings of the District Court and 
reversed the ruling. (See Ute Mountain Ute Tribe v. Rodriguez, 660 F.3d 
1177 (N.M. 2011 ).) The Tenth Circuit found that the District Court was 
wrong to find that the taxes created an economic burden to the Tribe 
because the Tribe did not subsume the cost of the taxes by reimbursing 
the operators for the tax. Also, the Tenth Circuit found that off-
reservation services provided by the state--such as roads and 
processing facilities--were sufficient to justify the on-Reservation 
taxes, even though the state already imposes separate taxes on oil and 
gas operators for those off-reservation services. Finally, and the most 
problematic for the Tribe, is that, under the Tenth Circuit holdings, 
the only way for the Tribe to conduct oil and gas activities on its 
Reservation without the burden of state taxes being imposed on its non-
Indian operators is for the Tribe to provide all services related to 
the production, regulation, and processing of oil and gas extracted 
from the Reservation. Although the Tribe may someday be able to provide 
such extensive services, it cannot do so now and the continued 
imposition of the state taxes hinder the Tribe's ability to do so in 
the future.
    Another significant issue for the Tribe is that we do not see a 
benefit from the taxes that are collected by the states. In Colorado, 
for instance, revenues acquired by the state from taxation of on-
Reservation oil and gas activities are deposited into various funds, 
some of which are specifically designated for use in Montezuma County. 
None of the revenues serve the Tribe directly and we see no benefit 
from the taxes collected.
    Similarly, the Tribe pays state property taxes for some of its 
ranches in Colorado which are held in fee and restricted fee, and yet 
we have a very difficult time obtaining services for these ranches that 
would be available to any other tax payer, such as law enforcement.
    Taxation also carries with it an implied right to regulate through 
audits and other regulatory functions. Tribes are experiencing a high 
number of audits from the Internal Revenue Service based upon the 
tribes' obligations to pay certain federal employment taxes. The states 
of Colorado and Utah assert the right to inspect the Tribe's 
underground fuel storage tanks and to impose sanctions if the tanks are 
not properly maintained.
    Finally, everything the Tribal government does is for the purpose 
of helping its members and its employees. State and federal taxation 
hinders the Tribe's ability to act in promotion of these interests. If 
the Tribe desires to impose a tax or a fee in order to defray its costs 
and the activity is already taxed by the state or the United States, 
then the contactors paying the taxes are exposed to higher taxation 
then they would experience off the Reservation, thus making 
onReservation work much less attractive. When Tribal activities are 
unencumbered by state and federal taxation, then the Tribe can best 
determine how to receive compensation for the services it provides. In 
order to remain competitive and secure contracts for economic 
development activities, the Tribe may wish to levy fees and taxes, or 
it may not, but at least the Tribe gets to make the determination based 
upon what it feels is necessary for its people.
    The Ute Mountain Ute Tribe strives for independence. The Tribe is 
proud of its heritage and the Ute people have demonstrated strength in 
stamina, perseverance, and foresight. There will be a day when the 
Tribe can survive on its own, as it did for centuries before European 
settlers arrived. The Ute people will not always be dependent upon the 
states and the Federal Government for assistance. A day will come when 
the Ute Mountain Ute Tribe can stand with its neighbors as an equal, 
able to assert its sovereignty for the betterment of all people, but 
this day will not come soon enough if the Tribe continues to have to 
accommodate the taxation regimes that are imposed on its activities 
without its consent.
    Thank you, again, for this opportunity. If there is any other 
assistance I can provide as you take on this very important work, 
please do not hesitate to ask.

    The Chairman. Thank you very much, Mr. Ortego, for your 
remarks.
    Chairman Leecy, you mentioned that lenders often ask you 
for a list of advantages to doing business on the reservation. 
Without the accelerated depreciation and employment tax credit, 
do you think you would be at a competitive disadvantage?
    Mr. Leecy. I think we would be at a disadvantage without 
those opportunities and the New Market Tax Credits. I just want 
to say that right now we are looking at a biofuels plant, for 
instance, on the Bois Forte Reservation, to not only assist our 
economy but assist the declining logging industry in northern 
Minnesota. We are looking at the possibility of tax cuts for 
that. That is an advantage that we could use in designing a 
demonstration plant on the Bois Forte Reservation to employ a 
lot of people.
    So we feel that that is a good advantage for us.
    The Chairman. Chairman Leecy, how can Congress improve 
existing Federal incentive programs, such as accelerated 
depreciation and Indian employment tax credit?
    Mr. Leecy. I think right now there is a need to spur 
investment in the United States. I think we need to provide 
both the corporate and government and have them work together. 
One of the ways we can do that, for instance, I am going to use 
an example, because it was just discussed the other day with 
our planning department, with our Tribal council, is health 
care is one, and health care is a matter in the United States, 
it is also a matter in Indian Country. We are looking at a new 
clinic in the health services building.
    We looked at the New Market Tax Credits and we also looked 
at the USDA Rural Loan program. We cannot use one and use the 
other. If we use the tax credit program, we cannot use the USDA 
loan program. I think by putting them together and having them 
work together, I think you are going to have more, spur more 
development, not only in Indian Country but across the Country, 
if government and corporations work hand in hand to make these 
happen.
    The Chairman. Thank you.
    Mr. Ortego, you discuss how taxation of Tribal activities 
can impact the Tribe's ability to be self-sufficient. How can 
we improve the tax scheme to make your Tribe more self-
sufficient?
    Mr. Ortego. I think that if we were not encumbered by the 
State taxes that are imposed upon us for operations on the 
reservation, I think that would free us up a great deal. As 
Chairman Leecy has mentioned, there is a benefit to doing work 
on the reservation. That resolution I mentioned in 1992 would 
allow the Tribe to increase its taxes by the same amount as the 
State taxes, but frankly, we don't feel that that would be 
appropriate. Because that would still put us at a competitive 
disadvantage. It is up to the tribes to figure out what those 
taxes should be.
    So to be blunt, Mr. Chairman, if the tribes are not under 
the regime of State taxation, then I think that would free us 
up a great deal in economic development and the ability to 
attract people to come onto the reservation and work with us 
would be greatly enhanced. Much of what we do is in 
coordination and in cooperation with either other tribes or 
non-Tribal entities. And those entities need an incentive to 
come onto the reservation as these tax credits do. But the 
State taxation pushes them away and makes them decide to do 
their work off the reservation.
    So I think literally eliminating the ability of a State to 
tax a Tribe would be an incredible gift to the tribes. And it 
would free us up to truly exercise our sovereignty and do it in 
a way that we feel is best for our people and our community and 
the surrounding area.
    The Chairman. Mr. Ortego, please describe some of the 
issues created by IRS's interpretation of essential government 
function. What can be done to remedy this situation?
    Mr. Ortego. The Internal Revenue Service is essentially 
going, in my opinion, the Tribal casinos are a target. It 
appears as if casinos under these IRS regulations and other 
large, successful Tribal operations are going to lose their 
immunity from suit, for activities that they do on the 
reservation, they are going to come under the jurisdiction of 
courts that are not under the Tribe's consent.
    If Tribal enterprises are parts of the Tribal government, 
as ours are, they serve a governmental purpose. Every dollar 
that is made at our casino goes to help the people. It doesn't 
go into any individual's pocket to make them wealthy. We wish 
we could make all the Tribal members wealthy, but we can't. But 
we use that money to pay for the administration and we use that 
money to help the Tribe run the Tribal government.
    If the IRS continues to treat our casinos as if they don't 
share that purpose, they aren't part of that, then they are 
going to be subject to State laws, they are going to be subject 
to a whole realm of jurisdictions that are beyond the Tribe. 
Every other enterprise that we have on the reservation shares 
in the government's sovereign immunity. And it is a part of the 
Tribal government. The IRS is pulling that away, and it is now 
making it so that our casino has to operate just as if it was 
off the reservation. It no longer gets the benefit of being a 
Tribal operation. It is now simply a corporation within the 
State.
    I think that is where we are headed with these IRS 
regulations. We are not in favor of that at all. We think that 
is a real, its impact on the Tribe is such that we cannot 
provide services to our members and to the community the way we 
would like to. The end result is that our casino is going to be 
a corporation like any other, off the reservation or on the 
reservation, and the protections that we can give it will no 
longer exist.
    The Chairman. Thank you very much.
    Senator Udall, your questions.
    Senator Udall. Thank you, Chairman Akaka. I think that the 
testimony has been very good in answer to the Chairman's 
questions.
    One of the things, Mr. Ortego, you mentioned, is this whole 
issue of dual taxation, which we know is a problem. Because you 
have business entities and others that want to go on the 
reservation and when they see double taxation, they see that 
there isn't the incentive to locate there. I think you have hit 
on one of the things that New Mexico has tried to do, maybe not 
well enough, but to coordinate and cooperate and work with the 
Tribe and try to, in particular areas, alleviate that double 
taxation. I think you have made some good suggestions.
    Aside from the double taxation issue, what type of tax 
credit would you create to spur job creation in Indian Country, 
and are there industries that we aren't reaching, with the 
programs mentioned today, that you believe we should be 
targeting?
    Mr. Ortego. I feel a little uninformed about the tax 
credits, so if you don't mind, the example I can use is one 
entity we have right now who is taking advantage of renewable 
energy tax credits. And that has been extremely helpful. The 
problem with that situation, however, is that we cannot take an 
ownership interest in the project. It has to be owned by the 
entity that can take advantage of the tax. Tribes are not able 
to take advantage of that tax credit, because we don't pay 
those taxes.
    So if there can be a way for tribes to have ownership 
interest in the projects and also the entities that work with 
the tribes, if they can also take advantage of the credit, even 
though they may not be a full or even a 50 percent owner in the 
project, that would be very helpful.
    Senator Udall. That area I think is one we ought to take a 
look at. I think that is a very good suggestion.
    Chairman Leecy, on the New Market Tax Credit, you heard the 
question I asked him, do you think there are other areas we 
should be targeting where we are not hitting particular 
businesses that could come in and do business in Indian 
Country?
    Mr. Leecy. Thank you, Mr. Udall. I agree totally with Mr. 
Ortego, and that would have been my response, is renewable 
energy and the ability to utilize New Market Tax Credits in 
that area for the benefit of the Tribe itself. That has been a 
struggle. I think not only renewable energy resources but 
emerging markets, such as that and this biofuels, this bio-oil, 
renewable, I think those are all new markets that Indian 
Country would be favorable. Because most of them, where they 
are located, they do have resources. But there is really no 
funding to extract some of the natural resources. So that would 
be my answer to assist in that area.
    Senator Udall. Those are, I think, good areas for us to 
look into. Chairman Leecy, you mentioned that, as I said in my 
opening statement, that the New Markets Tax Credit was working 
in New Mexico. You mentioned examples of it working that you 
knew of. Could you give us a concrete example of how that has 
worked and what type of business or enterprise was fostered as 
a result of that?
    Mr. Leecy. We have done a number of tax credit, one is 60-
unit housing, number one. Number two is an additional 60-unit 
housing. We have built a government center with New Market Tax 
Credit, which we couldn't have done, which houses the Tribe's 
government programs and services. It is essential. It has 
worked for us, and I have been to Montana to participate in the 
Montana economic development and explain the advantages of the 
New Market Tax Credit that we have.
    We have also invited other tribes into Bois Forte to show 
exactly how the New Market Tax Credit has worked for us. 
Everyone we have spoken to has utilized that and built 
something for themselves. But it is kind of financially, it is 
financially easy to do and there are some hurdles to go 
through, but it is well worth it.
    Senator Udall. Thank you. Thank you both for your testimony 
today. I really appreciate it.
    The Chairman. Thank you very much, Senator Udall, for your 
questions.
    I want to thank Chairman Leecy and Mr. Ortego for your 
participation in our hearing and providing us with what you 
have done with your Tribe to improve the situation there. Our 
big hope, of course, is that other tribes in other places will 
be able to use and even take advantage of some of these that 
are already in place and hearing it from other tribes may help 
the cause.
    So I thank you very much and I hope you continue to be with 
us in terms of keeping us apprised of how things are going. And 
if you find a better way of doing what you are doing in helping 
the tribes, we should also help other tribes as well. So I 
thank you very much for your participating here. Thank you.
    And now I would like to call on the second panel, Professor 
Steven Gunn, Adjunct Professor of Law at the Washington 
University School of Law. Professor Gunn, it is good to have 
you. Thank you very much for being here. Will you please 
proceed with your testimony?

    STATEMENT OF STEVEN J. GUNN, ATTORNEY/PROFESSOR OF LAW 
         (ADJUNCT), WASHINGTON UNIVERSITY IN ST. LOUIS

    Mr. Gunn. Mr. Chairman, thank you for the opportunity to 
comment on the important issue of overlapping and conflicting 
Tribal and State tax jurisdiction claims in Indian Country.
    American Indian tribes are self-governing political 
communities, with attributes of sovereignty over both their 
members and their territories. The power to tax is an essential 
attribute of Indian sovereignty. It enables tribes to raise 
revenue to build strong institutions of Tribal government and 
to operate essential programs and services.
    Strong Tribal governments and programs fuel economic 
development by providing the institutional and legal framework, 
physical infrastructure and human capital necessary for Tribal 
economic development. Indian tribes have a government to 
government relationship with the United States. But they are 
not subordinate to or dependent on the States. In the area of 
taxation, the Supreme Court has adopted a categorical rule. 
States may not tax Indian tribes or their members, absent 
Congressional authorization.
    The rationale behind that rule is simple and centuries old. 
As Chief Justice Marshall reminded us in McCulloch v. Maryland, 
the power to tax involves the power to destroy. If permitted, 
States taxation of Indian tribes and their members would 
essentially destroy tribes by depriving them of their revenue 
and their tax base. And the courts have been vigilant in 
striking down State taxes directly imposed on tribes and Tribal 
members.
    State taxation of non-members in Indian Country is another 
matter. Such taxation is not categorically barred; instead, it 
is preempted if it interferes with or is incompatible with 
Federal and Tribal interests. The preemption analysis is 
flexible and requires a case by case balancing of Federal, 
Tribal and State interests. Applying this analysis, courts have 
struck down some State taxes on non-members, while upholding 
others.
    The lack of a bright line rule creates uncertainty and this 
has caused some non-Indian investors to avoid participating in 
reservation economies.
    When State taxation of non-members is permitted, it imposes 
significant burdens on tribes. First, it infringes on the 
Tribal tax base. Under existing Federal law, tribes can tax 
non-members and non-member businesses that engage in commercial 
dealings and whose activities take place on trust lands. A 
Tribe's ability to tax non-members in these circumstances is 
essential. Yet that ability is impaired when States and even 
local governments assert overlapping claims to tax the same 
transactions.
    The resulting double or triple taxation is often more than 
Tribal markets can bear and tribes may be forced to lower their 
tax rates or eschew Tribal taxation altogether. This has the 
potential to deprive tribes of millions of dollars in tax 
revenue.
    Second, State taxation of non-member businesses raises the 
cost of goods and services available to tribes and their 
members. Although the legal incidence of such taxes falls on 
the non-Indian business, the economic burden is passed on to 
Tribal consumers, and for tribes, this can raise the cost of 
economic development projects involving non-member contractors 
and businesses.
    Finally, State taxation of sales to non-member consumers 
has the effect of raising the price of goods and services they 
buy on-reservation. This creates a competitive disadvantage for 
Tribal businesses who market their goods and services to non-
members. Such non-members are likely to go off-reservation 
instead of paying double or triple taxes on the reservation.
    Some Indian tribes and States have responded to these 
problems by reaching cooperative agreements regarding the 
collection of various taxes. In fact, over 200 tribes have 
entered into tax collection compacts with States. A common 
approach involves joint collection of Tribal and State taxes 
with revenue sharing between the governments.
    These agreements provide predictability and steady revenue 
streams for tribes and States. However, the process is not 
without its limitations. From the Tribal perspective, revenue 
sharing of any kind deprives tribes of tax dollars generated by 
on-reservation activity. Preemption of State taxation of non-
member activity would better preserve Tribal tax bases.
    The Federal Government can address these issues in a number 
of ways, two of which I will mention here. First, Congress can 
reaffirm the inherent authority of Indian tribes to tax all 
transactions in Indian Country, including non-member 
transactions. Such authority is essential to defray the cost of 
providing Tribal services to those who pass through their 
reservations.
    Second, Congress can provide clarity on the scope of 
permissible State tax authority over non-members. Specifically, 
Congress can establish bright line rules preempting State 
taxation in areas where that taxation would undermine Tribal 
economic development. Definitive guidance from Congress would 
remove uncertainty, and to the extent State taxes were 
preempted, it would preserve the Tribal tax base from State 
interference.
    I thank you again for the opportunity to appear before you 
and to comment on these important issues.
    [The prepared statement of Mr. Gunn follows:]

    Prepared Statement of Steven J. Gunn, Attorney/Professor of Law 
             (Adjunct), Washington University in St. Louis
    Mr. Chairman, Mr. Vice Chairman, and distinguished Members of the 
Committee, thank you for the opportunity to appear before you today and 
to comment on the important issue of tribal and state taxation in 
Indian country. I will divide my comments into four areas: first, I 
will address the important role tribal taxation plays in promoting 
economic development in Indian country; second, I will examine the 
burden state and local taxation places on Indian tribes and their 
efforts to develop their reservation economies, and the jurisdictional 
conflicts such taxation engenders; third, I will share insights about 
the cooperative approaches some tribes and states have taken to work 
coordinate their respective taxes in Indian country; and finally, I 
will suggest some ways in which the Federal Government can help shape a 
tax policy for Indian country that will maximize tribal self-government 
and economic development.
1. Tribal Taxation Plays an Essential Role in Promoting Tribal Self-
        Government and Economic Development in Indian Country
    American Indian tribes are ``self-governing political communities 
that were formed long before Europeans first settled in North 
America.'' \1\ Although they accepted the protection of the United 
States through treaties, \2\ Indian tribes retain the sovereign status 
of ``domestic dependent nations,'' \3\ and continue to ```possess[] 
attributes of sovereignty over both their members and their 
territory.''' \4\
---------------------------------------------------------------------------
    \1\ Nat'l Farmers Union Ins. Co. v. Crow Tribe of Indians, 471 U.S. 
845, 851 (1985).
    \2\ See, e.g., Treaty with the Teton, 1815, Art. 3 (7 Stat. 125).
    \3\ Oklahoma Tax Comm'n v. Potawatomi, 498 U.S. 505, 509 (1991). 
Accord, Cherokee Nation v. Georgia, 30 U.S. (5 Pet.) 1, 17 (1831).
    \4\ Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 140 (1982), 
quoting United States v. Mazurie, 419 U.S. 544, 557 (1975). Accord, 
Worcester v. Georgia, 31 U.S. (6 Pet.) 515, 557 (1832).
---------------------------------------------------------------------------
    The power to tax has long been recognized as an ``essential 
attribute of Indian sovereignty.'' \5\ All three branches of the 
Federal Government recognize that this power is ``an essential 
instrument of [tribal] self-government and territorial management.'' 
\6\ The power to tax ``enables a tribal government to raise revenues 
for its essential services.'' \7\ The power derives from ``the tribe's 
general authority, as sovereign, to control economic activity within 
its jurisdiction, and to defray the cost of providing governmental 
services by requiring contributions from persons or enterprises engaged 
in economic activities within that jurisdiction.'' \8\
---------------------------------------------------------------------------
    \5\ Merrion, 455 U.S. at 139.
    \6\ Id. (citing Washington v. Confederated Tribes of Colville 
Reservation, 447 U.S. 134, 153 (1980)).
    \7\ Id. at 137.
    \8\ Id.
---------------------------------------------------------------------------
    Indian tribes have primary responsibility for meeting the basic 
needs of their tribal members and other individuals who reside on or 
who do business on their reservations. Meeting these needs requires 
strong, well-funded tribal governments and strong, well-funded tribal 
programs and services. Tribal taxation provides an essential source of 
revenue for the operation of tribal governments and tribal programs.
    Strong tribal governments and tribal programs, in turn, fuel 
economic development in Indian country. Among other things, tribal 
legislatures, agencies, and courts provide the governmental and legal 
framework necessary for economic development. Tribal programs pay for 
the construction and maintenance of reservation roads, bridges, 
utilities, and other facilities that provide the physical 
infrastructure necessary for economic growth. Tribal education and job 
training programs build human capital, and tribally owned economic 
enterprises create jobs and revenue streams for Indian tribes. Without 
tribal tax revenue, these government institutions and programs could 
not exist.
2. State and Local Taxation in Indian Country Undermines Tribal Self-
        Government and Economic Development
    Indian tribes have a government-to-government relationship with the 
United States, \9\ but they are in no way ``dependent on'' or 
``subordinate to'' the states. \10\ As a general rule, reservation 
Indians are subject only to federal and tribal law, not state law. \11\ 
This is especially true in the area of taxation:
---------------------------------------------------------------------------
    \9\ See, e.g., 25 U.S.C.    3601(1), 3701(1); Executive Order 
13175, 65 F.R. 67249 (Nov. 9, 2000); Executive Memorandum, 59 Fed. Reg. 
22951 (April 29, 1994).
    \10\ Colville, 447 U.S. at 154.
    \11\T3AWilliams v. Lee, 358 U.S. 217 (1959).

        The Constitution vests the Federal Government with exclusive 
        authority over relations with Indian tribes . . . and in 
        recognition of the sovereignty retained by Indian tribes even 
        after the formation of the United States, Indian tribes and 
        individuals generally are exempt from state taxation within 
        their own territories. \12\
---------------------------------------------------------------------------
    \12\ Montana v. Blackfeet Tribe, 471 U.S. 761, 764 (1985) 
(citations omitted).

    In McCulloch v. Maryland, Chief Justice John Marshall reminded us 
that, ``the power to tax involves the power to destroy.'' \13\ The 
Supreme Court has long recognized that, if permitted, state taxation of 
Indian tribes and their members would ``essentially destroy[]'' tribes 
by depriving them of their tax base. \14\ Thus, ```[i]n the special 
area of state taxation of Indian tribes and tribal members,''' the 
Supreme Court has adopted ```a per se rule:''' \15\ ```such taxation is 
not permissible absent congressional consent.''' \16\
---------------------------------------------------------------------------
    \13\ 17 U.S. (4 Wheat.) 316, 431 (1819).
    \14\ Bryan v. Itasca County, 426 U.S. 373, 388-89, n.14 (1976).
    \15\ County of Yakima v. Confederated Tribes and Bands of Yakima 
Nation, 502 U.S. 251, 267 (1992) (quoting California v. Cabazon Band of 
Mission Indians, 480 U.S. 202, 215 n.17 (1987)).
    \16\ Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148 (1973) 
(quoting McClanahan v. Arizona Tax Comm'n, 411 U.S. 164, 171 (1973).
---------------------------------------------------------------------------
    ''Taking this categorical approach, [the Supreme Court has] held 
unenforceable a number of state taxes whose legal incidence rested on a 
tribe or on tribal members inside Indian country,'' \17\ including: 
income taxes, \18\ real property taxes, \19\ personal property taxes, 
\20\ sales taxes, \21\ transaction taxes, \22\ vendor taxes, \23\ use 
taxes, \24\ mineral royalty taxes, \25\ and hunting and fishing license 
fees. \26\
---------------------------------------------------------------------------
    \17\ Oklahoma Tax Comm'n v. Chickasaw Nation, 515 U.S. 450, 458 
(1995).
    \18\ McClanahan, 411 U.S. at 165-81; Oklahoma Tax Comm'n v. Sac and 
Fox Nation, 508 U.S. 114, 123-126 (1993).
    \19\ United States v. Rickert, 188 U.S. 432 (1903); The New York 
Indians, 72 U.S. (5 Wall.) 761 (1866); The Kansas Indians, 72 U.S. (5 
Wall.) 737 (1866).
    \20\ See, e.g., Bryan, 426 U.S. at 375; Moe v. Confederated Salish 
and Kootenai Tribes of Flathead Reservation, 425 U.S. 463, 480-81 
(1976) (motor vehicle tax); Colville, 447 U.S. at 163 (same); Sac and 
Fox, 508 U.S. at 127-28 (same).
    \21\ Moe, 425 U.S. at 475-481, Potawatomi, 498 U.S. at 507; Dep't 
of Taxation and Finance of New York v. Attea & Bros., 512 U.S. 61, 64 
(1994).
    \22\ County of Yakima, 502 U.S. at 268.
    \23\ Chickasaw Nation, 515 U.S. at 459-62; Moe, 425 U.S. at 480-81.
    \24\ Mescalero Apache Tribe, 411 U.S. at 158.
    \25\ Montana v. Blackfeet Tribe, 471 U.S. at 764-66.
    \26\ Menominee Tribe v. United States, 391 U.S. 404 (1968); Tulee 
v. Washington, 315 U.S. 681 (1942).
---------------------------------------------------------------------------
    State taxation of nonmembers in Indian country is not categorically 
barred. Instead, the courts apply a ``flexible preemption analysis 
sensitive to the particular facts and legislation involved.'' \27\ 
According to the Court, such taxation is prohibited if it infringes on 
tribal selfgovernment or if it is preempted by federal law. \28\ State 
taxation of nonmembers is preempted if it interferes with or is 
incompatible with federal and tribal interests, as reflected in federal 
law, unless there are sufficient countervailing state interests to 
justify the assertion of state authority.
---------------------------------------------------------------------------
    \27\ Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163, 176 
(1989).
    \28\ Mescalero Apache Tribe, 411 U.S. at 148.
---------------------------------------------------------------------------
    The preemption analysis requires a particularized balancing of 
federal, tribal, and state interests and, thus, is inherently less 
predictable than the per se rule barring all state taxation of tribes 
and tribal members. Applying the balancing test, the courts have struck 
down certain state taxes on nonmembers in Indian country and upheld 
others. For example, in Ramah Navajo School Board, Inc. v. Bureau of 
Revenue:

        the Supreme Court found that the state could not tax the gross 
        receipts that a non-Indian construction company received from a 
        tribal school board for construction of a school on the 
        reservation. The Court found the federal regulation of 
        construction and financing of Indian schools to be . . . 
        comprehensive . . . Federal statutes also reflected an 
        ``express federal policy of encouraging tribal 
        selfsufficiency'' in education. In terms of the tribal 
        interests, the tribal school board absorbed the economic impact 
        of the tax, which could affect its ability to provide education 
        for Indian children. And the state provided no services to 
        either the Indian school children or the non-Indian taxpayer 
        for its activity on the reservation. \29\
---------------------------------------------------------------------------
    \29\ COHEN'S HANDBOOK OF FEDERAL INDIAN LAW   8.03 (2005) 
(discussing Ramah Navajo School Board, Inc. v. Bureau of Revenue, 458 
U.S. 832 (1982)) (internal citations omitted).

    The courts have struck down other state taxes on nonmembers in 
Indian country, including state taxes on nonmember retailers' sales to 
tribes and tribal members. \30\ However, the courts have upheld state 
taxes on cigarette sales to nonmembers, \31\ state severance taxes on 
oil and gas produced by nonmembers in Indian country, \32\ and a number 
of other ``state taxes on non-Indians doing business in Indian 
country.'' \33\
---------------------------------------------------------------------------
    \30\ Warren Trading Post v. Ariz. State Tax Comm'n, 380 U.S. 685 
(1965); Central Machinery Co. v. Ariz. State Tax Comm'n, 448 U.S. 160 
(1980). See also, COHEN'S HANDBOOK OF FEDERAL INDIAN LAW   8.03 
(collecting cases).
    \31\ See, Colville, 447 U.S. at 156-157.
    \32\ Cotton Petroleum, 490 U.S. at 187.
    \33\ COHEN'S HANDBOOK OF FEDERAL INDIAN LAW   8.03 (collecting 
lower court cases).
---------------------------------------------------------------------------
    The Court's case-by-case approach has created uncertainty for 
tribes, states, and nonmembers seeking to do business in Indian 
country. It is difficult to determine ex ante whether a state will have 
jurisdiction to tax a given nonmember transaction in Indian country. 
This uncertainty makes it difficult for nonmembers to evaluate the 
total cost of doing business in Indian country, and it may cause some 
nonmembers to avoid investing in Indian country altogether.
    State and local taxation of nonmembers in Indian country imposes 
significant economic burdens on Indian tribes, and it has the potential 
to undermine tribal self-government and tribal economic development. 
This is true for several reasons:
    First and foremost, state and local taxation of nonmembers in 
Indian country infringes on the tribal tax base. Under existing federal 
law, an Indian tribe can tax nonmembers who engage in commercial 
dealings with the tribe or its members. \34\ (This includes nonmember 
businesses that provide goods and services to the tribe or its members, 
and nonmember consumers who purchase goods and services from tribal 
businesses.) A tribe's ability to tax nonmember transactions, however, 
is severely impaired when state and local governments assert 
concurrent, or overlapping, jurisdiction to tax the same transactions. 
The resulting double or triple taxation is often more than tribal 
markets can bear, and tribes may be forced to lower their tax rates or 
to eschew collection of their taxes altogether on nonmember 
transactions. This has tremendous consequences for tribes, depriving 
them of millions of dollars in tax revenue on activities occurring 
within their jurisdictions.
---------------------------------------------------------------------------
    \34\ See, Montana v. United States, 450 U.S. 544, 565-566 (1981).
---------------------------------------------------------------------------
    Second, state and local taxation of nonmember businesses in Indian 
country raises the cost of the goods and services those businesses 
provide to Indian tribes and their members. Whenever possible, 
nonmember businesses, like all others, pass the financial burden of the 
state and local taxes on to their tribal customers in the form of 
higher prices. This burdens tribal members by raising the cost of the 
ordinary, day-to-day good and services they purchase from on-
reservation, nonmember businesses. It also burdens the economic 
development initiatives of tribal governments and tribally owned 
businesses by raising the cost of construction, management, and other 
essential services they purchase from nonmember contractors and 
businesses. The impacts can be significant, especially on multi-million 
dollar tribal economic development projects, where the imposition of 
state and local taxes can add tens or hundreds of thousands of dollars 
to the cost of the project.
    Third, if market conditions prevent nonmember businesses from 
passing the financial burden of state and local taxes on to their 
customers, the businesses may be forced to relocate off-reservation. In 
this way, double or triple taxation of nonmember businesses in Indian 
country creates a disincentive to investment in Indian country and 
reduces the supply of goods and services available to Indian tribes and 
their members.
    Fourth, state and local taxation of nonmember consumers in Indian 
country has the effect of raising the price of goods and services sold 
to those consumers by tribal businesses. Imposing these taxes in 
addition to tribal taxes creates a competitive disadvantage for on-
reservation tribal businesses in relation to their off-reservation 
counterparts. Nonmember consumers will have an incentive to purchase 
goods and services off-reservation, to avoid paying double or triple 
taxes.
    Finally, allowing states and local governments to tax on-
reservation nonmember consumers eliminates the ability of Indian tribes 
to attract nonmember business by marketing tribal tax rates that are 
lower than corresponding state and local rates. State and local 
governments have the power to adjust their tax rates to gain 
competitive advantages in relation to neighboring jurisdictions, and 
there appears to be no principled reason why tribes should not share in 
that power, especially when the value of the goods and services they 
offer is generated on the reservation, or when the goods and services 
will be consumed on the reservation.
    In sum, overlapping claims of tribal, state, and local tax 
authority over nonmembers in Indian country hinders tribal self-
government and economic development in a number of ways. It allows 
states and local governments to infringe on the tribal tax base; it 
raises the cost of goods and services sold by nonmembers to tribes and 
their members; it discourages nonmember investment in Indian country; 
it creates tax disadvantages for tribal businesses that sell goods and 
services to nonmembers; and it eliminates the ability of tribes to 
attract nonmember business by marketing lower tax rates.
3. Many Tribes and States Have Entered Cooperative Agreements to 
        Address the Problems Created by Multiple Taxation in Indian 
        Country
    Indian tribes and states have incentives to reach cooperative 
agreements regarding the collection of tribal, state, and local taxes 
in Indian country. As has been shown, there is uncertainty in existing 
federal law over the precise extent of state and local taxing authority 
over nonmembers in Indian country. This creates the potential for 
expensive and protracted litigation. Further, when state and local 
taxation of nonmembers is permitted, it creates the potential for 
double or triple taxation, which imposes hardships on nonmembers and 
tribes. Some have suggested that, ``it is in the economic interests of 
states and tribes to determine the maximum tax burden that a taxpayer 
will bear before abandoning the taxable activity entirely.'' \35\ 
Finally, ``[t]he fact that states can tax non-Indians and nonmembers in 
Indian country under certain circumstances, but cannot tax tribal 
members, also presents states and tribes with challenging record-
keeping problems.'' \36\
---------------------------------------------------------------------------
    \35\ COHEN'S HANDBOOK OF FEDERAL INDIAN LAW   8.05 (2005).
    \36\ Id.
---------------------------------------------------------------------------
    To address these problems, tribes and states have entered 
cooperative agreements and enacted laws to allocate tax authority and 
coordinate tax collection in Indian country:

        In the face of potentially overlapping or conflicting 
        jurisdictional claims, tribal-state cooperative agreements 
        offer both sets of governments the opportunity to coordinate 
        the exercise of authority, share resources, reduce 
        administrative costs, deliver services in more efficient and 
        culturally appropriate ways, address future contingencies, and 
        save costs of litigation. They also enable governments to craft 
        legal arrangements reflecting the particular circumstances of 
        individual Indian nations, rather than relying on uniform 
        national rules. Insofar as cooperative agreements create a 
        stable legal environment conducive to economic development, 
        they may appeal to the common interests of tribes and states. 
        \37\
---------------------------------------------------------------------------
    \37\ COHEN'S HANDBOOK OF FEDERAL INDIAN LAW   6.05. See also, 
David H. Getches, Negotiated Sovereignty: Intergovernmental Agreements 
with American Indian Tribes as Models for Expanding First Nations Self-
Government, 1 REV. CONST. STUD. 120, 121 (1993).

    It has been reported that over 200 tribes have entered into 
compacts with states. \38\ These compacts and related laws employ a 
variety of approaches, including: ``exempting sales by Indian tribes or 
tribal merchants from state taxes, adjusting the state tax rate when a 
tribal tax exists so that the total tax does not exceed the state tax 
rate, excluding the tribal tax from the definition of sales or gross 
receipts taxable by the state, extending credits to taxpayers liable 
for state and tribal taxes, and authorizing agreements or compacts for 
tribal refunds from state tax revenues.'' \39\
---------------------------------------------------------------------------
    \38\ COHEN'S HANDBOOK OF FEDERAL INDIAN LAW   8.05 (citing Tax 
Fairness and Tax Base Protection: Hearings on H.R. 1168 Before the 
United States House of Representatives Committee on Resources, 105th 
Cong. (1998) (Testimony of W. Ron Allen, President, National Congress 
of American Indians); Arizona Legislative Council, STARTED: State 
Tribal Approaches Regarding Taxation & Economic Development, 81-105 
(1995)). See also, Richard J. Ansson, Jr., State Taxation of Non-
Indians Whom Do Business With Indian Tribes: Why Several Recent Ninth 
Circuit Holdings Reemphasize the Need for Indian Tribes to Enter Into 
Taxation Compacts with Their Respective State, 78 Or. L. Rev. 501, 546 
(1999).
    \39\ COHEN'S HANDBOOK OF FEDERAL INDIAN LAW   8.05 (summarizing 
various approaches and authorities).
---------------------------------------------------------------------------
    The tax collection agreements in South Dakota provide one example 
of cooperative tax collection in Indian country. These agreements 
encompass many, but not all, of the state taxes that are imposed in 
Indian country, including sales taxes, cigarette taxes, motor vehicle 
taxes, and contractor's taxes. Under the agreements, tribes agree to 
impose tribal taxes that are uniform with the state taxes. The state 
collects all taxes included in the agreements and remits a percentage 
to the tribes. The percentage remitted to the tribes is based on the 
percentage of their reservation populations that are Indian. (This 
percentage is a proxy for the percentage of on-reservation transactions 
that would be taxable by the tribes, under existing law.) In most 
cases, the great majority of taxes collected are remitted to the 
tribes. State collection of uniform tribal and state taxes provides 
predictability for taxpayers, eases the ability of the state to collect 
the tax, and provides competitive equality for on- and off-reservation 
businesses.
    Intergovernmental cooperative agreements, like those employed in 
South Dakota, have distinct advantages, including certainty and 
predictability in the imposition and collection of taxes in Indian 
country. While many agreements require tribes to share tax revenue with 
the states, they provide predictable revenue for the tribes and 
certainty as to collectability and enforcement of tribal taxes on 
nonmembers.
    These agreements are not without their limitations. From the tribal 
perspective, revenue sharing deprives tribes of tax dollars generated 
by on-reservation economic activity, including the on-reservation 
activity of nonmembers. Preemption of state and local taxation over 
nonmember activity would preserve tribal tax bases in a way that many 
cooperative agreements do not. Further, to the extent the cooperative 
agreements require tribes to impose tax rates equal to the state rates, 
they eliminate the ability of tribes to attract nonmember business by 
marketing lower tax rates. Finally, tax agreements are not an option 
for tribes in states that are unwilling to enter into such agreements.
4. The Federal Government Can Promote Economic Development in Indian 
        Country by Reaffirming Inherent Tribal Taxing Authority and 
        Preempting State and Local Taxing Authority
    The Federal Government plays a critical role in shaping tribal and 
state tax policy in Indian country. The Government is dedicated to 
promoting tribal self-government and economic development in Indian 
country, and its tax policies for Indian country can help fulfill those 
objectives.
    First, Congress can reaffirm the inherent authority of Indian 
tribes to tax all transactions in Indian country. As it stands, Indian 
tribes have the power to tax their own members, but their authority to 
tax nonmembers who reside or do business in Indian country has been 
diminished by the Supreme Court. Under existing case law, Indian tribes 
have the power to tax nonmembers who engage in commercial dealings with 
the tribes or their members, \40\ or whose activities occur on tribal 
trust lands, \41\ but they have little inherent power to tax nonmembers 
outside these contexts. In Atkinson Trading Co. v. Shirley, the Supreme 
Court held that the Navajo Nation could not tax nonmember patrons of an 
on-reservation hotel to defray the cost of providing tribal 
governmental services available to those patrons, including tribal 
police and fire protection and tribal emergency medical services. \42\ 
This is contrary to principle previously articulated by the Court in 
Merrion, that Indian tribes, like other governments, have the inherent 
power ``to defray the cost of providing governmental services by 
requiring contributions from persons or enterprises engaged in economic 
activities within that jurisdiction.'' \43\ Congress can assist tribes 
by reaffirming their inherent power to tax all transactions in Indian 
country in order to defray the cost of providing government services 
throughout Indian country.
---------------------------------------------------------------------------
    \40\ Montana, 450 U.S. at 565-566.
    \41\ Merrion, 455 U.S. at 137-140.
    \42\ 532 U.S. 645, 654-655 (2001).
    \43\ Merrion, 455 U.S. at 137.
---------------------------------------------------------------------------
    Second, the Federal Government--in particular, the Justice 
Department--can work with Indian tribes to challenge direct state and 
local taxation of tribes and tribal members. Despite the Supreme 
Court's clear, categorical bar against such taxation, tribes still face 
challenges from states and local governments that seek to impose their 
taxes on the property and activities of tribal members in Indian 
country. The Federal Government has intervened on behalf of tribes and 
their members in the past to challenge such taxes, and to seek 
restitution of taxes unlawfully collected, \44\ and it should continue 
to do so. (Federal intervention is necessary to overcome state 
sovereign immunity and to seek restitution of past taxes.)
---------------------------------------------------------------------------
    \44\ See, e.g., South Dakota v. U.S. ex rel. Cheyenne River Sioux 
Tribe, 105 F.3d 1552 (8th Cir.), cert. denied, 522 U.S. 981 (1997), on 
remand, 102 F.Supp.2d 1166 (D.S.D. 2000) (striking down state motor 
vehicle tax as applied to Sioux tribal members residing on their 
reservations).
---------------------------------------------------------------------------
    Third, it would be most helpful if Congress could provide, by Joint 
Resolution or otherwise, clarity on the scope of permissible state and 
local taxing authority in Indian country. In particular, Congress could 
reaffirm the categorical bar against state and local taxation of tribes 
and tribal members. In addition, Congress could establish bright line 
rules preempting state and local taxation of nonmembers in areas in 
which such taxation would undermine well-settled federal and tribal 
interests in promoting tribal self-determination and economic 
development in Indian country. Such guidance from Congress would remove 
uncertainty for tribes, states, and cities-and for nonmembers seeking 
to invest in Indian country. Preemption of state and local taxation 
would also preserve the tribal tax base from state and local 
interference. As discussed above, the existing federal preemption 
doctrine employs a costly, case-by-case approach and is prone to 
uncertainty and inconsistent results. It is based on the federal common 
law and is susceptible to clarification by Congress. \45\
---------------------------------------------------------------------------
    \45\ United States v. Lara, 541 U.S. 193 (2004).
---------------------------------------------------------------------------
    Finally, Congress could pass legislation to alleviate the burdens 
of multiple taxation in Indian country, in cases where state and local 
taxes are not preempted. For example, Congress could provide a federal 
tax credits for individuals forced to pay overlapping state and tribal 
taxes, or it could provide federal incentives for tribes and states to 
enter cooperative agreements. In these and other ways, the Federal 
Government can help shape a tax policy for Indian country that will 
maximize tribal self-government and economic development.
    I thank you again for the opportunity to appear before you and to 
comment on these important issues.

    The Chairman. Thank you very much, Professor Gunn.
    In your testimony, Professor, you discuss the importance of 
tribes being able to develop their own tax structures to 
support the communities, similar to State and local 
governments. How does dual taxation of the same goods and 
services on Tribal lands prevent this?
    Mr. Gunn. States, under existing law, have some authority 
to tax the same transactions that tribes can tax. For example, 
tribes have authority to tax non-members who engage in 
consensual relationships with the Tribe or its members, and in 
some cases, Federal law allows dual taxation by the States.
    This dual taxation, if permitted, can have deleterious 
effect. First, tribes may not be able to impose their taxes to 
the full extent, because their reservation markets won't 
support double taxation. Non-member businesses can't afford to 
pay double; non-member consumers won't pay double. They will 
shop off-reservation.
    And in these ways, it depresses economic development, 
discouraging investment and driving non-member consumers off-
reservation.
    Additionally, any time a State taxes a transaction that is 
within the Tribal authority, it deprives the Tribe of that tax 
revenue. And in that way, potentially takes hundreds of 
thousands or, depending on the amount of revenue, millions of 
dollars away from Tribal governments.
    The Chairman. Professor, in a recent hearing, the Committee 
examined the impacts that potential internet gaming legislation 
may have on tribes. One area of particular concern deals with 
the taxation of Tribal governments who choose to participate in 
internet gaming. In your view, would that type of taxation be 
consistent with treatment of tribes in Federal Indian tax 
policy?
    Mr. Gunn. No, it would not. The United States has a treaty-
based government to government relationship with Indian tribes. 
The Federal Government historically has not taxed the income of 
Tribal governments or tribally-owned corporations or Tribal 
gaming enterprises in existing land-based Class 1, 2, and 3 
gaming facilities.
    There is no reason to depart from this longstanding Federal 
policy in the case of tribally-owned internet gaming 
facilities. Under the Indian Gaming Regulatory Act, Tribal 
gaming revenues are dedicated to Tribal government programs and 
services, Tribal economic development initiatives, among other 
uses. The Tribal perspective, as I understand it, is that 
Tribal revenue generated by internet gaming facilities, should 
remain within the Tribal governments, subject to the same uses. 
It should stay in Indian Country. The revenue is generated 
there, and it should benefit the Indian people who live there.
    Retention of this revenue would further Tribal self-
government and economic development, and those are goals that 
the Federal Government has endorsed for decades. These goals 
are critical for tribes seeking to improve their economic 
condition, including the Sioux Tribes I have represented for 
over a decade, many of which are located on the poorest 
counties in America.
    The Chairman. Thank you. Professor, as someone who has 
negotiated many State-Tribal taxation agreements, let me ask, 
what do you think are the keys to their successes? Are these 
agreements a model for other parts of the Country?
    Mr. Gunn. The agreements that I am most familiar with and 
have been involved with have been in the State of South Dakota. 
And there, by statute, the State is authorized to enter 
agreements with tribes to collect certain taxes within Indian 
Country. Those agreements are effective in that the State and 
the tribes impose corresponding taxes on the same transaction 
at the same tax rate. All taxes are collected by the State with 
a percentage remitted to the Tribe. The percentage is based on 
the population on-reservation of Indians to non-Indians. So in 
many cases, the vast majority of revenue collected by the State 
is remitted to the tribes, well over three-quarters.
    This provides a steady source of revenue for Tribal 
governments. It also takes advantage of the efficient State 
administrative mechanism for collecting taxes and State 
enforcement mechanisms.
    As I said in my testimony, it is not without flaws. Federal 
preemption of State taxation of non-Indian activity in Indian 
Country would be a bright line fix and would provide the same 
kind of clarity and predictability that tax collection 
agreements can. It would have the effect of preserving nearly 
100 percent of the Tribal tax base for tribes. However, in the 
absence of a Federal fix, these agreements are an effective way 
for States and tribes to avoid costly litigation, acrimony and 
to efficiently collect the maximum amount of Tribal and State 
tax.
    The Chairman. Well, I want to thank you very much for your 
views on tax policy that affects the indigenous people, tribes 
especially, of our Country. We are looking for ways of trying 
to help the tribes across the Country by making good use of 
what is available and not being used. So we value your 
responses and look forward to continuing to work with you for 
future advice as well, when we work on these.
    But as we do this, we want to, if need be, to get as far as 
legislatively trying to help or administratively trying to help 
them. But we want to take advantage of what is there now for 
the Indian tribes of our Country and I thank you for adding to 
this and look forward to continuing to work with you on this.
    I want to thank you very much, and thank you to all of our 
witnesses today. It has been very helpful for us to hear from 
all of you about the ways that our Federal and State tax 
policies can promote or inhibit strong Tribal economic 
development. We have heard about several important tax 
incentives offered through Federal law that have been used to 
attract capital, grow jobs and build economies in Tribal 
communities. And we have also heard about some of the 
challenges for tribes when States attempt to tax Tribal lands 
or enterprises. It is important that we identify tax policy 
tools that promote and not harm Tribal economic development.
    Again, I want to say thank you for all those who 
participated today and I want to remind you that the Committee 
record will remain open for two weeks for any other 
contributions to the record. It will remain open for two weeks 
from today.
    So again, I thank you very much, and thank you very much, 
Professor Gunn.
    This hearing is adjourned.
    [Whereupon, at 4:33 p.m., the Committee was adjourned.]
                            A P P E N D I X

  Prepared Statement of Hon. Cedric Black Eagle, Chairman, Crow Tribe
Introduction
    Thank you for the opportunity to share the views and concerns of 
the Crow Nation on Federal tax policy. Given that the Crow Nation's 
resources are primarily energy-based, our comments today focus on 
Indian energy development.
    The Crow Nation's energy resources are abundant- an estimated 3 
percent of US coal reserves along with significant oil, natural gas and 
wind reserves--and the financial stability of our Tribe is wholly 
dependent upon them. As such, the Crow Nation is uniquely positioned to 
contribute to the energy independence of our country.
    We applaud this Committee's leadership in reviewing ways that tax 
policy can help level the playing field for energy, development in 
Indian Country and help realize the economic value of such resources 
not only to the Tribes that own them, but to the nation as a whole.
    Providing tax incentives to create energy jobs in Indian Country 
will help overcome other obstacles to energy project development, and 
will build additional national capacity to create even more jobs in the 
national economy. This is an opportunity that cannot be missed.
Energy Opportunities and Obstacles
Coal
    There is an estimated (some believe conservatively so) 9 billion 
tons of coal held by the Crow Nation. The Absaloka mine outside of 
Hardin, Montana produces 6 million tons of Crow coal annually; over 175 
millions of tons since 1974. The mine annually pays taxes and royalties 
to the Crow Nation totaling $19 million, which is 60 percent of our 
non-Federal budget. The mine provides skilled jobs that pay $16 
million; again critical in our economy which struggles with nearly 50 
percent unemployment. As a source of jobs, critical financial support, 
and U.S. produced energy, it is absolutely critical that it remain open 
and competitive.
    A recent outage at Absaloka's largest coal customer's power plant 
will hurt jobs and revenues in 2012, and emphasizes the need for 
multiple energy projects to diversify our revenue sources.
    To that end, we have been developing Many Stars, a planned Coal to 
Liquid mine and production facility. The original plans are for a state 
of the art clean coal facility that will be capable of producing up to 
50,000 barrels or more of liquid products per day ultimately_ultra-
clean liquid fuel capable of replacing oil for jet and diesel fuel, 
which translates to a significant reduction in the need for importing 
foreign oil, which in turn contributes to national security. It was 
anticipated that Many Stars, as designed, would create many jobs--up to 
2,000 construction jobs and a range of 250 to 900 production jobs 
dependent on through-put. And with full carbon capture and 
sequestration, Many Stars seems to be the best way to monetize the 
Tribe's vast coal resources in the long run while not contributing to 
the climate change problem.
    But uncertainty about national energy policy has made it difficult 
to attract investment for this cutting edge project. Regulatory 
uncertainty combined with expiring tax provisions make future planning 
quite difficult. Fortunately, technology improvements have made a 
smaller scale facility possible. We are cutTently working to bring in a 
new developer and starting on a smaller scale (8,000 barrels per day), 
which is now more feasible due to technology improvements.
    In addition to Absaloka and Many Stars, there is a potential for 
additional development of very low-sulfur coal on the Reservation that 
is dependent on rail access to the west coast. This option is 
complicated by some cost disadvantage and additional BIA regulatory 
hurdles, as compared to nearby Federal coal.
Oil and Gas
    Recent oil and gas exploration has found reserves worth developing, 
but activity has been hampered by the markets and the Bureau of Land 
Management's Application for Permit to Drill (APD) fees of which the 
Committee is aware.
Wind
    Several years-worth of wind data indicates a steady and reliable 
Class 5/6 wind resource in several areas of the Reservation located in 
direct proximity to existing transmission lines. Because the wind 
resource areas encompass lands held in a variety of ownership patterns, 
including tribal trust, individual tribal member allotments (many of 
which are highly fractionated), and non-Indian fee lands, developing 
this resource will be a challenge.
Hydropower
    The recent Crow Water Rights Settlement Act of 2010 grants the 
Nation exclusive rights to develop and market hydropower from the 
Yellowtail Afterbay Dam. Preliminary planning and feasibility studies 
are underway. To date, the plan is to build a small, low-head 
hydropower facility with an estimated capacity of 10-15 Megawatts to 
supply the local rural cooperatives that provide electric power to the 
Reservation.
Leveling the Playing Field for Indian Energy Projects
Regulatory Obstacles
    The lease approval process is needlessly burdensome, excessively 
slow, and inaccurate. BIA requirements for surface access approvals to 
conduct exploration, along with slow environmental assessments, create 
delays significant enough to make our projects non-competitive. These 
types of burdens and other limitations in the federal Indian law tend 
to discourage investments in, and ultimately development of our 
projects.
    Incomplete land records, inadequate staffing, and surface land 
fractionation add more burdens to energy projects on Reservation lands, 
in the form of extensive land title work, mineral rights research, and 
surface landowner consents.
    Effective Federal tax incentives are essential to help offset some 
of these extra burdens.
Federal Tax Incentives
    While the existing federal tax incentives work to encourage 
investment and development on Indian energy projects, their usefulness 
is limited by the length of their applicability.
    For example, the tax incentives that have worked to keep the 
Absaloka mine open and competitive since 2006 are due to expire next 
year, and thus do not help encourage new long-lead-time projects and 
investments that will take 5-10 years to begin producing.
    We strongly recommend that the Indian Coal Production Tax Credit 
and the accelerated depreciation provision be made permanent, along 
with some additional modifications. We also recommend that the Indian 
Wage Tax Credit be refashioned to minor the very successful Work 
Opportunity Tax Credit, which will be a much more effective tool to 
encourage employment on reservations.
    Extension of Wind Energy Production Tax Credit is also essential to 
development of Tribal wind resources--and ability for the Tribe to make 
direct use of the credit will provide options for ownership and 
control.
Many Stars Needs Government Support
    Grant the Department of Defense and other federal agencies the 
ability to enter into long-term, guaranteed fixed-price contracts that 
will underpin the commercial framework needed to base-load these types 
of long-term CTL projects.
    Extend the expiration date of the current 50-cents per gallon 
alternative fuel excise tax credit for a period of 10 years following 
start-up for those projects starting construction prior to 2015.
    Support a twenty percent investment tax credit for each CTL plant 
placed in service before the same future date, and/or allow 100 percent 
expensing of investments in the year of capital outlay for any CTL 
plant in operation by the same future date.
    Support DOE and DOD alternative fuel development programs as part 
of a comprehensive energy policy that supports the full spectrum of 
energy technologies and provides a level playing field for developing 
new innovation in clean coal technology to meet national environmental 
goals.
    Enact longer-term tax incentives for clean-coal projects will help 
remove the general uncertainty in energy policy and will provide 
investors confidence to support new innovation and major investment in 
the clean coal sector. Our observation is that policy uncertainty--
including lack of long-term tax incentives--with respect to clean coal 
technology, equates to paralysis in trying to move the Many Stars CTL 
Project forward with new investors.
Conclusion
    Given our vast mineral resources, the Crow Nation can, and should, 
be self-sufficient. We seek to develop our mineral resources in an 
economically sound, environmentally responsible and safe manner that is 
consistent with Crow culture and beliefs.
    The Crow people are tired of saying that we are resource rich and 
cash poor. We respectfully request your assistance in setting the 
foundation to make our vision a reality.
    We have been working to develop our energy resources and to remove 
obstacles to successful development. We hope to build a near-term 
future when our own resources, in our own hands, provide for the 
health, hopes and future of our people.
    It is critical that Congress act to protect Indian nations' 
sovereignty over their natural resources and secure Indian nations as 
the primary governing entity over their own homelands. This will have 
numerous benefits for the local communities as well as the Federal 
Government.
    The Crow Nation has been an ally of the United States all through 
its history. Today, the Crow Nation desires to develop its vast natural 
resources not only for itself, but to once again help the United States 
with a new goal--achieving energy independence, securing a domestic 
supply of valuable energy, and reducing its dependence on foreign oil.
    However, our vision can only become a reality with Congress' 
assistance. Mr. Chairman and Committee members, thank you again for the 
opportunity to provide testimony on how federal tax policy and 
incentives can help level the playing field for Indian Energy 
development.

                                  
