[Congressional Record Volume 143, Number 70 (Friday, May 23, 1997)]
[Senate]
[Pages S5122-S5125]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. McCAIN (for himself and Mr. Campbell): S. 806. A bill to 
        amend the Internal Revenue Code of 1986 to provide tax credits 
        for Indian investment and employment, and for other purposes; 
        to the Committee on Finance.
  S. 807. A bill to amend the Internal Revenue Code of 1986 to treat 
for unemployment compensation purposes Indian tribal governments the 
same as State or local units of government or as nonprofit 
organizations; to the Committee on Finance.
  S. 808. A bill to amend the Internal Revenue Code of 1986 to provide 
for the issuance of tax-exempt bonds by Indian tribal governments, and 
for other purposes; to the Committee on Finance.
  S. 809. A bill to amend the Internal Revenue Code of 1986 to exempt 
from income taxation income derived from natural resources activities 
by a member of an Indian tribe directly or through a qualified Indian 
entity; to the Committee on Finance.


                 NATIVE AMERICAN TAX RELIEF LEGISLATION

  Mr. McCAIN. Mr. President, I am pleased to join my colleague, Senator 
Ben Nighthorse Campbell, chairman of the Indian Affairs Committee, in 
introducing a series of tax relief bills designed to encourage 
investment, economic development, and growth on Indian reservations and 
other native American communities throughout the United States. The 
four bills that I am introducing today would amend the Tax Code to give 
Indian tribes the tools with which to improve their economies.
  In simple terms, native Americans as a group have experienced 
grinding poverty of epidemic proportions since the days when they were 
first uprooted from their homelands or overrun by settlers. At the end 
of World War II, the United States assisted in rebuilding the economies 
of Germany and Japan to the advancement of peace,

[[Page S5123]]

stability, and our own prosperity. Since the time native America lost 
``the war,'' their economy has never been rebuilt. The treaties that 
the United States made with tribes in exchange for their land and peace 
have, for the most part, not been honored.
  The economic conditions on Indian reservations have not improved even 
during those periods of economic growth that have swept much of the 
rest of our Nation. Instead, Indians have long suffered the indignity 
of promises broken and treaties discarded, and a personal hopelessness 
that reaches tragic dimensions. Many Indian reservations are, 
relatively speaking, islands of poverty in the ocean of wealth that is 
the rest of America.
  In previous Congresses, I have offered these amendments to the 
Federal Tax Code to create incentives for private sector investment on 
Indian reservations and remove inequities in the Tax Code so that 
tribal governments can enjoy the same tax benefits accorded other 
nontaxable government entities. I have offered these provisions, not to 
provide an advantage to Indians, but merely to give them the same kind 
of tax incentives and benefits the Congress has given other 
economically depressed areas and other units of government. Given the 
extremely underdeveloped economies of native American communities, I 
believe we must authorize these reasonable measures to stimulate 
economic growth and productivity for Indians.


                   RESERVATION INVESTMENT TAX CREDIT

  Mr. President, the first bill I am introducing today is the Indian 
Reservations Jobs and Investment Act of 1997. This bill would provide 
tax credits to otherwise taxable business enterprises if they locate 
certain kinds of income-producing property on Indian reservations. The 
bill does not provide any tax credit for reservation property used in 
connection with gaming activities.
  I am very concerned by how little private enterprise is present on 
Indian reservations. Typically, the only economic activity is that 
generated by the Federal or tribal governments. We must begin to see 
private investment attracted to Indian reservations if we are to 
realize any significant improvement in the economies of Indian tribes.


               TRIBAL UNEMPLOYMENT TAX EQUITY AND RELIEF

  Mr. President, the second measure is the Indian Tribal Government 
Unemployment Compensation Act Tax Relief Amendments of 1997. This bill 
would correct a serious oversight in the way the Internal Revenue Code 
treats Indian tribal governments for unemployment tax purposes under 
the unique, State-Federal unemployment program authorized by the 
Federal Unemployment Tax Act [FUTA]. It would clarify existing tax 
statutes so that tribal governments are treated as State and local 
units of governments for unemployment tax purposes.
  Unless this problem is resolved, many former tribal government 
employees will continue to be denied benefits by State unemployment 
funds. I believe that Indian and nonIndian workers who are separated 
from tribal governmental employment should be included in our Nation's 
comprehensive unemployment benefit system, and this bill will go a long 
way toward ensuring mandatory participation by tribal governments on a 
fair and equitable basis in the Federal-State unemployment fund system. 
I can think of nothing more fair than the approach clarified in this 
bill.


                    TRIBAL TAX-EXEMPT BOND AUTHORITY

  Mr. President, a third measure I am introducing is the Tribal 
Government Tax-Exempt Bond Authority Amendments Act of 1997. This bill 
would bring new investment dollars to Indian reservations where capital 
formation is so desperately needed. There are serious deficiencies in 
the basic infrastructure on Indian reservations, primarily because 
increasingly tight fiscal restraints have limited the ability of the 
United States, through direct appropriations, to fund construction and 
other activities. Reservations lag far behind the rest of the United 
States in terms of sanitation, housing, roads, basic utilities, and 
public service facilities necessary to support a society and a 
competitive economy. I believe that providing additional tax-exempt 
bond authority to tribal governments will go a long way toward 
attracting new sources of capital to Indian reservations.


                   TRIBAL NATURAL RESOURCE TAX RELIEF

  Mr. President, finally, I am introducing the Treatment of Indian 
Tribal Natural Resource Income Act of 1997. This bill would extend an 
exemption to income derived by individual Indians from the harvest of 
natural resources from tribal trust land that is now extended to income 
derived by individual Indians from treaty-protected Indian fishing 
activity. In 1988 Congress amended the Internal Revenue Code to provide 
the treaty fishing exemption under section 7873, which serves as a 
model for this bill.
  The bill would apply only to tribal members and only with regard to 
natural resources, underlying title to which is owned by the United 
States in trust for a tribe. It would remove the existing anomaly which 
allows a tribe as a whole to harvest or process such resources free of 
tax, but imposes an income tax on an individual tribal member of that 
tribe carrying out activity permitted by the tribe.
  Mr. President, native Americans need to have the appropriate tools to 
overcome years of economic hardship and deprivation. They need to be 
given a full and fair opportunity to improve their quality of life 
today and to become more self-sufficient in the future. These bills 
will help to achieve these goals by spurring economic development on 
Indian reservations and tribal industries. I urge all of my colleagues 
to join in supporting early passage of these measures.
  Mr. CAMPBELL. Mr. President, today I would like to co-sponsor the 
Indian Tribal Government Unemployment Compensation Act Tax Relief 
Amendments of 1997 introduced by Senator McCain. The Federal 
Unemployment Tax Act of 1935 [FUTA] is a joint Federal-State tax system 
which imposes on each employer a tax on wages paid to their employees. 
These taxes are used to provide unemployment insurance to out-of-work 
citizens. The Federal portion of the tax can range up to 6.2 percent on 
wages paid, and the State portion ranges from near zero to 9 percent of 
wages paid.
  Indian tribes from around the country have contacted me expressing a 
great deal of confusion with the FUTA tax system and the difficulties 
they are having in planning as a result of the varying interpretations 
given FUTA by the IRS and the Labor Department. This problem is 
national in scope and experienced by tribes in the Great Lakes region 
such as the Red Lake Band of Chippewa Indians and the Fond du Lac Band 
of Lake Superior Chippewa Indians, and by tribes in my own State of 
Colorado--the Ute Mountain Ute and the Souther Ute tribes.
  The FUTA encourages States to undertake their own unemployment 
insurance programs by permitting employers to take the State 
unemployment insurance taxes they have paid and use them to offset 
their Federal unemployment insurance tax bill.
  This legislation is necessary to clarify the status of tribal 
governments under the FUTA and the Internal Revenue Code. As 
independent sovereign entities, Indian tribal governments should be 
afforded the same tax treatment, in this instance with regard to FUTA, 
as other governments--Federal, State, and local. Indian tribal 
governments are legitimate governments and, in fact, are one in four 
sovereign governments mentioned in the U.S. Constitution; the others 
being foreign nations, the several states, and the Federal Government. 
This is critical because FUTA treats private, commercial employers 
differently than it does foreign, State and local government employers. 
Private employers are subject to both State and Federal unemployment 
insurance taxes.
  In brief, the FUTA exempts foreign, Federal, State, and local 
government employers from the 0.8 percent Federal unemployment tax; and 
exempts foreign and Federal Government employers from the State 
unemployment insurance tax. FUTA allows state and local government 
employers to pay a favorable, lower State unemployment insurance taxes, 
and for tax purposes treats tax-exempt charitable organizations the 
same as State and local governments.
  The problem is that the FUTA does not expressly include Indian tribal 
government within the ``government employer'' category it has created 
for State and local government employers. As a result tribal 
governments across

[[Page S5124]]

the country have been subjected to widely differing interpretations of 
the FUTA statute, with inconsistent results. Some tribes's good faith 
interpretation of the statute led them to believe that they, as units 
of government, were immune from the Federal tax. These tribes face 
large tax liabilities as a direct result of the way the act is being 
applied. Other tribes, again in good faith, did not participate in 
State unemployment insurance programs. In these instances, employees of 
tribal governments, both Indian and non-Indian, have been denied 
unemployment insurance benefits, pointing to the lack of participation 
by the tribes.
  Not surprisingly, the agencies charged with administering the tax and 
labor laws have not arrived at a consensus on the FUTA issue. For the 
past several years, various Internal Revenue Service field offices have 
interpreted the FUTA in different ways. The varying interpretations 
have resulted in differences in benefits availability for tribal 
employees, Indians as well as non-Indians, and differing degrees of tax 
liability for tribal governments themselves. The bottom line is that 
for Federal FUTA tax purposes, the treatment for tribes often depends 
on where they are located. Absent explicit recognition from Congress 
clarifying the status of tribal governments, this is a problem that 
will go on.
  Because State governments, the IRS, and the U.S. Labor Department 
cannot seem to agree on the status of Indian tribal governments under 
the FUTA, the time is right for the Congress to act and to clarify this 
issue so that tribal members can secure benefits they are entitled to 
and the tribes will have certainty and predictability in their 
employment and hiring decisions.
  Tribal government employers will benefit from this measure by the 
uniform application of the FUTA statute. The increased certainty that 
it will provide to tribal employers, their employees, and separated 
employees will enhance the tribal work environment, reduce litigation, 
and provide assurances to all parties involved. This bill would require 
that Indian tribal government employers receive the same treatment as 
Federal, State, and local governments and tax-exempt organizations 
receive for FUTA purposes.
  The Joint Tax Committee has been requested to estimate the revenue 
impact of this measure. Similar estimates performed in 1995 indicated 
the impacts to be minor. The development of tribal economies is a 
critical element in encouraging tribal self-sufficiency and political 
self-determination. Increasing the ability of tribal government 
employers to attract and retain the best skilled employees is one of my 
main objectives as chairman of the Indian Affairs Committee. If the 
confusion and lack of certainty that has plagued tribal governments 
continues, employment with an Indian tribe will be increasingly 
unattractive, and tribes will suffer.
  By providing equitable FUTA treatment to tribal government employers, 
this legislation will assist in the long-term growth and stability of 
tribal economies and tribal governments. I urge my colleagues to join 
in supporting this crucial measure.
  Mr. President, I ask unanimous consent that additional material be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                          Fond du Lac Reservation,


                                           Business Committee,

                                      Cloquet, MN, March 27, 1997.
     Senator Ben Nighthorse Campbell,
     Chairman, Senate Committee on Indian Affairs, Hart Senate 
         Office Building, Washington, DC.
     RE: H.R. 294, to amend the Federal Unemployment Tax Act.
       Dear Senator Campbell: As Chairman of the Reservation 
     Business Committee of the Fond du Lac Band of Lake Superior 
     Chippewa Indians, I write to request your support of H.R. 
     294, a bill to amend the Federal Unemployment Tax Act to 
     clarify that Indian tribes, like state and local governments, 
     are exempt from this tax.
       State and local governments in recognition of their 
     sovereignty, are not required to pay federal unemployment 
     taxes. In 1987, the IRS took the same position with regard to 
     Indian tribes. At that time, the IRS specifically advised the 
     Fond du Lac Band that the Band was not subject to FUTA and 
     was therefore not required to pay the federal unemployment 
     tax. The IRS actually refunded federal taxes that the Band 
     had previously paid. A copy the IRS letter to us is enclosed.
       The IRS has since changed its mind, and has initiated an 
     action against the Band which is now being litigated before 
     an Administrative Law Judge. In these proceedings, the IRS 
     seeks over $2 million in back taxes and penalties from the 
     Band. The government's change of position on the issue is not 
     only unfair to tribes, but has generated litigation that is 
     expensive and inefficient for both the tribes and the federal 
     government to pursue.
       Moreover, the IRS is pursuing this matter even though the 
     Fond du Lac Band has voluntarily participated in the State's 
     unemployment compensation plan. The Band has done so, not 
     because the Band is required to, but because the welfare of 
     our employees and our former employees is of the utmost 
     importance to us.
       The legal uncertainty about the applicability of FUTA to 
     tribes, and the IRS' inconsistent position on that question, 
     results in a situation that should be fixed. FUTA should be 
     amended to recognize the tribes' status as sovereigns. The 
     Fond du Lac Band--like the State of Minnesota and the local 
     communities within the state--is responsible for providing a 
     myriad of services to Band members and Reservation residents. 
     Established federal Indian policy has--for many years--been 
     directed to encouraging tribal self-determination, and 
     economic self-sufficiency. And numerous federal statutes--
     enacted to further those ends--recognize and confirm tribal 
     status as separate sovereigns. It is inconsistent with tribal 
     sovereignty, and the federal policy of encouraging tribal 
     self-determination, to treat tribes differently from state 
     and local governments, and to subject tribes to the payment 
     of a federal tax from which state and local governments are 
     exempt.
       H.R. 294, introduced by Congressman Shadegg, would resolve 
     this disputed question. The bill is identical to S. 1305 
     introduced by Senator McCain and yourself in the 104th 
     Congress. The measure was further supported by Senator Grams. 
     A copy of Senator Grams' letter to the Senate Finance 
     Committee on this matter is attached. The bill strikes an 
     appropriate balance between tribal sovereignty--in that it 
     clarifies that tribes, like every other government in this 
     country, are exempt from FUTA taxes--while also ensuring that 
     tribal employees are provided unemployment benefits, by 
     requiring tribes to either voluntarily participate in state 
     plans, as Fond du Lac is now doing, or to reimburse the state 
     plans for any payment made to Tribal employees.
       We urge you to show your support of this measure by 
     introducing companion legislation in the Senate. We look 
     forward to working with you and your staff to see enactment 
     of this important legislation and we thank you for your 
     consideration of our request.
           Very truly yours,
                                                Robert B. Peacock,
     Chairman.
                                  ____



                                       Ute Mountain Ute Tribe,

                                    Towaoc, CO, November 14, 1996.
     Re Federal Unemployment Tax Act--applicability to Indian 
         tribes.

     John Echohawk,
     Executive Director, Native American Rights Fund, Boulder, CO.
       Dear John: Please find enclosed several documents 
     pertaining to a serious problem we are having with the 
     federal Department of Labor and the State of Colorado 
     concerning our status under the Federal Unemployment Tax Act 
     (FUTA). Because the Department of Labor's enclosed 
     Unemployment Insurance Letter (UIPL) was forwarded to all 
     state employment security agencies, this problem will 
     eventually effect all tribes across the nation.
       The documents I am providing include; 1. The UIPL issued by 
     Labor; 2. Letter received from the Colorado Department of 
     Labor; 3. The draft resolution presented to NCAI; 4. The 
     signed NCAI resolution passed at their recent Phoenix meeting 
     \1\; 5. Copies of relevant portions of FUTA, and; 6. Copies 
     of 26 USC Sec. 7871 concerning Indian tribe's tax status 
     under the Internal Revenue Code.
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     Footnotes at end of article.
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       In person, I will explain in more complete detail the 
     chronology of this issue. Both Colorado Ute tribes thought we 
     solved this problem several years ago. The crux of the issue 
     is that states and their political subdivisions are exempt 
     under FUTA. State agencies are thus charged with the 
     responsibility of insuring their political subdivisions. 
     Tribes were not included in the state law as political 
     subdivisions and therefore we received no unemployment 
     insurance benefits whatsoever.\2\ Finally, the Colorado State 
     Legislature amended state law to include the two Colorado Ute 
     tribes as political subdivisions. We were then able to 
     participate in the program and were given the favorable rate 
     afforded to such entities.
       Because the Colorado Department of Labor is afraid its 
     program will be decertified per the UIPL, they are now 
     placing us at a new employer rate and demanding back payments 
     to January 1, 1996. See, enclosed letter. While they have 
     informed us we will be considered a ``continuing employer,'' 
     the rate is a much higher rate than that afforded to 
     political subdivisions.
       It is our attorney's initial position the matter can be 
     resolved by amending the federal law on Indian tribe's tax 
     status. Simply put, this and other tribes need an amendment 
     to 26 USC Sec. 7871 adding FUTA to the other excise taxes 
     which tribes are considered as states for purposes of.

[[Page S5125]]

       We would like to request the assistance of the Native 
     American Rights Fund attorneys and policy staff on this 
     issue. Some coordination of effort would be greatly 
     appreciated. I firmly believe it is an issue which will 
     affect all tribes in the very near future. The impacts of 
     Labor's UIPL surely will negatively affect sovereignty and 
     degrade the government-to-government relationship which 
     President Clinton affirmed by Executive Order a few years 
     ago.
       I thank you for your consideration of this matter.
           Sincerely,
                                                Judy Knight-Frank,
                                                         Chairman.


                               footnotes

     \1\ At the time of writing, I am still awaiting a facsimile 
     copy of the NCAI Resolution and will forward it immediately 
     when it is received.
     \2\ We did not pay our IRS FUTA tax bills since we received 
     no benefit therefrom. A large IRS claim was dropped via 
     federal legislation acknowledging the problem.
                                  ____

                                              National Congress of


                                             American Indians,

                                     Washington, DC, May 22, 1997.
     Hon. Ben Nighthorse Campbell,
     Chairman, Committee on Indian Affairs, U.S. Senate, 
         Washington, DC.
       Dear Chairman Campbell: On behalf of the National Congress 
     of American Indians, the oldest and largest national Indian 
     organization, I am writing to voice the support of more than 
     200 tribal governments for legislation to fix the inequitable 
     treatment of tribal governments under the Federal 
     Unemployment Tax Act (FUTA).
       Since its enactment in the 1930's, FUTA has treated 
     foreign, federal, state and local governments employers 
     differently from commercial business employers. FUTA also 
     treats tax-exempt charitable organizations the same as state 
     and local governments. It is well-settled that tribal 
     governments are not taxable entities under the federal tax 
     code because of their governmental status. However, because 
     FUTA does not expressly include tribal governments within the 
     definition of governmental employers, the Internal Revenue 
     Service (IRS) is forcing tribal governments to pay the high 
     tax rates that apply to commercial business employers.
       To correct this situation, Representative Shadegg has 
     introduced H.R. 294, the Indian Tribal Government 
     Unemployment Compensation Tax Act. H.R. 294 would give tribal 
     governments the same options that FUTA gives to all state and 
     local governments. I have attached a resolution passed by the 
     NCAI member tribes that supports such an amendment to FUTA.
       Thank you very much for your efforts to take this issue 
     under consideration. If we can assist you in any way, please 
     contact me or NCAI Executive Director JoAnn K. Chase at (202) 
     466-7767.
           Sincerely,
                                                     W. Ron Allen,
     President.
                                  ____


                         Resolution PHX-96-107


                              title: futa

       Whereas, we, the members of the National Congress of 
     American Indians of the United States, invoking the divine 
     blessing of the Creator upon our efforts and purposes, in 
     order to preserve for ourselves and our descendants rights 
     secured under Indian treaties and agreements with the United 
     States, and all other rights and benefits to which we are 
     entitled under the laws and Constitution of the United States 
     to enlighten the public toward a better understanding of the 
     Indian people, to preserve Indian cultural values, and 
     otherwise promote the welfare of the Indian people, do hereby 
     establish and submit the following resolution; and
       Whereas, the National Congress of American Indians (NCAI) 
     is the oldest and largest national organization established 
     in 1944 and comprised of representatives of and advocates for 
     national, regional, and local Tribal concerns; and
       Whereas, the health, safety, welfare, education, economic 
     and employment opportunity, and preservation of cultural and 
     natural resources are primary goals and objectives of NCAI; 
     and
       Whereas, this exemption is based on the fact that states 
     and their political subdivisions are immune from such 
     taxation under the Constitution of the United States, Id., 
     and immunity which federally recognized Indian tribes share; 
     and
       Whereas, prior to the UIPL, states could consider Tribes 
     and their various wholly owned entities as ``political 
     subdivisions'' of their state for purposes of exempting 
     Tribes from the FUTA tax, thereby making Tribes eligible for 
     favorable governmental unemployment tax rates as well as 
     reimbursement status (where a Tribe would only pay for those 
     unemployment benefits paid out) if desired; and
       Whereas, if member Tribes allow the UIPL to stand and not 
     seek to change the law to rightfully exempt them from this 
     federal tax, they will not only be subject to a higher state 
     program tax rate (provided they can still even participate in 
     the program), Tribes will also be subject to an unacceptable 
     and possibly illegal federal tax, and
       Whereas, the two Colorado Ute Tribes are already faced with 
     a seven-fold increase in their state unemployment insurance 
     tax rate due directly to Labor's UIPL (reference attached 
     letter from the Colorado Department of Labor); and
       Whereas, it is settled law that the FUTA tax is an excise 
     tax and this is acknowledged in Labor's own UIPL; and
       Whereas, Tribes should be exempt from the FUTA tax and be 
     allowed to participate in a state's unemployment insurance 
     program on the same level as any political subdivision 
     therein; and
       Whereas, this exemption and fair treatment could be 
     guaranteed by amending 26 USC* 7871(a)(2) (which treats 
     Tribes as states for purposes of several federal taxes, 
     including many excise taxes) to add FUTA to that list of 
     excise taxes for which Tribes are considered as states and 
     therefore exempt: Now therefore be it
       Resolved That the National Congress of American Indians 
     does hereby acknowledge this as a serious issue affecting 
     nearly all member Tribes and shall immediately begin a 
     member-wide survey to coordinate among its members the effort 
     to amend the above-mentioned law in as timely a fashion as 
     possible.
                                 ______