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- By Chez Oxendine
- Finance
Three decades of confusion around the tax status of tribally chartered businesses may soon come to an end with new federal rules announced on Monday.
The Department of the Treasury and the Internal Revenue Service announced a proposed rule Monday afternoon that would clarify that businesses wholly owned by one or more tribes would share those tribes’ tax-exempt status. The rule aims to ensure that tribal governments and their wholly owned enterprises are on equal footing with other governments when it comes to tax status — a move that would support tribal self-determination. The rule would also explicitly make those tribal businesses eligible for clean energy “elective pay” tax credits, allowing them to receive direct payments for investments in renewable energy projects.
The rule “unshackles” tribal economies by providing tax certainty and ensuring tribal businesses can serve as revenue generators for their citizens, according to Treasury Deputy Secretary Wally Adeyemo.
“For far too long, tax uncertainty has held back tribes’ economic opportunity, and the Biden Harris Administration is reversing that trend,” Adeyemo said during a press call Monday. “Tribally chartered entities generate critical revenue for their communities, and today’s rules recognize their tax status to enable them to further their contributions to economic development.”
Confusion around the tax-exempt status of tribally-owned businesses has raised concerns around the efficacy of the Inflation Reduction Act’s pivot toward renewable energy for tribes, per prior Tribal Business News reporting. Alliance for Tribal Clean Energy CEO Cheri Smith said tribal governments and business leaders, attempting to launch clean energy projects, were “building the rocket ship while they were flying it.”
“Generally, tribal lawyers don't have a lot of experience in tax law because tribes don't pay taxes. Generally, tax lawyers don't have a lot of experience with tribes, because tribes don't pay taxes,” Smith said in a Jan. 21 story. “Everyone's digesting new rules and technical reviews and it's requiring a whole new team at the Department of Energy, which largely hasn't had (tribal) tax expertise in it.”
A Treasury representative, speaking on background, told Tribal Business News that long-standing, murky rulemaking contributed to confusion around tribally chartered businesses’ tax status over the past 30 years. By updating the rules, tribally owned corporations would be able to pursue tax credits — something many developers factored into project budgets.
Such credits can unlock private investment and interest in tribal renewable projects, scaling up possibilities for underfunded Native communities. At least one major project — a $150 million microgrid on the Viejas Band of Kumeyaay Indians’ reservation in California— has already utilized tax credit equity in their financing. That deal brought in money from coffee company Starbucks and U.S. Bancorp’s social investment arm, Impact Finance, per a prior Tribal Business News report.
“This is a pivotal moment for Indian Country,” Rodney Butler, chairman of the Mashantucket Pequot Tribal Nation and president of NAFOA’s board, said during the Monday press call. “So much economic opportunity flows from tax certainty — it’s critical to tribal economic development.”
Other tribal leaders echoed the sentiment. In a statement published by the Treasury, National Congress of American Indians (NCAI) President Mark Macarro said the new rules represent a “premium on tribal self-determination,” and should be used as an example going forward of federal deference to tribal sovereignty.
“This tilt toward embracing Tribal sovereignty in federal rulemaking should not be anomalous,” Macarro said. “With the leadership the Treasury has shown, now other agencies’ leadership will see that the primacy of Tribal government decision-making is valued.”
With the notice of rulemaking officially published, the Treasury and the Internal Revenue Service (IRS) will take public comment on the proposed rule for 90 days beginning Oct. 9. The department will also host tribal consultations on the rule Dec. 16-18, with a public hearing scheduled for Jan. 17, 2025.
