As a result of the Indian gaming phenomenon, many tribes have experienced
tremendous economic growth and opportunity. However, gaming revenue is more
than just money. It is the source that helps us examine how we turn our
cultural understanding and communities' wealth - people, land, time, ideas
and culture - into governmental practices that sustain healthy tribal
Tribal leadership has recently expressed some concern regarding the future
of gaming and its governmental benefits. "Indian gaming will one day cease
to exist," Anthony Pico, chairman of the Viejas Band of Kumeyaay Indians in
California, was quoted as saying in a Reuters article aptly titled "U.S.
Indian tribes need to look beyond casinos."
Pico went on to explain that the threatened expansion of non-Indian gaming,
the over-saturation of the national gaming market and public policy
concerns about gambling addiction are all factors that will sooner or later
contribute to the demise of the $18.5 billion Indian gaming industry.
Pico's wise foresight, from the perspective of California tribes that have
operated governmental gaming operations since the 1970s, should be heeded
by gaming tribes through the country. There were 15 gambling measures on
the ballot in six states last November, which embody exactly the type of
threat of expanded non-Indian gaming and market over-saturation of which
Fifteen states have conducted statewide prevalence studies on "problem
gambling" and several states are considering legislation to combat gambling
addiction, just as Pico alluded. As such, it is imperative that tribes
expand their revenue sources beyond gaming and avoid placing all of their
economic eggs in one basket.
Although some tribes have begun to devise ways to attract private
investment and industry to the reservation, it has become more important
than ever for Indian country to create new economic opportunities that will
withstand the volatile gaming market. Some tribes are major players in the
local and regional economy. They are investing heavily in infrastructure
and building major centers for trade and commerce and, as a result, have
acquired some wealth to benefit their communities. In short, tribes are
ready to explore investment opportunities, invite industry and participate
in the mainstream commercial market.
Economic sovereignty requires commercial diversification and strategic
capital plans that attract investors to Indian country. Aggressive business
plans that favor economic development and job creation are tried-and-true
methods of generating income and creating a thriving private sector (which,
like the Tulalip Tribes' Quil Ceda Village, could bolster tribal taxation)
- all of which is not dependent on Indian gaming.
Toward those ends, consider the following advantages and savings an
entrepreneur could enjoy if lured to invest in tribal commercial ventures
or locate business facilities on tribal lands:
NEW MARKETS TAX CREDITS
The New Markets Tax Credit (NMTC) program permits investors to receive a
federal income tax credit for making qualified equity investments in
designated Community Development Entities (CDEs), which in turn provide
investments in low-income communities, including Indian reservations.
Off-reservation tribal fee or trust land, particularly in rural areas, may
also be designated as low-income areas for NMTC purposes.
Qualified investments in tribal economic development ventures, made through
CDEs, allow the investor(s) tax credits equal to 39 percent of the
investment allocated over a seven-year period. If tapped, the NMTC program
could spur millions of dollars in private capital investment in tribal
EMPLOYMENT TAX CREDITS
The Indian employment credit provides non-Indian businesses with an
incentive to hire Indians who live on or near the reservation. A $20,000
tax credit is available to such businesses each tax year for every
"qualified employee" that is paid "qualified wages."
A qualified employee must: 1) be an enrolled member of an Indian tribe or
the spouse of a tribal member, 2) perform substantially all of his or her
services for the business on the reservation, and 3) reside on or near the
reservation. Qualified wages are any wages the business pays or incurs for
services performed by a qualified employee, including health insurance
costs. Thus, a non-tribal company that situates a business facility on the
reservation could be eligible for sizeable employment tax savings annually.
Non-Indian manufacturers with facilities in Indian country can use shorter
recovery periods when calculating depreciation deductions for its
production equipment. "Qualified Indian reservation property" must be used
predominately in the active conduct of a trade or business on a
reservation, and must be a 3-, 5-, 7-, 10-, 15- or 20-year property or
non-residential real property.
"Qualified infrastructure property" that is located off-reservation but is
connected to qualified infrastructure within the reservation, is also
eligible for shorter recovery periods. Power lines, water systems and
telecommunication facilities are examples of qualified infrastructure
Because the shorter recovery periods for qualified Indian and
infrastructure property are in addition to the normal expense deduction of
up to $100,000 for such assets, the depreciation tax savings to non-Indian
manufacturers could also be significant.
Tribes can issue tax-exempt debt, like state and local governments, so long
as the proceeds will be used in the "exercise of an essential governmental
function." Accordingly, interest on tax-exempt tribal bonds can be excluded
from income, which results in significantly decreased borrowing costs for
the nation as compared to conventional interest rates.
Tribes can issue non-taxable bonds when exercising such essential
governmental functions as constructing government buildings, health clinics
and hospitals, parks, schools and libraries, roads, parking lots, and water
and sewer systems. In recent years, however, the Internal Revenue Service
has cast doubt on whether tribal "commercial" ventures like golf courses
and hotel-resorts can be financed tax-exempt. Notwithstanding, tribal
infrastructural developments achieved through tax-exempt savings can be
passed on to non-Indian businesses that develop or lease commercial land in
DISCOUNTED LEASING RATES
Tribal trust lands and improvements on such lands are exempt from state
taxation. As such, typical pass-through lease costs such as real property
taxes can be significantly minimized, if not eliminated, to the benefit of
non-Indian commercial lessees. A non-Indian company's leasehold interest in
trust lands may also be exempt from state excise taxation.
In October 2004, The Wall Street Journal reported how the Salt River
Pima-Maricopa Indian Community attracted a private developer to lease land
from tribal members and construct two office parks on those lands for
Although purchasing off-reservation land in Phoenix would cost $10 per
square foot, lands within the Pima-Maricopa community were leasing for
$1.50 per square foot annually, resulting in tremendous savings for both
the developer and lessees. Tribes could also lure developers and lessees to
their reservations by offering below-market lease rates.
FEDERAL CONTRACTING PREFERENCES
Initiated in 1997, the Historically Underutilized Business Zone (HUBZone)
program gives qualified participants preference in competing for federal
contracts and creates jobs in historically distressed areas.
A HUBZone is defined as a non-metropolitan county, area on an Indian
reservation or qualified census tract. In addition, non-Indian businesses
can obtain federal contracting priority based on the designation of tribal
trust lands as a HUBZone.
The HUBZone Empowerment Contracting Program is designed to stimulate
economic development and create jobs in (for example) tribal communities by
providing federal contracting preferences to small business that locate in
and hire employees from HUBZones.
To receive preferential treatment by federal departments and agencies, a
non-Indian business situated in a HUBZone must: 1) be owned by U.S.
citizens, 2) ensure 35 percent of its workers reside in the HUBZone, 3)
maintain its principal office in the HUBZone and 4) qualify as "small"
under the Small Business Administration's (SBA) regulations. According to
the North American Industry Classification System followed by SBA, a
"small" company could employ as many as 500 to 1,000 people and qualify for
CUSTOMS DUTY DEFERRAL, ELIMINATION OR REDUCTION
Businesses involved in international trade that locate on a reservation
designated as a Foreign-Trade Zone (FTZ) could defer, reduce or, in some
instances, eliminate U.S. Customs duties on products imported or exported
through the reservation. Such is the case no matter how long the products
were in the FTZ.
In addition, as a matter of federal law, state and local ad valorem taxes
cannot be imposed upon imported tangible personal property stored or
processed on the reservation FTZ, or produced in the U.S. and held in the
FTZ for exportation in its original or processed form.
FTZ businesses could also save tens of thousands of dollars by avoiding
per-shipment customs processing fees ranging from $25 to $485, in favor of
a $485 "weekly entry" fee that is imposed irrespective of the number of
In 1986, the Lummi Nation successfully petitioned the Foreign-Trade Zones
Board in Washington, D.C. to have the Lummi Reservation designated an FTZ.
Other tribes in close proximity to the Canadian or Mexican borders, or
deep-water ports and/or access, might consider doing the same as a means to
attract international trade.
STATE/COUNTY LAND USE EXEMPTION
If a non-Indian company sought to build a facility on trust lands, the
development would be exempt from local, county and state zoning and
land-use restrictions: see Gobin v. Snohomish County (Tulalip Tribes, not
Snohomish County, possess land-use jurisdiction over land within the
exterior boundaries of the Tulalip Reservation). As such, the business
could save a tremendous amount of time - and time is money - by avoiding,
among other things, state permit requirements.
Many tribes have become well-armed and extremely savvy in the political
arena, and thus have withstood attacks from non-Indian gaming interests.
Notwithstanding, tribes cannot afford to focus the bulk of their
governmental attention toward gaming as the gateway to obtaining wealth and
prosperity for future tribal generations. Tribes are at a turning point in
their professional and business growth and should make governmental
decisions to avoid being held hostage to a single industry - Indian gaming.
In doing so, tribes need to attract worthy outside investors (including
other tribal enterprises via intra-tribal trade and commerce), major
franchises, government and the technology industry as commercial partners.
Our unified mission must be to assist tribes and Native communities to
create and harness tribal sovereign advantages and to leverage such
advantages into vibrant and dynamic economic opportunities that will
benefit Indian people.
Debora Juarez and Gabriel S. Galanda are colleagues with the Seattle office
of Williams, Kastner & Gibbs, PLLC. Juarez, an enrolled member of the
Blackfeet Tribe of Montana and chair of the firm's Tribal Practice Group,
provides legal and financial counsel to tribes in the areas of debt
financing, corporate structure, economic development and gaming. Galanda's
practice focuses on the litigation of complex, multi-party commercial and
Indian law matters, and consultation with tribes and non-tribal parties
doing business in Indian country. He is a descendant of the Nomlaki and
Concow tribes, and an enrolled member of the Round Valley Indian
Confederation in northern California.