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Legislation to Give Tribes Bond Parity With States, Municipalities

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Sen. Max Baucus, D-Montana, said on June 11 he is “making progress” on “a detailed tax reform proposal” that may include putting tribal governments on an equal footing with states and municipalities in their abilities to offer tax-exempt (T-E) bonds.

In addition, there is a chance that nearly $2 billion in tribal T-E bond authority provided for in the federal stimulus package but unused, or a part of it, may be made available again to tribes.

Baucus, chairman of the Senate Finance Committee, held a hearing on tribal tax reform issues last month, calling on Congress to level the playing field to allow broader bond authority for tribes.

“States are allowed to issue tax-exempt bonds for any public purpose,” the chairman said in his introductory statement at the hearings. “In contrast, tribal governments can only issue bonds for government buildings. Their bonds have to pass what’s called ‘an essential government test.’”

Baucus noted that a U.S. Treasury report has recommended repeal of the essential government test.

The Senator also wants to fix “the general welfare doctrine.” The general welfare doctrine allows governments to provide benefits to citizens without counting them as taxable income. But “it’s often unclear which benefits are eligible for exemption,” Baucus said.

John Yellow Bird Steele, president of the Oglala Sioux Tribe (OST) of South Dakota, submitted testimony to the Finance Committee hearing that the Internal Revenue Service (IRS) sent the OST an audit form asking for records of payments, expense reimbursements, distributions from gaming revenue, petty cash records, pow wow prizes, and bank records, among other things.

President Steele said the IRS was acting in “a harassing manner that negates Indian sovereignty” and was on “a fishing expedition.”

He particularly derided the IRS for wanting to review tribal government burial assistance programs for tribal members, who he said were the poorest people in the nation.

“This is the worst misallocation of IRS resources,” agreed Tom Rodgers, a Blackfeet lobbyist with Carlyle Consulting, calling the IRS’s lack of cultural and historical awareness “incredible.”

Rodgers told Indian Country Today Media Network he is calling for a Government Accountability Office or Congressional Research Service study “on audit rates applied to Indian nations, vis a vis corporations, vis a vis state and local governments, and vis a vis high net worth individuals.”

He said the May Finance Committee hearing and a June 15 hearing before the Senate Committee on Indian Affairs on the general welfare doctrine have laid a foundation for these issues to be included in the great debate on tax reform in Congress coming late this year and next.

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Robert Porter, president of the Seneca Nation of Indians, told the Finance Committee hearing tax reform should include something bold. “I urge you to recognize unlimited tax immunity on a limited number of footprints in Indian country for a limited number of Indian nations.” He is urging 50 “tax-free tribal empowerment zones, like tax-free economic oases in a desert, importing and recycling private sector money into Indian country.”

Rodgers said Congress needs to make decisions on the expiring Bush tax cuts, the alternative minimum tax and others, making it a logical time for comprehensive tax reform (which would include the Indian issues).

Rodgers said he was “pretty confident” legislation on the Indian proposals would be part of the tax reform debate. “We need to start vetting the language” of the Indian tax fixes immediately, he said.

The now-expired, two-year $2 billion Indian tax-exempt pilot authorized by the American Recovery and Reinvestment Act (the federal stimulus) was almost completely unused, although the Reno-Sparks Indian Colony used the authority to help develop a 65,000 square foot health facility.

Treasury estimated just 3 percent, or $60 million, of the $2 billion authority was used.

Rodgers said the unused authority could be returned to tribes. “I would advocate on that behalf,” he said. Tribal officials say the bond authority was unused because of the economic downturn, a tight credit market, and uncertainty about the tribal T-E market.

The dearth of so-called “municipal bonds” in Indian country can be seen by the fact that in 2011, tribal governments issued no long-term municipal bonds at all, according to data by Thomson Reuters. In 2010, they managed $112.3 million in two issues. They have not issued any in 2012 to date, either.

Treasury was able to identify $3.7 billion in total tribal government tax-exempt bond issuance from 1987 to 2010, but noted this represented “less than one tenth of one percent” of total long-term tax-exempt municipal bonds during that time.

According to Thomson Reuters data, tribal governments’ best year in municipal bonds in the past ten was 2007, when they issued more than half a billion dollars’ worth. That has rapidly decreased during the recession.

Tribes generally do not get income from taxes, which is why they operate in the tax-exempt bond arena.

Sen. Baucus made his June 11 remarks on his progress on tax reform at a meeting of the Washington, DC-based Bipartisan Policy Center.

Related:Setting the Table for Pro-Tribal Tax Policy