Taxpayer Allowed to Treat 90% of Sales on Tribal Land as Exempt

Oct 10th, 2013

The New Mexico Taxation and Revenue Department recently released a ruling that allowed a taxpayer in Shiprock, New Mexico to treat 90% of its gross receipts as exempt sales to tribal members.

Federal law prohibits a state from taxing sales of tangible personal property to tribal members if the sales are made within the tribe's territory. To show that a sale is not taxable for this reason, a taxpayer typically needs to get a signed statement showing that the sale is to a tribal member. The Secretary of the Taxation and Revenue Department may also approve other methods of showing the sale is to a tribal member.

The taxpayer sold prepared food within the Navajo Nation's territory in Shiprock, New Mexico. Approximately 96% of the residents of Shiprock are Native American and assumed to be members of the Navajo Nation, according to 2010 Census data. The taxpayer wanted to know if it could use Census data to determine the percentage of customers who are members of the Navajo Nation when calculating the amount of tax the taxpayer owed. The taxpayer proposed to assume that 90% of its sales were sales to tribal members rather than obtain a signed statement for each sale. The taxpayer could then remit tax on 10% of its gross receipts.

The Department approved this plan. The taxpayer would need to recalculate the percentage of exempt sales with each Census.