You Can’t Escape Death and Taxes: Florida Tribal Casino Gaming Revenues Are Taxable
By: Sheylla Aceves, J.D. Candidate at the Florida State University College of Law
The U.S. Court of Appeals for the Eleventh Circuit has affirmed a trial judge’s holding that members of the Miccosukee Tribe of Indians of Florida (“Tribe”) must pay federal taxes on gaming revenues. The Tribe had been distributing money to its members on a per capita basis but after the release of this decision, those distributions will now have to be taxed accordingly. The Indian Gaming Revenue Act of 1988 allows Indian tribes to engage in gaming and to distribute the revenue from those activities to its members on a per capita basis. When this occurs, the distributions are subject to federal taxation pursuant to 25 U.S.C. § 2710 (2018). It is the responsibility of the Indian tribe to report the distributions, notify its members of their tax liability, and withhold the taxes due on the distributions.
Miccosukee Tribe member Sally Jim escaped paying federal taxes on more than two hundred and fifty thousand dollars of income believing that she did not have to pursuant to the Tribal Welfare General Exclusion Act. But as the saying goes, the only two things you can escape in life are– death and taxes. On June 4, 2018, the Eleventh Circuit issued a decision that not only requires Sally to pay her taxes on that sizeable income, but that also subjects her Tribe’s distributions to federal income taxation.
The case involved a South Florida Indian tribe engaging in gaming activities. At the end of each quarter, the tribe would use the revenue from the gaming to fund per capita distributions to its members without taking into account its tax obligations for these distributions. The tribe did not report the distributions and it did not withhold taxes on them. In 2001, Sally Jim received her distributions and did not file a tax return for them. The Government caught whiff of what was happening in regards to the tribe’s wrongful distribution program and assessed taxes, penalties, and interest against Sally Jim for the distributions. Sally Jim did not pay the assessments and the Government brought suit against the member in district court. The Tribe intervened and became part of the suit.
Sally Jim and the Tribe argued that the distributions were exempt from taxation under the Tribal General Welfare Exclusion Act. 26 U.S.C. § 139E (2018). The Act excludes form federal taxation “any payment made or services provided to or on behalf of a member of an Indian tribe…pursuant to an Indian tribal government program.” The district court held that the Act was not meant to supersede the Indian Gaming Revenue Act, meaning that per capita distributions of gaming revenue were indeed taxable income. The district court’s holding subjected the Tribe to reporting and withholding requirements on the distributions but left only Sally Jim liable for monetary damages. It was a total win for the United States; the Eleventh Circuit upheld all portions of the district court’s decision.
This case presented an interesting question of statutory interpretation, specifically whether the General Welfare Exclusion Act in effect amended the Indian Gaming Revenue Act.
The Indian Gaming Revenue Act imposes federal income taxes on the per capita payments an Indian tribe distributes from the net revenue of Indian Gaming Activities. The General Welfare Exclusion Act, on the other hand, provides a tax exemption that has a more general application in regards to Indian general welfare benefits. The General Welfare Exclusion Act does not specifically define the source of income. The Eleventh Circuit held that Congress expressed no intent to release the per capita payments of gaming revenue from federal taxation. If Congress would have had such an intention, they would have done so by using clear statutory language.
The Indian Gaming Revenue Act specifically intended to tax distributions of gaming revenue. The Tribe’s distributions, derived from gaming proceeds, are not exempted from federal taxation as general welfare payments or income from the land. Neither Sally Jim nor the Tribe had any specific evidence that identified a specific percentage of the distributions derived from non-gaming sauces and therefore the district court held that none of her income was exempt from taxation.
All in all, it seems fair that this interpretation of the statute was upheld, but it will be interesting to see the financial implications this interpretation imposes on Indian tribes in the Eleventh Circuit’s jurisdiction. Hopefully all tribes are paying taxes on gaming revenue and if not…let’s hope they hear about this court decision and use it as a fair warning.
United States v. Jim, 891 F.3d 1242 (11th Cir. 2018)