Construction Contracting on Tribal Lands in Arizona: Both the State Tax and a Tribal Tax May ApplyPage 1 of 7 SALES TAXATION OF CONSTRUCTION CONTRACTING ON TRIBAL LANDS IN ARIZONA: BOTH THE STATE TAX AND A TRIBAL TAX MAY APPLY Randal T. Evans* Arizona is home to 22 federally-recognized Indian tribes. Tribal lands comprise over a quarter of Arizonaâ€™s land base.
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As a result, a significant amount of construction activity in Arizona takes place on tribal lands, including recent and ongoing large-scale development projects. Contractors performing services on tribal lands in Arizona are faced with the somewhat daunting task of determining what taxes apply to each particular project. In Arizona, this inquiry involves two separate questions: (1) does the Arizona transaction privilege tax apply, and (2) does a tribal tax apply? Both of these questions require an analysis of state or tribal tax law and federal Indian law, but the two questions must be analyzed independently. In many situations, a contractor performing services on tribal lands may be subject to both a state and a tribal tax, as Indian tribes and states are recognized as having concurrent taxing authority over non-Indian transactions on Indian lands, except in limited circumstances. Further, this inquiry must be done on a project-by-project basis, as the law in this arena is particularly fact-based, still evolving, and filled with nuances, subtleties, and complexities. This article briefly addresses each of these questions, focusing on some of the more significant federal and state court cases and the Arizona Department of Revenueâ€™s ruling dealing with transactions involving tribal lands. This article is intended as an introduction only. Contractors performing services on tribal lands will need to undertake a careful analysis of what tax laws apply for each particular project, working closely with their legal counsel and/or a state and local tax professional with experience in this particular area of law. Arizonaâ€™s Transaction Privilege (Sales) Tax on Construction Contracting Differs Significantly From Other States In place of a traditional sales tax, Arizona imposes a Transaction Privilege Tax (TPT) on specified business activities, including retail sales, personal property rentals, and construction contracting, among others. The Arizona transaction privilege tax is commonly referred to as a sales tax; however, the tax is imposed on the business engaged in a taxable activity, and is not a true sales tax. Although the transaction privilege tax is usually passed on to the consumer, the legal burden (incidence) of the tax is on the seller. Arizonaâ€™s tax treatment of construction contracting is significantly different than that of other states. In most other states, sales of building materials are taxable, and there is no sales tax on a contractorâ€™s receipts from construction services. Arizona is just the opposite.
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