Taxation issues for Native American small business in Minnesota
A huge amount of uncertainty exists surrounding the topic of Native American Taxation. Contrary to many public perceptions, Native Americans are not automatically exempt from Federal taxation. As with many parts of the tax code, this topic is complicated. This fact sheet will briefly review some basic principles which address Native American Taxation in Minnesota.
Law and analysis
There is not a universal provision in the federal tax code which exempts all Native Americans from federal taxation. Native Americans are exempt from federal taxation if the tribe's treaty or allotment agreement specifically states that a federal tax exemption exists. Absence of language granting federal tax exclusion in the treaty or allotment agreement indicates that all income is subject to federal taxation. No tribes in Minnesota have a federal exemption stated in a treaty or allotment agreement.
However, the State of Minnesota does recognize a state income tax exemption for Native Americans. In order to qualify for the State of Minnesota exemption, the individual must both live and work on the reservation. With wage or business income, the income must be generated on the reservation.
Filing a federal tax return does have advantages. Depending upon the household income level and the number of dependent children, the taxpayer may qualify for the Earned Income Credit. For farm businesses, filing a tax return is a requirement before an individual is eligible to participate in farm programs available through Farm Service Agency (USDA). The same statement can be made regarding non-farm businesses participating in SBA (Small Business Administration) programs.
Note: This information piece is offered as educational information only and is not intended to be tax, legal or financial advice. For questions specific to your farm business or individual situation, consult with your tax preparer.