Income Taxation of Native Americans
We published Legal Ruling 2015-1 which provides guidance regarding factors FTB will use to determine whether a tribal member resides on or off the reservation.
Generally, California taxes the entire income of California residents, and the California source income of nonresidents. However, if you meet certain requirements, your income is exempt from California tax.
- California income tax exemption requirements
- Indian country
- Per capita distribution
- When California taxes Native American income
- Forms to include when you file your return
- Revenue Procedure 2014-35
- FTB's Tribal Leaders Consultation Session Report from September 18, 2013, interested parties meeting
For your income to be exempt from California tax, you must meet all of the following requirements:
- You must be a member of a federally recognized Indian tribe.
- You must live in your tribe’s Indian country, which includes:
- Dependent Indian communities.
- Indian trust allotments.
- You must earn or receive reservation source income from the same Indian country in which you live and are a tribal member.
Indian country is all:
- Land within an Indian reservation under jurisdiction of the United States (US) government including the rights-of-way running through the reservation.
- Dependent Indian communities within the US borders under the US government’s jurisdiction.
- Indian allotments, to where Indian titles exist, including the rights-of-way that run through the allotments.
Even if you live in Indian country, you are still a California resident.
Indian tribes that conduct gaming activities on a California reservation may use gaming profits for all tribe members’ general welfare. The law allows tribes to distribute gaming income to each tribal member (per capita) after meeting or accounting for tribal obligations. The tribal member’s residence determines whether or not California taxes the per capita payments.
California taxes your income if you:
- Earn or receive income outside of Indian country. This includes income earned or received from:
- Tribes in which you are not a member.
- Outside of California.
- Live outside Indian country but within California.
- Are a resident with income received outside Indian country and/or California.
- Are a tribal member residing on your unaffiliated tribal member spouse's reservation.
- Are a non-tribal member spouse residing on your tribal member spouse's reservation.
- Receive per capita income and you don’t live in your tribe’s Indian country.
California does not tax your income if you:
- Are an active duty US military service member that receives military pay and you are stationed in California with orders to live outside Indian country.
- Live outside California and receive per capita income from California sources. The federal government taxes per capita income no matter where you reside.
Attach copies of Form 1099, Miscellaneous Income, and Form W-2, Wage and Tax Statement, that show your tribal and non-tribal income.
We are revising FTB 674, Income Taxation of Native Americans, and will make it available as soon as possible.
Revenue Procedure 2014-35 explains the application of the general welfare exception to Tribal government programs. Because Internal Revenue Code (IRC) Section 61 provides that gross income includes income in all forms, the Internal Revenue Service previously concluded that certain government benefits may be excluded from “income” provided they meet the general welfare exception.
Payments must include all the following requirements to meet the general welfare exception:
- Be made pursuant to a governmental program.
- Be for the promotion of the general welfare.
- Not represent compensation for services.
This Revenue Procedure considers the “unique circumstances of Indian tribes and tribal governments” and provides specific details under which the exception applies to tribal government programs.
As California conforms to IRC Section 61 under Revenue and Taxation Code Section 17071, the Franchise Tax Board follows Revenue Procedure 2014-35 to apply the general welfare exception for purposes of tribal government programs to tribal members.
FTB's Tribal Leaders Consultation Session Report from September 18, 2013, interested parties meeting
Posted 08/21/14: As a result of the September 18, 2013, Tribal Leaders Consultation Session, specific comments were received from seven tribes, California Indian Legal Services, and two representatives of tribal member interests. The Tribal Consultation Session Report addresses specific issues that were raised at the interested parties meeting as well as discusses Franchise Tax Board's next steps.