1. Do you meet tax exemption requirements?
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 does not tax your income if you:
Are an enrolled member of a federally recognized California Indian tribe, and live in any California Indian country, and earn reservation source income from any California Indian country. (Effective January 1, 2018)
Are an enrolled member of a federally recognized California Indian tribe, and live in your affiliated tribe's California Indian country, and receive reservation source income from the same California Indian country in which you live and are an enrolled tribal member.
- Are an active duty U.S. military service member who receives military pay and you are stationed in California with orders to live outside Indian country.
- Are a retired military service member who receives a military pension and you are residing on your tribe’s reservation.
- Live outside California and receive per capita income from California sources (the federal government taxes per capita income no matter where you reside).
California taxes your income if you:
- Earn or receive income outside of Indian country. This includes income received from:
- Tribes in which you are not a member.
- Outside of California.
- Receive or earn reservation sourced income, but live outside Indian country but within California.
- Are a nontribal member spouse residing on your tribal member spouse's reservation.
Indian country includes reservations, dependent Indian communities, and Indian trust allotments.
2. Should you file the Enrolled Tribal Member Certification form?
The certification form is used to declare you reside within Indian country and meet tax exemption requirements. Filing the certification form is optional. However, doing so may help eliminate unnecessary contacts to or from us.
In lieu of the certification FTB 3504, we will accept a declaration from your tribal government. The declaration must be for a single tax year and include the following information:
- Name, address, and tribal member SSN or Taxpayer ID.
- Tax year.
- Certification the tribal member is an enrolled member.
- Certification the tribal member lives on the reservation.
- Tribal member's signature, under penalty of perjury.
- Authorized tribal designee signature. To ensure the security of tribal members and tribal governments and avoid fraudulent filings, the tribal government must provide us with the authorized tribal designee name.
Note: To ensure timely and more efficient processing, attach a blank FTB 3504 on top of the declaration.
If you only have tax exempt income
File the certification form by itself as an information return.
When should you file the form? January 1 through October 15 of the year following the reporting year. Example: For 2016, file January 1, 2017, through October 15, 2017.
Mail the form to:
FRANCHISE TAX BOARD
PO BOX 1998
RANCHO CORDOVA, CA 95741-1998
If you have both tax exempt and nonexempt income
Also attach the following completed forms, which show your reservation and nonreservation income:
- Form 1099, Miscellaneous Income
- Form W-2, Wage and Tax Statement
You should file following the current tax year's return due date (generally April 15 or the extended due date October 15).
Electronic List Option
In place of the certification form, the tribal government can submit a list on behalf of all enrolled members who live on the reservation. Call our tribal hotline for submission details.
Effective January 1, 2018, pursuant to SB 855, tribal members living in California Indian country who earn income from any federally recognized California Indian country as defined in 18 U. S. C. 1151 are exempt from California taxation. This exemption applies to "earned income" as defined in IRC 32(c)(2)(A)(i).
However, enrolled tribal members who receive per capita income must reside in their affiliated tribe's Indian country to qualify for tax exempt status. (See table below for income exemption requirements).
|Earned Income (Wages)
||Received Income (Per Capita)
You must be an enrolled member of a federally recognized California Indian tribe.
You must be an enrolled member of a federally recognized California Indian tribe.
You must live within any California Indian country.
You must reside in your tribe's California Indian country
You must earn reservation source income from California Indian country.
You must receive reservation sourced income from the same California Indian country in which you live and are an enrolled member.
Earned income means wages, salaries, commissions, or professional fees, and other amounts received as compensation for personal services actually rendered. There are two ways to get earned income: 1. You work for someone who pays you. or 2. You own or run a business or farm.
Per Capita Distribution
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. Per capita income is received income. Per capita income is not earned income.
Indian country is all:
- Land within an Indian reservation under jurisdiction of the United States (U.S.) government including the rights-of-way running through the reservation.
- Dependent Indian communities within the U.S. borders under the U.S. 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're still a California resident.
Refer to 18 U. S. C. 1151 for additional details.
Reservation Source Income
In response to several court cases and questions, we examined the issue of whether “reservation source income” should be interpreted as income paid by any employer (public or private) and earned by a tribal member while that member is physically located within the geographic borders of the reservation, or more narrowly limited to income earned on the reservation and paid only by a tribal payer. After reviewing legal authority, we determined income earned for services performed on the reservation by tribal members who live on their tribe’s reservation is tax-exempt, whether it is paid by the tribe or by a third party.
Legal Ruling 2015-1
Legal Ruling 2015-1 provides guidance regarding factors we’ll use to determine whether a tribal member resides on or off the reservation.
Per Capita Distributions Received Pursuant to the Cobell Settlement
In 2012 the U.S. Department of Justice and Department of Interior announced the settlement of lawsuits with 96 federally recognized tribes. This settlement is commonly referred to as the Cobell Settlement. This settlement provided settlement income to these tribes, some of which is now being distributed in the form of per capita payments to members. The Internal Revenue Service issued Notice 2012-60 regarding the taxability of such payments. This notice explains that under federal law these payments are to be excluded from gross income for federal tax purposes.
Franchise Tax Board has examined the relevant federal code section and determined that it not only provides for a federal gross income exclusion, but also a state exclusion from gross income. As such, per capita distributions received by California tribal members pursuant to the Cobell Settlement are not taxable for California tax purposes.
Revenue Procedure 2014-35
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, we follow Revenue Procedure 2014-35 to apply the general welfare exception for purposes of tribal government programs to tribal members.
Tribal Consultation Policy
In 2011, Governor Edmund G. Brown Jr. issued Executive Order B-10-11 requiring all State of California agencies to encourage communication and consultation with California Indian Tribes. Accordingly, the Franchise Tax Board hereby adopts this Tribal Consultation Policy which memorializes its commitment to strengthening and sustaining government-to-government relationships between California Indian Tribes and the State.
Selvi Stanislaus, Executive Officer
Deputy Tribal Liaison
Michael Preskar, Manager - Individual and Pass-Through Entity Bureau
No current notices.
Past Consultation Sessions
09/18/2013 - Tribal Leaders Consultation Session and Interested Parties Meeting Report
07/14/2015 - Tribal Leaders Consultation Session and Interested Parties Meeting Report