Although many states have a longstanding position that they have the right to assess the possessory (or leasehold) interests that non-Indian entities have in tribal lands, a federal regulation recently went into effect to clarify that such taxation, as well as the imposition of many other charges by state and local governments (such as gross receipts and excise taxes for activities taking place on leased tribal lands), is prohibited by federal law.

As set forth in section 162.017 of Title 25 of the Code of Federal Regulations, which went into effect on January 4, 2013 to address the taxes applicable on leased Indian land, “permanent improvements on the leased land, without regard to ownership of those improvements, are not subject to any fee, tax, assessment, levy, or other charge imposed by any state or political subdivision of a state.” (25 CFR 162.017(a)[emph. added].) Plus, the “leasehold or possessory interest” that non-Indian entities hold in leased Indian lands “are not subject to any fee, tax, assessment, levy, or other charge imposed by any state or political subdivision of a state.” (25 CFR 162.017(c).) Moreover, the new regulation states that “activities under a lease conducted on the leased premises are not subject to any fee, tax, assessment, levy, or other charge (e.g., business use, privilege, public utility, excise, gross revenue taxes) imposed by any state or political subdivision of a state.” (25 CFR 162.017(b).) Thus, although federal law still allows Indian tribes to tax property interests and/or business activities taking place on tribal lands, the new law expressly prohibits such taxation by state and local governmental entities—an issue that has been a major concern for energy providers and other developers that have either already established facilities on Indian land or are planning such projects in the near future.