Does a Native American tribal member owe Utah sales tax and the uniform fee (in lieu of property tax) when purchasing or leasing a motor vehicle, and did the Commission decide whether tribal members who teach school and live on the reservation owe Utah income tax?

Plain-English summary

A county government asked the Utah State Tax Commission two questions on behalf of tribal-member residents. The Commission answered the first question about vehicle taxes in detail and declined to answer the second question about income tax.

Vehicle taxes. A tribal member resident had leased a car from an out-of-state dealership and was told at registration that a uniform fee (Utah's fee in lieu of ad valorem property tax) was due because the vehicle's "owner of record" on the title was the dealership or finance company, not her. The county asked whether she, or others in her situation, were exempt based on where they live, or whether the tax was due because of who the "owner of record" is.

The Commission explained that a purchased vehicle and a leased vehicle are analyzed separately, and that sales/use tax and the uniform fee are two different taxes with two different exemption tests:

• Sales and use tax (on a purchase, or on lease payments) is exempt for a Native American only if (1) the sale or lease takes place on the reservation, or the item is delivered to the reservation by common carrier or the vendor, and (2) the person is an enrolled tribal member — shown by a federal tribal card — living on the reservation of the tribe where the sale takes place. Sales over $100 require the vendor to record the tribal card number, plus (for off-reservation sales) proof of delivery to tribal lands or a completed Tax Bulletin 1B-87 form.
• The uniform fee is a separate exemption tied to Utah Code Ann. § 59-2-405.1(2)(b)(iii), which exempts property that is exempt from ad valorem property tax. Vehicles owned by tribal members who live on the reservation are exempt from property tax under federal law, so an enrolled tribal member living on the reservation is exempt from the uniform fee when registering a vehicle regardless of where the sale took place.

Because a purchaser is the vehicle's owner but a lessee is not, a lease changes the analysis: the lessor (not the tribal-member lessee) is the vehicle's owner and is generally liable for the uniform fee, even if the lessee would herself have been exempt had she purchased the vehicle instead. Sales tax on a lease is normally collected on each lease payment by the lessor using its Utah sales tax number, subject to the same reservation/enrolled-member exemption test described above; but if the out-of-state lessor has no Utah sales tax number, sales tax is instead collected at registration unless the lessee can show she qualifies for the exemption.

Income tax for reservation-based teachers. The county also asked whether tribal members who work as schoolteachers for a school district, live on the reservation, and reside in district-owned teacher housing, are exempt from Utah income tax. The Commission did not answer this question. It explained that the Auditing Division had already audited a number of these teachers and issued income tax deficiencies, and Utah Admin. Rule 861-1A-34(A)(2) bars the Commission from issuing an advisory opinion on facts already pending before it in an audit assessment or other agency action. Because the teachers' income-tax status was already the subject of pending audit assessments, the Commission said that question had to be resolved through the appeals process instead, and it did not address the related sub-question of whether certain land was on or off the reservation for tax purposes.

What this means for you

Tribal members buying or leasing a vehicle

If you are an enrolled tribal member living on the reservation, buying a vehicle sold or delivered on the reservation can be exempt from Utah sales/use tax, and you can be exempt from the uniform fee regardless of where you bought it — but you need to show your federal tribal card and, for larger purchases, documentation of delivery or a completed exemption form. If you lease instead of buy, remember you are not the "owner of record," so the uniform fee is typically the lessor's liability, not yours — though you may still end up covering it if your lease agreement passes that cost to you.

Employers, school districts, and finance companies

If you finance or lease vehicles to tribal-member customers, or if you are a school district housing tribal-member employees, know that Utah's tax treatment can turn on formal ownership status (owner vs. lessor vs. lessee) as much as on residence or tribal enrollment. An out-of-state lessor without a Utah sales tax number will generally have sales tax collected from the lessee at registration unless she affirmatively proves her exemption.

Accountants and tax professionals

This ruling shows the Commission applying two distinct, non-parallel exemption tests to the same transaction — a reservation/enrolled-member-based sales tax exemption and a residence/tribal-status-based uniform fee exemption — so don't assume qualifying for one automatically means qualifying for the other. Also note that the Commission expressly declined to rule on the income-tax question here because it was already pending in an audit appeal (per Admin Rule 861-1A-34(A)(2)); this ruling therefore is not authority on whether reservation-based, tribal-member teachers owe Utah income tax.

Common questions

Q: Does a tribal member automatically avoid all Utah vehicle taxes by living on the reservation?
A: No. Living on the reservation as an enrolled tribal member is enough, by itself, to be exempt from the uniform fee. But the sales/use tax exemption requires an additional fact: the sale (or lease) must also take place on the reservation, or the vehicle must be delivered there by common carrier or the vendor.

Q: I'm a tribal member leasing a car — do I owe the uniform fee?
A: Generally no, because the lessor (not you) is the vehicle's owner of record and is the one liable for the uniform fee, unless the lessor itself is exempt. Some lease agreements have the lessee agree to cover the lessor's uniform fee cost, but that doesn't change who is legally liable.

Q: What happens if my out-of-state lessor doesn't have a Utah sales tax number?
A: Sales tax will be collected from you at registration on the remaining value of the lease, unless you present your federal tribal card and show the vehicle was leased on the reservation or delivered there.

Q: Did the Commission decide whether reservation-based teachers owe Utah income tax?
A: No. It expressly declined to answer that question because the same issue was already pending before it through audit assessments against other teachers, and Utah Admin. Rule 861-1A-34(A)(2) bars an advisory opinion on facts already pending in an agency action. That question had to go through the appeals process instead.

Q: Can I rely on this ruling for my own situation?
A: Not as binding precedent. A Utah private letter/advisory ruling states the Commission's interpretation only for the taxpayer and facts it was issued to address, and it predates later renumbering of Utah's tax code and rules, so the citations here should be double-checked against current law before you rely on them.

Citations and references

Statutes and rules (as cited in the original 2001 ruling; verify current numbering):

• Utah Code Ann. §§ 59-2-405.1, 59-12-103 — a vehicle purchaser generally owes both sales tax on the sale and the uniform fee (in lieu of ad valorem property tax) at registration
• Utah Code Ann. § 59-2-405.1(2)(b)(iii) — exempts from the uniform fee any personal property that is exempt from ad valorem property tax, which includes vehicles owned by reservation-resident tribal members under federal law
• Utah Admin. Rule 861-1A-34(A)(2) — bars the Commission from issuing an advisory opinion on facts already pending before it in an audit assessment, refund request, or other agency action; the basis for declining to answer the income-tax question

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/01-018.htm

Original ruling text

REQUEST
LETTER

01-018

From: COUNTY

COUNTY would like
to ask the Tax Commission to provide a response to the County on the following
two issues that have been brought before the Commission by residents of the
County.

A TRIBE resident, NAME has
leased a car from an out-of-state dealership.
She has come into the assessor�s office to license the vehicle. She was told that since the vehicle�s �owner of record� as shown
on the title and/or the title for application is either the dealership or a finance
company and not herself, that there are property taxes due on the vehicle.

Our instructions
have been that TRIBE residents living on the Utah portion of the TRIBE Nation
are not subject to property tax and sales tax on vehicles. This situation is somewhat different from a
vehicle that is financed by a bank or lending institution in that the �owner of
record� for the vehicle would be the individual buying the vehicle. In a lease, the �owner of record� is someone
other than the individual making the lease payments.

NAME has paid the taxes in issue in order to
license her vehicle. She has indicated
that she has leased a previous vehicle in which she was not required to pay the
taxes. The questions we have for the
Tax Commission is whether or not NAME or others in her situation are exempt
from the taxes based on where she resides or if the taxes are due because of
the �owner of record�?

Some TRIBE residents who are school teachers employed by the
SCHOOL DISTRICT that reside on the reservation and that live in the teacher
housing owned by the District are being told that they are now required to pay
Utah State Income Tax. The questions that have been asked of the
County Commission has been since they reside on the Utah portion of the TRIBE
Nation, are they not exempt from the income tax payment? There have been some questions in the past
as to whether those lands in the TOWN area that were once State School Trust
lands are considered to be on or off the reservation.

We would
appreciate receiving an answer to these questions as soon as possible.

Very Truly,

COUNTY

NAMES

RESPONSE
LETTER

DATE

NAME

RE: Advisory Opinion � Taxation of Tribe Members

Dear NAME,

We have received your request for an advisory opinion concerning
the imposition of several Utah taxes on TRIBE members. The first issue is whether a TRIBE member
must pay sales tax and the annual uniform fee in lieu of ad valorem property
tax on a motor vehicle leased from an out-of-state dealership. The second issue is whether a TRIBE member who resides on the reservation and is
a schoolteacher employed by the (SCHOOL DISTRICT) is subject to Utah income
tax. As part of this second issue, you
ask whether lands in the TOWN area that were once Utah State School Trust lands
are considered part of the reservation for taxation purposes.

A.
Purchased Vehicle. The
purchaser of a motor vehicle becomes its owner and generally, at registration,
owes both sales tax on the sale transaction and the uniform fee in lieu of ad
valorem property tax (�uniform fee�) on the property, or vehicle, itself. See Utah Code Ann. ��59-2-405.1;
59-12-103. However, when a Native
American tribal member purchases a vehicle, she may be exempt from: 1) the
sales or use tax, depending on the nature of the transaction, and 2) the
uniform fee, depending on whether the person is an �enrolled� member of the
tribe living on the reservation.

Sales and use Tax. For sales and use tax purposes, a Native American is exempt from
taxation if: 1) the sale takes place on the reservation or the purchased item
is delivered to the reservation by common carrier or the vendor; and 2)
the Native American is an enrolled tribal member, as evidence by the member�s
federal tribal card, living on the reservation of the tribe on which the sale
takes place. To validate a tax-exempt
sale over $100 that is made on the reservation, the vendor is required to
record the member�s tribal card number.
To validate a tax-exempt sale over $100 made off the reservation, the
vendor must record the member�s tribal card number and either retain proof of
the delivery of the goods to the tribal lands, such as a freight bill or bill
of lading, or complete the Tax Bulletin 1b-87 Form (enclosed).

Uniform Fee.
Under Section 59-2-405.1, each vehicle owner is required to pay the
uniform fee whenever a vehicle is registered, except that Subsection
405.1(2)(b)(iii) provides an exemption from the uniform fee for personal property
that is exempt from ad valorem property taxes under federal or Utah state
law. Personal property, including
vehicles, owned by Native American tribal members who live on the reservation
are exempt from property taxes under federal law.[1] Accordingly, whether tribal members
are exempt from the uniform fee depends upon their tribal status and where they
live, not on the location of the sale.
If an enrolled tribal member, as evidenced by the federal tribal card,
lives on the reservation and purchases and registers a vehicle, he or she is
exempt from the uniform fee when registering that vehicle regardless of where
the sale took place.

For these reasons, separate analysis must be employed to determine whether a Native American tribal member is exempt from either the sales tax or the uniform fee usually associated with purchasing a vehicle. Based on the specific circumstances surrounding the sale and the purchaser, a tribal member may owe both the sales tax and the uniform fee, be exempt from both, or owe the sales tax and be exempt from the uniform fee.

B. Leased
Vehicle. A person leasing a vehicle
is not its owner, which results in different tax consequences when compared to
purchasing a vehicle. The sales tax and
uniform fee liabilities must still be analyzed separately.

Sales Tax.
While sales tax is usually due when registering a purchased vehicle,
there may be no sales tax due when a lessee registers a leased vehicle. Instead, sales tax is usually imposed on
each individual lease payment and is collected as each payment is made. The lessee should provide, at registration,
the Utah sales tax number of the lessor, who is the party responsible for
collecting and submitting the appropriate sales tax when the lease payments are
made.

To determine if sales tax is due on a Native American tribe member�s lease payments, the same sales tax exemption criteria discussed above concerning a purchased vehicle must be satisfied. First, the vehicle must be leased on the reservation or delivered to the reservation by common carrier. Second, the tribal member must be an enrolled member as evidenced by the federal tribal card who lives on the reservation. Should these exemption requirements be satisfied, the lessor must retain the documentation previously described to validate a tax-exempt lease payment in excess of $100.

However, there may be instances where the out-of-state lessor does not have a Utah sales tax number. In this situation, sales tax is collected at registration on the remaining value of the lease unless the lessee provides evidence that she is exempt from sales tax. Accordingly, should the out-of-state lessor not have a Utah sales tax number, sales tax will be collected from a Native American at the time of registration unless she presents her federal tribal card and provides evidence that the vehicle was either leased on the reservation or delivered to the reservation.

Uniform Fee.
Because the lessor is the owner of a leased vehicle, he is liable for
the uniform fee imposed on the vehicle at registration. The uniform fee is due even if the vehicle
is leased to a person, such as an enrolled tribal member living on the
reservation, who would herself be exempt from the uniform fee had she purchased
the vehicle. In many instances,
however, the lessee may agree to pay the lessor�s uniform fee liability, even
though the lessee is an otherwise exempt entity. Even in this situation, the lessor�s liability is not absolved by
an otherwise exempt lessee paying the liability. Accordingly, unless the lessor itself is exempt from taxation,
the uniform fee on a leased vehicle must be paid at registration, whether or
not the lessee would be exempt from the uniform fee had she purchased the
vehicle.

In summary, for a leased vehicle owned by a non-exempt lessor, the uniform fee must be paid at the time of registration, even if the lessee of the vehicle is an enrolled member of the TRIBE living on the reservation. As for sales tax, the lessee need only submit the Utah sales tax number of the lessor to register the leased vehicle. Then, the lessor will need to collect and submit sales tax on the lease payments unless the tribe member satisfies the exemption requirements discussed above and the lessor maintains the required exemption evidence. However, if the lessor does not have a Utah sales tax number, sales tax is collected at the time of registration unless the lessee establishes that she is exempt from taxation.

II.
Income Tax Liability of Teachers in the San Juan School
District

Your next issue addresses whether NAME residents who are teachers employed by the School District are subject to Utah�s income tax. You state that these teachers reside on the reservation and live in housing owned by the School District, evidently in the TOWN area.

We understand that the Auditing Division has recently
audited a number of teachers who live and teach in the TOWN area and has already issued Utah income tax
audit deficiencies to some of the teachers.
Utah Admin. Rule 861-1a-34(A)(2) provides that the Commission �shall not
knowingly issue an advisory opinion regarding facts raised pending before the
commission in an audit assessment, refund request, or other agency
action[.]� As the issue you raise is
already pending before the Commission through these audit assessments, it must
be addressed in that context through the appeals process, not through an
advisory opinion. Accordingly, we may
not answer your specific question at this time. Nevertheless, should a member of your constituency have other
specific questions relating to Utah�s taxation of income, please have that
person contact STATE EMPLOYEE, Individual Income Tax Manager, at (PHONE).

Should you have any other questions, please contact us.

For
the Commission,

Marc
B. Johnson

Commissioner

cc: NAME ADDRESS

NAME ADDRESS

MBJ/KC

01-018