Is a Virginia tribal member's income exempt from state tax if they work on the reservation but live somewhere else, or vice versa?

Plain-English summary

A Virginia Indian tribe with its own reservation asked the Department to clarify the state income tax rules for tribal members who are employed by the tribe and work on the reservation, but who don't actually live there.

The Department's answer, consistent with a prior ruling to a different Virginia tribe, is that only two facts matter: (1) whether the individual is a bona fide member of the tribe, and (2) where the income-generating work actually happens. Where the person lives is not part of the test at all. The ruling laid out the resulting rules clearly with examples: a bona fide tribal member's income from work performed on their own tribe's reservation is exempt from Virginia income tax, full stop -- regardless of whether that member lives on or off the reservation. Conversely, a bona fide member's income from work performed off the reservation is taxable, again regardless of where they live. If a member splits their work between on- and off-reservation activities (the ruling gives the example of someone working at the tribal office three days a week and from an off-reservation home office two days a week), only the on-reservation portion (three-fifths, in that example) is exempt -- and even brief off-reservation activities, like attending a two-week conference away from the reservation, make that portion's income taxable even for someone who otherwise works on the reservation. Finally, if someone is not a bona fide tribal member at all, their income from working on the reservation is fully taxable regardless of where they live.

What this means for you

Virginia tribal members working partly or entirely off their own reservation

Track where you actually perform your work, not where you live. If you're a bona fide tribal member and any portion of your work happens off the reservation -- even occasional travel like a conference -- that portion of your income is subject to Virginia tax, while the on-reservation portion remains exempt.

Tribal employers with members who commute from off-reservation homes

This ruling confirms that a member's choice to live off the reservation doesn't cost them the exemption, as long as the actual work is performed on the reservation -- helpful for tribes whose members may not all live on tribal land.

Accountants and tax professionals advising tribal members with mixed work locations

Be ready to apportion income between on- and off-reservation activities using a reasonable measure (like days worked in each location, as in the ruling's own example) -- this isn't an all-or-nothing exemption once work location is split.

Common questions

Q: Does living on the reservation matter for this exemption?
A: No -- residence is explicitly not part of the test. Only tribal membership status and where the work is actually performed determine whether income is exempt.

Q: What if I work both on and off the reservation during the year?
A: Only the income attributable to on-reservation work is exempt; income from off-reservation work (including short trips like a conference) is taxable, apportioned based on the facts (e.g., days worked in each location).

Q: Does someone who isn't a tribal member get this exemption for working on the reservation?
A: No -- the exemption is limited to bona fide members of the tribe; a non-member's income from reservation work is fully taxable.

Q: Does this ruling apply to other Virginia tribes too?
A: The Department applied the same reasoning it used in an earlier ruling for a different Virginia tribe (P.D. 19-15), suggesting this is a consistent Department position across Virginia's recognized tribes, though each ruling is technically limited to its own requesting tribe's facts.

Citations and references

• Va. Code § 58.1-301 (Virginia's IRC conformity; federal adjusted gross income starting point)
• P.D. 19-15 (3/6/2019) (bona fide tribal member's reservation-earned income exemption)
• P.D. 10-156 (related prior ruling)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-61

Original ruling text

May 24, 2023

Re: Request for Ruling: Individual Income Tax

Dear *:

This will respond to your letter in which you seek a ruling regarding the taxability of income earned by members of the ** (the “Tribe”) who do not reside on their reservation but who earn income from employment on the reservation.

FACTS

The Tribe is an Indian tribe with a reservation located in Virginia. Several members of the Tribe do not reside on the reservation, but they are employed by the Tribe and work on the reservation. The Tribe requests a ruling regarding whether income earned by these members is subject to Virginia income tax.

DETERMINATION

Virginia Code § 58.1-301 provides, with certain exceptions, that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia . For individual income tax purposes, Virginia conforms to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Chapter 3 of Title 58.1 of the Code of Virginia .

The Department previously issued a ruling to another Virginia Indian tribe regarding this issue. See Public Document (P.D.) 19-15 (3/6/2019). In that case, the Department opined that, as long as an individual is a bona fide member of the tribe and the income is earned from activities pursued on that tribe’s reservation, the income is exempt from Virginia income tax.

In an effort to bring more clarity to issues surrounding the state income taxation of Tribe members, the following scenarios may be useful:

If an individual is a bona fide member of the Tribe and earns income from activities pursued on their Tribe’s reservation, the income is exempt from Virginia income tax regardless of whether the individual lives on or off the reservation.

If an individual is a bona fide member of the Tribe and earns income from activities pursued off their Tribe’s reservation, the income is subject to Virginia income tax regardless of whether the individual lives on or off the reservation.

If an individual is a bona fide member of the Tribe and earns income from both activities performed on their Tribe’s reservation and from activities performed off their Tribe’s reservation, only the income attributable to activities performed on the reservation is exempt from Virginia income tax regardless of whether the individual lives on or off the reservation. For example, if a Tribe member works at the Tribe office on the reservation three days a week and works from their home office located off the reservation two days a week, three-fifths of that individual’s income is exempt from Virginia income tax and two-fifths of the income is subject to Virginia income tax. As a further example, if a Tribe member generally works on their reservation, but attends a two-week conference held off the reservation, income earned attending that conference is not exempt from Virginia income tax, regardless of whether the individual lives on or off the reservation.

If an individual is not a bona fide member of the Tribe and earns income from activities pursued on the Tribe’s reservation, the individual’s income is subject to Virginia income tax regardless of whether the individual lives on or off the reservation.

As the examples above illustrate, in order to determine if an individual’s income is exempt from Virginia income tax, the relevant facts are the individual’s status as a bona fide Tribe member and where the activities are performed. The location of an individual’s residence is not relevant. Only income earned by bona fide Tribe members from activities performed on their Tribe’s reservation qualifies for exemption from Virginia income tax.

This ruling is based on the facts presented as summarized above. Any changes in facts or the introduction of new facts may lead to a different result.

The Code of Virginia section and public document cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this ruling, you may contact * in the Office of Tax Policy, Appeals and Rulings, at (804) ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4487.X

Related Documents

10-156

19-15