Revenue Administrative Bulletin 1988-47

Approved: September 26, 1988

INCOME TAX - TAXABILITY OF INCOME DERIVED ON AN INDIAN RESERVATION

RAB-88-47. This Bulletin describes the Michigan income tax treatment of income derived by a native American Indian and a non-Indian for activities within and without the boundaries of a Michigan Indian Reservation.

Michigan Income Tax Treatment

An individual who is a resident of this State or is a non-resident and has income from Michigan sources, is required to file a Michigan income tax return in accordance with MCL 206.315(1). This provision requires that every person (including an Indian) who is required to file a return under the Internal Revenue Code is to file a return under the Michigan Income Tax Act if his or her adjusted gross income is in excess of the personal exemptions allowed under the Act. This return shall be filed with the Department of Treasury on or before the fifteenth day of the fourth month following the close of that taxable period.

The Michigan Income Tax Act, MCL 206.30(1), defines Michigan taxable income as Federal adjusted gross income subject to certain adjustments. However, the United States Supreme Court held in McClanahan v Arizona State Tax Commission, 411 US 164; 36 L Ed2d 129; 93 S Ct 1257 (1973), that where the following facts occur, the State cannot lawfully impose an income tax on the income of an Indian:

1. The individual is a member of a federally recognized tribe or band, and
    
2. The individual resides on a reservation of that tribe or band, and
    
3. The individual's income is earned on that reservation, i.e., is derived from employment or other sources on the reservation.

On October 23, 1973, the Michigan Attorney General advised the Director of Indian Affairs by letter of the following:

1. Michigan income tax applies to the income of Indians which is earned outside of reservations.
    
2. Michigan income tax applies to the income of non-Indians even though it is earned on reservations.
    
3. The Michigan income tax does NOT (it cannot constitutionally) apply to income of Indians which is derived from employment or other sources on reservations.

Tax Determination

The taxation of Indians and non-Indians working on Indian reservation is determined as follows.

Enrolled Member of Michigan Tribe or Band

To the extent that an Indian enrolled in a Michigan tribe or band has taxable income attributable to his or her own activities on the reservation or from activities conducted by the tribe or band within the boundaries of the Indian reservation, such income will be exempt from Michigan income tax providing that the enrolled member also lives on the reservation.

Non-Enrolled Indian Working on Reservation

An Indian who lives and works on an Indian reservation but is not a member of that tribe is subject to tax on the income derived on the reservation in the same manner as other non-Indian individuals. An exclusion is not allowed for the income earned on that reservation, unless specifically excluded or exempted under State or Federal laws.

Indian Working Outside of a Reservation

An Indian, whether or not an enrolled member of a tribe or band, who receives income from sources outside of his or her reservation is subject to Michigan income tax on the income, unless the income is otherwise excluded or exempted from tax by State or Federal laws.

Residency Status of Indian

An enrolled member of a reservation located in Michigan is considered a resident of this State.

The residency status of an unenrolled Indian will be determined in accordance with the Michigan Income Tax Act, MCL 206.18, and Department of Treasury Rule, 1979 AC, R 206.5.

Non-Indian Working on the Reservation

A non-Indian who derives taxable income from reservation sources is subject to Michigan income tax on the income, unless the income is otherwise excluded or exempted by State or Federal laws.