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Revenue Administrative Bulletin 1991-14

Approved: October 10, 1991



(Replaces Revenue Administrative Bulletin 1989-2)

RAB-91-14. This bulletin explains the Michigan income tax treatment of income derived by an Indian from fishing rights-related activity. It updates Revenue Administrative Bulletin 1989-2 to reflect the repeal of section 441 of the Income Tax Act [MCL 206.441; MSA 7.557(1441)] by Public Act 285 of 1990. It refers instead to section 27a of the revenue act [MCL 205.27a; MSA 7.657(27a)] for the law governing refunds.

Federal Treatment

In November of 1988, the Technical and Miscellaneous Revenue Act (TAMRA) was passed and section 7873 was added to the Internal Revenue Code (IRC). This section provides that no tax shall be imposed on income derived by a member of an Indian tribe directly or through a qualified Indian entity, or by a qualified Indian entity from a fishing rights-related activity of such tribe. This provision is effective for a11 taxable periods beginning before, on, or after the date this provision was enacted.

To qualify for IRC section 7873 exclusion treatment, a member of an Indian tribe must be engaged in a "fishing rights-related activity." A fishing rights-related activity is any activity directly related to the harvesting, processing, or transporting of fish harvested in the exercise of a recognized fishing right. Selling of fish is a fishing rights-related activity only if substantially all of the harvesting was performed by members of the tribe. A "recognized fishing right" is defined in the IRC as being fishing rights secured as of March 17, 1988, by a treaty between the tribe and the United States, by an Executive Order or by an Act of Congress.

An Indian entity qualifies for IRC section 7873 treatment if three tests are met:

  1. The entity must be engaged in a fishing rights-related activity of the tribe.
  2. Qualified Indian tribes, members of the tribes or their spouses must own all equity interests in the entity.
  3. Substantially all the management functions of the entity must be performed by members of qualified Indian tribes. If the entity engages in substantial processing or transporting of fish, then at least 90 percent of the annual gross receipts must be from the exercise of protected fishing rights-related activities of one or more qualified Indian tribes each owning at least 10 percent of the equity in the entity. A qualified Indian entity may be organized as a corporation, partnership or other business form. For the purpose of meeting the 10 percent test, equity interests owned by a member (or spouse of a member) of a qualified Indian tribe is treated as owned by the tribe.

Michigan Treatment

The Michigan Income Tax Act [MCL 206.30(1); MSA 7.557(130)(1)] defines taxable income as adjusted gross income as defined in the Internal Revenue Code subject to certain adjustments. By virtue of IRC section 7873, fishing rights-related activity income is specifically excluded from the computation of gross income for federal income tax purposes. Therefore, this income is not included in the computation of Michigan taxable income base.

For taxable years before 1988, this income was includible in the computation of adjusted gross income and was taxable. A taxpayer who has filed a prior year return and paid tax on exempt fishing rights-related income may file an amended return and claim a refund. Section 27a(2) of the Revenue Act [MCL 205.27a(2); MSA 7.657(27a)(2)] permits a taxpayer to file an amended return to claim a refund of taxes overpaid. The amended return must be filed within 4 years from the date set for filing the original return.

An assessment previously issued by the Department that is based on fishing rights-related activity income shall, to the extent that it remains unpaid, be cancelled or adjusted. Claims for adjustment to assessments based upon fishing rights-related activity income must be substantiated by the taxpayer.

Household Income

For purposes of computing a property tax credit, farmland preservation tax credit, or home heating credit, income from fishing rights-related activities, whether or not exempt under federal law from state taxation, is includible in the computation of household income. (See MCL 206.510; MSA 7.557(1510).)