David C. Holtz, J.D., LL.M., Former IRS Attorney

David C. Holtz, J.D., LL.M., Former IRS Attorney

On July 9, 2009, the California State Board of Equalization (“SBE”) announced that it is proposing a change to it’s position regarding sales to mixed Indian couples.  In particular, the SBE’s proposed new position is that sales to married couples (and domestic partnerships) which consist of both an Indian spouse and an non-Indian spouse will now be considered 100% exempt from sales tax if they otherwise meet exempt requirements.

The SBE proposal  revises its previous position reflected in law annotation 305.0013 that sales to mixed Indian/Non-Indian couples are only 50% exempt from California sales tax. 

Background:  Pursuant to California Sales and Use Tax Regulation 1616, the following sales of tangible personal property (such as an automobile) involving Indians are generally exempt from California sales taxes:

  1. Sales by Indians retailers to Indians who reside on a reservation are exempt where the sale is negotiated at a place of business located on reservation and the property is delivered to the purchaser on a reservation.
  2. Sales by Indian retailers to non-Indians who do not reside on reservation are exempt where the sale is negotiated at a place of business located on reservation and the property is delivered to the purchaser on a reservation.
  3. Sales by non-Indian retailers to Indians who reside on reservation are exempt where the sale is negotiated at a place of business on reservation and the property is delivered to the purchaser on a reservation.

In applying this regulation, the SBE’s previous position was that sales to a mixed Indian/Non-Indian couples that otherwise meet the above requirements are only 50% exempt from California Sales Tax on the basis that the non-Indian spouse owns ½ of the interest in the purchased property, and, thus, the non-Indian interest should not be viewed as an exempt sale related to an Indian. 

The SBE has amended its position proposing a change to the legal annotations by replacing law annotation 305.0013 with law annotation 305.0019.100 providing the following:

Indian and Non-Indian Couples. Provided that all the other requirements for exemption are met under Regulation 1616, sales to couples involving Indians who have entered into officially recognized family relationships under either California law (i.e., a marriage or a domestic partnership under the Domestic Partner Rights and Responsibilities Act of 2003) or duly enacted tribal law should receive the same tax treatment regardless of whether the Indians have formed legal unions with Indians or non-Indians. Under such circumstances, neither the half-interest in the property attributable to the non-Indian nor the half-interest attributable to the Indian is subject to tax.

Legal Material:

California Sales and Use Tax Regulation § 1616.

Current Legal Digest (CLD) Number 1077 (July 9, 2009).

Law Annotation 305.0013 (April 30, 1981).

Other Helpful Material:

SBE Publication 146, Tax Tips for Sales to American Indians and Sales on Indian Reservations (August 2008).

Author:  David C. Holtz

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