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State tax commission powerless to audit tribes, enforce sales tax collections

Tribes are required to collect taxes from nonmembers who purchase goods at their retail businesses but state officials admit they are powerless to conduct audits to find out if the correct amount of tax is being collected.
Oklahoman Modified: February 22, 2014 at 10:47 pm •  Published: February 23, 2014

Indian tribes that operate retail businesses on trust lands in Oklahoma are required to collect sales tax from non-Indian shoppers, but state officials admit they are powerless to take action to ensure the correct amount of tax is being collected.

While the issue has been dormant for decades as Indian tribes typically rely on other sources of income to survive, a recent public fight in Shawnee has brought it back into focus.

A U.S. Supreme Court decision more than 20 years ago seemed to settle the issue, but Shawnee city officials claim businesses owned by the Citizen Potawatomi Nation are causing municipal revenues to decrease because the tribe refuses to remit sales tax.

Shawnee city officials claim the Citizen Potawatomi Nation, the largest employer in the area with a hugely successful gaming operation, has not paid sales tax to the city in years, even though they collect sales tax on retail sales. They say a large grocery store — FireLake Discount Foods — is the primary business of concern and costs the city untold sums of money each year.

The store is a massive operation at Hardesty Road and South Gordon Cooper Drive, just south of downtown Shawnee. Inside, shoppers are treated to the modern big-box retail experience. Sprawling floorplan. High ceilings. Bright lights. There’s even a built-in dollar store. Prices, at least according an unscientifc survey, are typical of grocery stores in central Oklahoma.

Outside the store, on Tuesday, the parking lot is full, even in the middle of the day. Cars speed by, parking in one of the hundreds of spaces or pulling up to the pump at the on-site gas station — another must-have amenity for modern-day grocery stores.

Tribe accepts accusation

John “Rocky” Barrett, the powerful chairman of the Shawnee-based Indian nation, said in a prepared statement that the Potawatomis do not remit sales tax to the city of Shawnee for purchases made by his store’s customers — even those who are not members of an Indian tribe.

He does not deny this.

“Based on the Commerce Clause of the U.S. Constitution ... only the U.S. Congress can regulate commerce on Native land,” Barrett said in the statement.

“We are not required to pay the city sales tax any more than the other businesses outside of the city’s jurisdiction would be required to. The courts have consistently rejected municipal attempts to regulate or tax tribal activities except when the tribe tried to sell a tax exemption. We charge the same amount of tax as any other grocery store in Shawnee.”

FireLake Discount Foods does charge customers sales tax — at rate of just more than 8 percent — but what is done with the money after that is not clear.

Barrett said that while his tribe doesn’t send a monthly sales tax check to the city of Shawnee, it does support the city in other ways.

“Rather than sales tax, we provide many governmental services and create jobs in this area. We have created 7 out of every 10 jobs and we spent $50 million to pave roads, build water lines, and provide police protection in Shawnee during the last decade.

The tribe also has spent more than $30 million on a public golf course, a museum and other projects since 2005.

“We paid more than $21.3 million in taxes in Oklahoma and made more than $1.7 million in contributions to the community in 2012,” Barrett said.

Challenges abound

Paula Ross, a spokeswoman for the Oklahoma Tax Commission, said that while tribes are required by law to charge sales tax on retail sales to nonmembers, it is virtually impossible to make sure they are doing it correctly.

A Supreme Court decision in 1991, which is the result of a lawsuit filed by the Oklahoma Tax Commission against the Citizen Potawatomi Nation in 1987, holds that Indian tribes do not have to charge sales tax on purchases made on their trust lands — as long as the customer is a member of an Indian tribe.

Nonmembers — those not belonging to an Indian tribe — are supposed to pay sales tax on retail purchases made on tribal lands, according to the Supreme Court decision.

“That is the challenge ... because they are a tribe, we can’t just go in there and audit them like we would in other cases,” Ross said during a telephone interview.

“So, they are required to pay taxes under certain circumstances, but without being able to perform an audit, in some cases, we’re limited on what we can do as far as enforcement.”

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by Andrew Knittle
Investigative Reporter
Andrew Knittle has covered state water issues, tribal concerns and major criminal proceedings during his career as an Oklahoma journalist. He has won reporting awards from the state's Associated Press bureau and prides himself on finding a real...
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