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.
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.”
Complaints made to the tax commission involving the Potawatomis, or any other tribe or other entity, are shielded from public view.
“We review all complaints but cannot be specific on the entities. We don’t keep complaints by type of taxpayers or issues,” Ross said.
Because of these rules involving disclosure, Ross said she cannot comment on whether the commission is currently investigating the Citizen Potawatomi Nation for not paying sales tax.
In some cities where tribes have a large presence, agreements are in place with the cities they call home. For the most part, though, Indian tribes derive little income from retail operations. Even the Cherokee Nation, the nation’s largest Indian tribe, has no sales tax agreement with Tahlequah, the city that is home to the tribe.
Deb Corn, city clerk in Tahlequah, said that there is no agreement with the Cherokees because there is no need for one.
“The info I have as of today is that the Cherokee Nation does not have any businesses inside the city limits of Tahlequah ... that they might charge sales tax,” Corn told The Oklahoman. “The city of Tahlequah (also) does not have an agreement with Cherokee Nation for any payment-in-lieu-of-taxes.”
Cities who share space with the Chickasaw Nation, which boasts the state’s largest gambling revenues because of its proximity to the Dallas-Fort Worth metropolitan area, report a pleasant experience as far as sales tax collections are concerned.
In Ada, for instance, city officials told The Okahoman that a payment-in-lieu-of-taxes —or PILT — agreement was in place with the Chickasaw Nation. Attempts to get more infomation from Ada city officials, including an estimate of the total amount paid by the tribe in any given year, were not successful.
Keith Mann, city manager in Sulphur, said the Chickasaw Nation also has a PILT agreement with his city. The former police chief in Ardmore, Mann said he is familiar with the Chickasaw Nation and how they do business with the cities and towns that lie within the tribe’s boundaries.
“They are great neighbors,” Mann said. “They support projects in the community ... they’re always willing to help out. They look at the cities and towns as part of their nation.”
Mann, who was raised in Sulphur but spent more than 30 years as a police officer in Oklahoma City, said the Chickasaws have a similar agreement with “probably all the cities and towns in their nation.”
Cooperation is taxing
But in Shawnee, city officials say the Potawatomis’ decision not to remit sales tax is hurting the city’s residents, even those who are members of the area‘s four Indian tribes.
Shawnee City Manager Brian McDougal, who has been the city’s top administrator for five years, said the Potawatomis “haven’t paid any sales tax since I got here.”
Basic city services are being limited because of the dip in revenue, McDougal said.
McDougal said the loss of sales tax revenue is especially hard for Shawnee to cope with because of the limited funding mechanisms available.
“In some cities, like Oklahoma City and others, they have other sources of revenue ... like property tax,” he said. “We don't have any of that.”
According to McDougal, Shawnee should be getting 3 percent of all tax money taken in through purchases made by nontribal members. One percent is supposed to go to Pottawatomie County while the remaining 4.5 percent is set for the state of Oklahoma's coffers.
“We operate on three pennies on every dollar and one penny is dedicated to capital improvements,” McDougal said. “So, my general fund is operated off of two pennies ... it's just sort of happened that way over the years.”
Barrett, who has been in power for more than two decades, said the city is simply trying to control his tribe’s growth. He said this confounds him because of all the good the Potawatomis do for the city of Shawnee.
“They are waging an economic war by trying to defame us to the public,” Barrett said.
“They think this is a zero-sum game and believe that everything we get must be a loss for them. They want to paint the picture that we're not contributing citizens of this community and that isn't the case. Shawnee is a better place because we're here.”