Piliero Mazza & Pargament, PLLC Vol. 6, Issue 1 January 2004
Addressing Tribal and Alaska Native Corporation Legal and Business Issues
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In This Issue
COURT WATCH - State Taxation of Tribal Companies Doing Business Off-Reservation
FEDERAL - The Courts and the Agencies in 2003
GOVERNMENT CONTRACTING - The Native American Contractors Association
SMALL BUSINESS - SBA Issues Proposed Rule on Small Business Subcontracting
State Taxation of Tribal Companies Doing Business Off-Reservation
As more tribally-owned companies successfully enter the off-reservation marketplace, states are taking a closer look at these entities as sources of tax revenue. The power to tax lies at the very heart of the meaning of sovereignty, as this country is so keenly aware. When tribal companies venture off-reservation, they find themselves in limbo—not fully subject to jurisdiction of the state courts, on the one hand, but not completely immune from the long arm of state coffers, on the other.
An unincorporated tribal company or a tribal company formed pursuant to 25 U.S.C. § 477 (often referred to as a § 17 corporation) shares the same tax status as the tribe and is exempt from federal income taxation, whether located on or off reservation. (See I.R.S. Rev. Rul. 94-16, 1994-1 C.B. 19, amplified by Rev. Rul. 94-65.) However, to the extent that a tribal company does business off-reservation, it is subject to state income tax.
State taxation of tribal income from activities carried on within the boundaries of the reservation is impermissible, unless Congress has expressly consented to the imposition of the tax. See Bryan v. Itasca County, 426 U.S. 373 (1976); Moe v. Confederated Salish & Kootenai Tribes, 425 U.S. 463 (1976). Under this principle, § 17 corporations and companies formed under tribal law are considered to be a part of the tribe and are necessarily exempt from state taxation, with respect to activities conducted on the reservation.
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The Courts and the Agencies in 2003
The Courts- Several key court decisions were handed down in 2003 affecting tribes. These decisions dealt with matters ranging from the constitutionality of contracting preferences for Native Americans to issues of sovereignty.
Of special note is the Supreme Court’s December 15, 2003 decision to deny review of a lower court decision affirming the unique status of ANCs and Tribes for contracting preferences. In September 2003, the American Federation of Government Employees in American Federation of Government Employees v. United States 330 F.3d 513 (D.C. Cir. 2003), petitioned the Supreme Court to review the United States Court of Appeals for the D.C. Circuit decision affirming a lower court’s decision that a legislative provision granting an outsourcing preference to firms “under 51 percent Native American ownership” was constitutional. In holding Section 8014 of the Defense Appropriations Act for fiscal year 2000 valid, the Appeals Court refused to apply “strict” judicial scrutiny, the usual standard for reviewing race-based classifications, but rather applied “rational basis” review, noting that Congress has broad authority to regulate commerce with Indian Tribes. The general prohibition on race-based preferences, outlined by the Supreme Court in Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995), does not apply here because of the unique relationship between federally recognized tribes and Congress. The court also reasoned that when Congress seeks to regulate commerce with the tribes, it necessarily must engage in racial classifications. (See TA July/August 2003, October 2003.)
The Agencies - During the course of the year, agencies released several proposed and final rules, as well as directives, on important matters affecting government contracting issues and Indian business opportunities.
The Small Business Administration received comments in January 2003 on a proposed rule that would amend the agency’s small business size regulations and modify and amend the definition of affiliation, annual receipts and employees. The proposed rule also seeks to clarify the exceptions to affiliation coverage that apply to Indians; it addresses the issue of how to treat joint venturers for purposes of affiliation. SBA hopes to issue a final rule in January 2004. (See TA, January 2003.)
Early in the year, the Office of Federal Procurement Policy (OFPP) issued a directive that essentially imposed an annual recertification requirement for small businesses performing certain types of contracts. The directive affected government-wide agency contracts for information technology through the Department of Commerce, NASA, NIH and GSA. (See TA, May 2003.)
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THE NATIVE AMERICAN CONTRACTORS ASSOCIATION
The Native American Contractors Association (NAC) is off and running. Membership in this new trade association is open to any Tribe, Alaskan Native Corporation (ANC) or Native Hawaiian Organization (NHO) involved in government contracting, including any subsidiaries or tribal enterprises.
NAC ’s mission is: (1) to increase awareness among the general public, large businesses and government agencies of the benefits of using Tribal corporations, ANCs and NHOs; (2) to establish, promote and defend policies, regulations and laws that foster a fair level of participation by Tribal corporations, ANCs, and NHOs in the federal government marketplace; (3) to foster high quality services to the federal government by Tribal corporations, ANCs and NHOs; and (4) to serve as a vehicle for information sharing and partnership opportunities.
According to Conrad Bagne, CEO of Arctic Slope Regional Corporation, an ANC with several successful 8(a) companies, “The formation of NAC is an exciting and significant step in the development of Native American owned businesses. It will provide a coordinated voice for us as contactors and improve the development of our capabilities to compete and grow in the business world.”
Chickasaw Nations Industries, Inc., President/CEO, Deryl Wright, an NAC Director notes that it is important for the tribes, ANCs and NHOs to learn from each other and to support each other’s efforts to improve conditions throughout the country for Native People. Doing good business and doing it well for the federal government is a great way to accomplish this purpose.
NAC will have a booth at RES 2004. Literature and membership applications will be available there. Look for NAC members to discuss additional benefits of membership.
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SBA ISSUES Proposed Rule on Small Business Subcontracting
The Small Business Administration recently released a proposed rule that would amend SBA’s regulations governing small business subcontracting. The subcontracting proposed rule was prompted by public comments received by SBA in response to its proposed rule on contract bundling which has since been finalized. The proposed rule on subcontracting lists numerous factors to be considered in evaluating a prime contractor’s performance and good-faith efforts to achieve its small business requirements under a subcontracting plan. The proposed rule also seeks to authorize the use of goals as a factor in source selection when placing orders pursuant to the Federal Supply Schedule (FSS) and other government-wide acquisition (GWACs) and multi-agency (MACs) contracts.
Under the Small Business Act, large businesses awarded federal prime contracts in excess of $500,000, or $1,000,000 for the construction of a public facility, are required to submit a subcontracting plan to the contracting agency. The plan includes information and goals regarding the maximum practicable use of small businesses as subcontractors. Contractors are supposed to make a “good faith” effort to meet their goals. These “good faith” evaluations of a prime contractor are important because contracting officers use them when making a past performance evaluation. The proposed rule sets forth some examples of conduct that contracting officers can use to assess a prime’s attempted compliance with its subcontracting plan. In addition, the proposed rule specifies the various categories of small businesses, such as women and veteran-owned business and HUBZone firms, that should be provided with subcontracting opportunities to the greatest practicable extent and consistent with the efficient performance of the contract.
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