Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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305.0000 INDIANS

Annotation 305.0019

305.0019 Independent Contractor vs Agency Relationship. A Non-Indian Corporation (NIC) has contracted with an unincorporated Indian organization (Tribe) to manage an Indian-owned business enterprise of the Tribe on an Indian Reservation. NIC and the Tribe are planning a major expansion of the business enterprise on reservation land. The expansion facilities will include permanent buildings, improvements to existing structures, and related fixtures and equipment. The expansion facilities will be wholly owned by the Tribe upon purchase and installation, without liens or other encumbrances.

According to the agreement between NIC and the Tribe, NIC has the authority to act as an agent for the Tribe when making purchases of any and all materials and equipment. The agreement further states that NIC may also hold itself out as an agent of the Tribe in order to exercise its rights, duties, and obligations under the agreement.

Under the agreement, NIC would have to fund any proposed expansion, and reimbursements would be limited to funds payable from operating profits within 90 days of completion. NIC does not intend to enforce its right to reimbursement since NIC expect to recapture its capital investment over time through receipts of its management fee, which is a fixed percentage of operating income. The expansion is expected to result in an increase in operating income translating into an increase in NIC's management fee.

Based upon these facts, as to the proposed work of improvements, the relationship between the Tribe and NIC is not an agency relationship for sales and use tax purposes. Instead, NIC's relationship to the Tribe in that context is that of an "independent contractor." In undertaking to construct the proposed expansion, NIC is not planning on making the necessary purchase on credit of the Tribe, or even with funds provided by the Tribe. Instead, NIC has agreed to perform certain specified services in return for a percentage of the profit from the Tribe business. Thus, NIC is the contractor of the Tribe, not an agent of the Tribe, and in constructing the work of improvement, NIC is merely carrying out its contractual obligations to the Tribe so as to earn the promised consideration. 3/21/96.