Tax Guide for Native Americans
Retailers

Retail Sales Made on a Reservation by Native Americans

This section explains how tax generally applies to sales made by Native American retailers on the reservation. Be sure to read the Key Definitions section before you read this section.

Sales to Native Americans Who Reside on a Reservation

Sales tax does not apply to sales of tangible personal property (items) made to Native Americans by Native American retailers negotiated at places of business on the reservation when the purchaser resides within a reservation and the property is delivered to a location on a reservation.

In such a case, the Native American purchaser needs to pay use tax on the purchase if the property is used outside the reservation more than half of the time during the first 12 months after the sale.

The Native American purchaser does not need to live on a reservation where ownership transfers. For example, Reservation A purchaser can qualify for the exemption when taking ownership of property on Reservation B.

Sales to Non-Native Americans and Native Americans Who Do Not Reside on a Reservation

Sales tax generally does not apply to sales of tangible personal property made by Native American retailers to non-Native Americans and Native Americans who do not reside on a reservation when the sales are negotiated at places of business on a reservation and the property is delivered to a location on the reservation.

However, use tax generally applies to sales by “on-reservation” Native American retailers made to non-Native Americans and Native Americans who do not reside on a reservation. The purchased property is presumed for use by the purchaser outside the reservation, and the Native American retailer is required to collect the use tax from such purchaser and must register with us for a California Certificate of Registration – Use Tax. For more information on registration, please see Permit Requirements Getting Started.

Sales of Meals, Food, and Beverages to Non-Native Americans and Native Americans Who Do Not Reside on a Reservation

Use tax does not apply to meals, food, and beverages sold by a Native American retailer operating an eating or drinking establishment, such as a restaurant or bar, on a reservation when the meals, food, and beverages are purchased for consumption on the reservation.

However, the sales and use tax law provides that all meals, food, and beverages sold or purchased from a drive-through counter or window of an eating or drinking establishment on a reservation are presumed for consumption off the reservation and tax applies.

Retail Sales Made on a Reservation by Non-Native Americans

This section explains how tax generally applies to sales made by non-Native American retailers on the reservation. Be sure to read the Key Definitions section before you read this section.

Sales to Native Americans Who Reside on a Reservation

Sales tax does not apply to sales of tangible personal property (items) made to Native Americans who reside on a reservation by non-Native American retailers when sales are negotiated at places of business located on the reservation and the property is delivered to the purchaser on the reservation.

In such a case, the Native American purchaser needs to pay use tax on the purchase if the property is used outside the reservation more than half of the time during the first 12 months after the sale.

The Native American purchaser does not need to live on a reservation where ownership transfers. For example, Reservation A purchaser can qualify for the exemption when taking ownership of property on Reservation B.

Sales to Non-Native Americans and Native Americans Who Do Not Reside on a Reservation

Either sales or use tax generally applies to sales of tangible personal property by “on-reservation” non-Native American retailers to non-Native Americans and Native Americans who do not reside on a reservation unless the non-Native American retailer is operating an eating or drinking establishment (see Sales of Meals, Food, and Beverages to Non-Native Americans and Native Americans).

Sales of Meals, Food, and Beverages to Non-Native Americans and Native Americans Who Do Not Reside on a Reservation

Tax does not apply to sales of meals, food, and beverages to non-Native Americans or Native Americans who do not reside on a reservation by a non-Native American retailer when the following criteria are met:

• The non-Native American operates an eating or drinking establishment (for example, restaurant or bar) on a reservation under a federally authorized lease or sublease;
• The sales are subject to a tribal sales or use tax; and
• The meals, food, and beverages are sold for consumption on the reservation.

However, the sales and use tax law provides that meals, food, and beverages sold or purchased from the drive-through of an eating or drinking establishment located on a reservation are presumed for consumption off the reservation. Therefore, tax generally applies to the sale or purchase of meals, food, and beverages sold from such drive-through counter or window on a reservation. Tax also applies to sales of meals, food, and beverages sold or purchased for delivery off a reservation.

Tribal Tax

Tribes may require “on-reservation” retailers to collect and pay a tribal tax on their sales.

If a federally recognized Native American tribe charges a tribal tax to customers of an “on-reservation” retailer, then the amount of tax imposed by the tribe may not be subject to California sales or use tax provided:

• The tax is a percentage of the selling price of the property; and
• The retailer complies with the requirements of the California Sales and Use Tax Law. That is, they have a seller's permit or a Certificate of Registration – Use Tax to collect the use tax, file timely sales and use tax returns, properly report all sales, and pay the California taxes due.

The imposition of the tribal tax does not affect the retailer's liability for California sales or use taxes.

Sales to Native Americans by Retailers Located Outside a Reservation

This section explains how tax generally applies to sales to Native Americans when the retailer is not located on a reservation. Be sure to read the Key Definitions section before you read this section.

Sales to Native Americans and Transfer of Ownership on a Reservation

If you are a California retailer who is located outside a reservation, your sales to Native Americans are generally subject to tax unless specific requirements for the exemption are met.

Sales tax generally does not apply to sales made by “off-reservation” retailers to Native Americans who reside on a reservation when the retailer delivers and transfers ownership of the property on the reservation.

Even if the purchaser is a Native American organization, the requirement that the Native American purchaser resides on a reservation must still be met. A Native American organization is considered to reside on a reservation when it is located or otherwise conducts business on the reservation.

If the property is purchased by a Native American not residing on a reservation, the property is presumed to be purchased for use outside the reservation, and the retailer must collect use tax, even though the transaction may be exempt from sales tax. In the event the nonresident Native American purchaser can demonstrate or document that the use of the property occurred on the reservation more than half of the time within the first 12 months after the sale, the purchaser may request a refund of the use tax paid. Purchasers may complete a CDTFA-101, Claim for Refund or Credit, , and submit the completed form with supporting documentation to us.

The purchaser does not need to reside on the same reservation where ownership transfers. For example, Reservation A purchaser may qualify for the exemption even when taking ownership of the property on Reservation B.

For more information on the refund for use tax paid, please contact our Audit Determination & Refund Section at 1-916-445-1315.

Sales to Native American Couples

If a California retailer is located outside a reservation, the retailer's sales to Native American couples are generally subject to tax unless a specific requirement for exemption is met.

Sales tax generally does not apply to sales made by “off-reservation” retailers to Native American couples who reside on a reservation when the retailer delivers and transfers ownership of the property on the reservation.

A Native American couple is a married couple or registered domestic partnership that consists of two Native Americans or of a Native American and a non-Native American that have entered into an officially recognized family relationship under California or tribal law. See definition of a Native American couple in the Key Definitions section.

A Native American couple may be liable for use tax on the property's purchase price if the property is used outside the reservation more than half of the time within the first 12 months after the sale.

Real Property's Permanent Improvements by Construction Contractors

Tax may not apply to sales of tangible personal property that will be permanently attached as an improvement to real property on the reservation.

For tax not to apply to such sales, all the following conditions must be met:

• The purchaser is a Native American who resides on a reservation,
• The property is delivered to the purchaser on a reservation, and
• Ownership of the tangible personal property transfers to the purchaser on a reservation.

Improvements to real property include:

• Buildings, structures, fixtures, and fences erected on or attached to land. For purposes of this sales tax exemption, improvements include trailer coaches that are not registered with the Department of Motor Vehicles (DMV), mobile homes, manufactured homes, and factory-built housing, and
• Ornamental trees and vines.
  • Fruit and nut trees can also be improvements, but their sale may be exempt under section 6358 of the Sales and Use Tax Law.

For information on construction contractors, please see Sales Related to Construction Contracts segment below.

Sales of Vehicles, Vessels, and Aircraft by Dealers

Sales tax generally does not apply to sales to Native Americans who reside on a reservation provided the vehicle, vessel, or aircraft is delivered onto the reservation and ownership transfers on the reservation.

The sale does not qualify for the exemption if the Native American takes possession before delivery onto the reservation. The same principle applies to sales to Native American organizations and Native American couples.

For more information, please see Documenting Exempt Purchases of Vehicles, Vessels, and Aircraft.

Documenting Exempt Purchases of Vehicles, Vessels, and Aircrafts

When a dealer's sale of a vehicle is exempt from sales tax because of delivery to a Native American residing on a reservation, and the registration address for DMV purposes is within the reservation, it is rebuttably presumed the vehicle is purchased for use on the reservation.

If the vehicle's physical storage address is a different location than the mailing address, the physical storage address determines whether the purchaser must document the use within and outside the reservation.

For example, if the purchaser has a post office box for receiving mail that is not located on a reservation, but the vehicle is garaged at the purchaser's residence on a reservation, the purchaser is not required to document the use of the vehicle within and outside the reservation. The purchaser, however, must be able to document that the vehicle is stored on the reservation. The same principle generally applies to purchases of vessels and aircrafts.

Claimed Exempt Sales to Native Americans Require Documentation

California retailers making an exempt sale to a Native American should keep copies of documents to support the exemption. Our auditors will need them to verify the sale is exempt. This generally requires documentation that ownership of the property was transferred on a reservation and that the sale of the property was to a Native American.

California retailers may obtain documentation such as:

1. Documents that show the purchaser is a Native American, such as a copy of the purchaser's tribal ID card, a letter from a tribal council, and/or a letter from the United States Department of the Interior.
2. Documents that show that ownership of the property transferred to the purchaser while on the reservation and delivery occurred there, such as contracts of sale, invoices, bills of lading, delivery receipts, and freight invoices. Generally, the retailer must retain documents to show property was delivered:
   1. Using their own vehicle, or
   2. By mail, common carrier (for example, UPS, FedEx), or contract carrier (for example, a shipping, trucking, or transport company), when both of the following conditions are met:
      • The contract of sale or sales invoice includes a statement specifically requiring delivery on a reservation (for example, Freight on Board [F.O.B.] name of Native American reservation) and provides that ownership passes upon delivery on a reservation, and
      • The goods are in fact delivered on a reservation.

Please note: The transportation document, such as a bill of lading, may remain silent on where title transfers but it cannot contain contradictory language to the language contained in the contract of sale or sales invoice.

To help document exempt sales, retailers may obtain an exemption certificate from the Native American purchaser. The exemption certificate should state that the Native American purchaser resides on a reservation and serve as support that the property was sold to a Native American. By obtaining an exemption certificate, retailers will not need to obtain any additional documentation to show the purchaser is a Native American, such as a tribal ID card. However, you will still need to retain documentation showing transfer of ownership and delivery of the property to the Native American on the reservation.

Forms CDTFA-146-RES, Exemption Certificate and Statement of Delivery in Indian Country, and CDTFA-146-TSG, Exemption Certificate – Property Used in Tribal Self-Governance and Statement of Delivery, are available on our website to download and use. These forms contain all required elements of an exemption certificate and contain a section that may be completed by a notary public to document delivery of the property on the reservation or at the principal place where the tribal government meets to conduct tribal matters. A notarized CDTFA-146-RES or CDTFA-146-TSG may be used to document delivery of the property made by facilities of the retailer. The retailer is not required to obtain a notarized statement of delivery but is required to obtain documentation demonstrating the property was delivered to the Native American purchaser on the reservation. If a properly completed and notarized CDTFA-146-RES or CDTFA-146-TSG is obtained, you do not need to obtain any additional documentation showing the property was delivered directly to the purchaser in Indian country. If the property is delivered by a common carrier or contract carrier, freight invoices or bills of lading will generally qualify as sufficient documentation of delivery to the Native American purchaser on the reservation.

If a state-licensed notary public is not readily available to document delivery of the property by facilities of the retailer on the reservation, tribal council officers' or their authorized representatives' delivery certification is also acceptable to document delivery of the property on the reservation.

For more information on exemption certificates, please see Regulation 1667, Exemption Certificates.

Sales Related to Construction Contracts

This segment explains how tax applies to the sales by and to construction contractors involving Native American customers and construction work on a reservation.

In general, there are no sales or use tax exemptions for construction work done for Native American customers outside a reservation. Tax applies to this work in the same manner as other construction contracts.

Materials and Fixtures

A construction contractor is generally a consumer of materials and a retailer of fixtures furnished and installed in the performance of a construction contract. How tax applies depends on whether the property furnished and installed in the performance of a construction contract is a material or fixture.

Materials are construction components and other tangible personal property incorporated into, attached to, or affixed to real property by contractors in the performance of a construction contract and lose their identity to become an integral and inseparable part of the real property. Examples of materials include concrete, doors, electric wiring, lumber, flooring, roofing, windows, and paint.

Fixtures are properties that are accessory to a building or other structure and do not lose their identity as accessories when installed. Examples of fixtures include signs, heating and air conditioning units, furnaces, plumbing fixtures, lighting fixtures, shutters, and blinds.

Please see Appendix A and Appendix B of Regulation 1521, Construction Contractors, for typical items regarded as materials and fixtures, respectively.

Sales to Native Americans by Construction Contractors

When the customer is a Native American, sales of fixtures furnished and installed as part of a construction contract on a reservation are not subject to tax. This is because the construction contractor is a retailer of fixtures that are furnished and installed in performance of a contract and the retail sales take place on the reservation.

However, this may not apply for retail sales of materials. As previously described, the contractor is generally a consumer of materials that are furnished and installed in the performance of a construction contract. Unless the construction contractor qualifies as a retailer of materials, they are the consumer of materials and tax applies to those purchases.

Sales to Native and Non-Native American Construction Contractors

How tax applies to sales of items to construction contractors depends if the item is considered material or fixture, if delivery and title of the item were transferred on or off the reservation, and if the item was sold to a non-Native American or Native American construction contractor.

Below is an overview on how tax applies to those sales of material and fixture to Native and Non-Native American construction contractors.

Material and Fixture Sales to Native American Construction Contractors

Tax applies to sales of materials to Native American construction contractors when the materials are delivered at any point outside a reservation. However, tax does not apply if materials are delivered to Native American construction contractors on the reservation and title transfers to the Native American construction contractor on the reservation.

Tax does not apply to sales of fixtures furnished and installed by Native American construction contractors on a reservation. The “off-reservation” retailer should obtain timely a completed California resale certificate from the Native American contractor. If the Native American construction contractor does not hold a California seller's permit, instead of including a seller's permit number, the resale certificate must include information explaining why the Native American construction contractor is not required to hold a seller's permit.

Material and Fixture Sales to Non-Native American Construction Contractors

Generally, construction contractors are consumers of materials furnished and installed in the performance of a construction contract. Tax generally applies to sales of materials to non-Native American construction contractors. This is true even if the materials are delivered onto a reservation and permanently incorporated into the real property on the reservation.

A construction contractor qualifies as a retailer of materials under certain specific circumstances. To be a retailer, the construction contractor must:

• Be in the business of selling materials or other tangible personal property,
• Possess a valid seller's permit,
• Explicitly provide for the transfer of title to the materials prior to the time the materials are installed,
• Separately state the price of materials, exclusive of the charges of installation, and
• Provide a valid and timely resale certificate to the vendor.

If a construction contractor only furnishes and installs hardwood flooring and tiling and makes no over-the-counter sales of materials, they are generally not required to hold a seller's permit. If the contractor wants to enter into a construction contract with a Native American purchaser residing on a reservation to furnish and install materials and to qualify as the retailer of materials, the contractor must obtain a seller's permit. If the construction contractor does not obtain a seller's permit, the contractor may not act as a retailer of materials. Construction contractors that obtain a seller's permit are considered to be in the business of selling materials. If the construction contractor does not obtain a seller's permit, the contractor may not sell the materials at retail.

Sales of fixtures to non-Native American construction contractors are generally not subject to tax when the fixtures are furnished and installed on a reservation. A timely completed California resale certificate should be obtained from the construction contractor.

Notes

1. Unless the non-Native American construction contractor is the retailer of the materials.

For more information, please see Sales for Resale in the Getting Started tab.

Tax-Exempt Sales of Materials Under a Construction Contract

Construction Contractor

As a construction contractor, when your customer is a Native American, tax generally does not apply to your sales of fixtures furnished and installed as part of a construction contract for work on a reservation. This is because a construction contractor is a retailer of fixtures that are furnished and installed in the performance of a construction contract and the retail sale takes place on a reservation.

However, the same provisions do not necessarily apply to materials since a construction contractor is generally a consumer of materials that are furnished and installed in the performance of a construction contract. Unless you qualify as a retailer of materials, you are the consumer of materials and tax is generally due on your purchase of those materials.

When a construction contractor qualifies as a retailer of materials, the contractor may purchase materials from its vendor for resale. To resell materials in a tax-exempt transaction to a Native American purchaser in performance of a construction contract on a reservation, each of the requirements must be met:

1. The construction contract must separately list the price of materials, exclusive of the charge for installation,
2. The contract must specify the title of the materials transferred to the American purchaser on the reservation before use or installation of the materials,
3. The materials must be delivered to the Native American purchaser on the reservation, and
4. The construction contractor must obtain an exemption certificate from the Native American purchaser.

Please be sure to retain documentation (see Claimed Exempt Sales to Native Americans Require Documentation).

Subcontractor

In a situation where a subcontractor is acting as a retailer of materials that are furnished and installed, or is furnishing and installing fixtures, the subcontractor generally may not accept a resale certificate from a prime contractor. The subcontractor must sell the materials or fixtures at retail directly to the Native American purchaser on a reservation for the transaction to qualify as tax exempt. However, if the subcontractor is making a retail sale of materials or fixtures to a prime contractor, and the materials or fixtures are resold by the prime contractor to the Native American purchaser prior to installation, the subcontractor may accept a resale certificate from the prime contractor in this case.

Examples of Contract Language for Tax-Exempt Transactions

For a contractor to be a retailer of materials, the contractor must separately state the selling price of the materials and the contract must contain sufficient language of transferring title of the materials to the Native American purchaser within a reservation prior to installation on the reservation by the contractor.

The following are examples of contract language allowing a contractor to be a retailer of materials. The examples shown separately state the selling price of material in a guaranteed maximum price construction contract.

The use of the language below does not automatically result in the contractor being a retailer of materials. The contract needs to be examined in its entirety.

Example 1:

Contract Price

Subject to the terms and conditions hereof, as payment for contractor's performance of the services under this Agreement, Tribe shall pay a guaranteed maximum cost of $10,000 (contract price). The portion of the contract price which is the guaranteed maximum cost of materials only is $5,000 (total cost of materials amount), which amount is exclusive of any charge for installation and performance of labor services.

Example 2.

Contract Sum

The sum of the cost of the work and the contractor's fee is guaranteed by the contractor not to exceed an aggregate amount, hereinafter the “guaranteed maximum price,” equal to $10,000 (guaranteed maximum price amount). The cost of the work shall include materials that are exempt from tax under 18 CCR 1616(d)(4)(C), which materials contractor shall, pursuant to this agreement, sell or cause to be sold to owner. The final cost of such materials is estimated to be $5,000 (estimated cost of materials amount). Changes to the cost of materials exempt from sales tax under 18 CCR 1616(d)(4)(C), stated above, shall be affected through change orders, which shall in all cases separately state the cost of such materials.

Two Agreements

Notwithstanding anything to the contrary contained herein, this Agreement is intended to constitute, and shall be construed and interpreted as if it constitutes, two agreements with regard to materials exempt from sales tax under 18 CCR 1616(d)(4)(C), as follows:

1. The retail sale of such materials from the contractor of the Tribe, with delivery to the Tribe, and transfer of title to the Tribe occurring in Indian country prior to installation, and
2. The later installation (and labor associated therewith) of the Tribe's materials into the project.

Contractor as Seller

It is the intent of the parties that contractor, subcontractors, and sub-subcontractors be “sellers” of materials as provided in 18 CCR 1521(b)(2)(A)2.

For more information on tax exempt sales related to construction contract involving Native Americans, please see publication 146, Sales to Native Americans and Sales in Indian Country.