BACKGROUND:
The state of California, through the California Department of Tax and Fee Administration (the “CDTFA”), recently amended CDTFA Regulation 1616 to clarify federal law preempts the California sales and use tax when a non-Indian retailer sells meals, food, and beverages from a leased space on a reservation for consumption on the reservation where the sales take place.
DISCUSSION:
The amendments to CDTFA Regulation 1616 mean the sale and purchase of meals, food, and beverages sold on the Reservation by a non-Indian retailer to a non-Indian or an Indian who does not reside on the Reservation are not subject to the California sales and use tax when all of the following requirements are met:
(i) a sales or use tax is imposed by the Tribe on the sales or purchases of meals, food, and beverages;
(ii)the non-Indian retailer’s business is operated on the Reservation pursuant to a federally or tribally authorized lease or sublease; (iii)the non-Indian retailer’s business is an eating or drinking establishment, such as a restaurant or bar; and
(iv)the meals, food, and beverages are sold and purchased for consumption on the Reservation.
When the Federal Preemption Requirements are met, the Tribe can impose and collect its Tribal Sales Tax from non-Indian retailers without the economic ramifications of double taxation.
Under this authority, the Agua Caliente Band of Cahuilla Indians has notified the City they will begin collecting their tribal sales tax beginning January 1, 2023. The ACBCI are also notifying the affected businesses.
To hold the cities harmless, the ACBCI are proposing agreements with the cities in their jurisdiction (Palm Springs, Cathedral City and Rancho Mirage) to share back with the cities sales tax collections equal to the rates of the local taxes under the current state sales tax collections.
Staff and tribal representatives will be present at the study session to explain the proposed agreements and answer questions.
The agreements will then be placed on the December 14, 2022 Council agenda for consideration.
FISCAL IMPACT:
There should be no fiscal impact as the intent of the proposed agreements is to hold the cities harmless relative to current sales tax collections from the affected businesses.