Nation Building: Indians Help US Corporations Evade Taxes

It's nice to know that "American Decline" does not mean an end to "American Ingenuity" or "American Scams." A case in point: the practice of using Indian tribes to evade employment taxes.
An Indian tribe creates a corporation owned by the Tribe. Its sole function is to hire employees and then "lease" those employees to other companies. Who hires the employees? Not the Tribe. Where do the employees work? Not on the reservation. Who do the employees work for? Formally, for the Tribe's company, but actually, the outside employer. It's as if Oracle said to its employees: "Okay, I want all of you to be formally employed by this outside entity. You'll still work here, and for me, but your paycheck will come from someone else."

Why do that? Because tribal corporation don't have to pay Federal Unemployment Tax on its employees, which is around six percent of the first slice of an employee's wages. So the company thus hoses the United States (and, secondarily, the states) for those taxes, which pay for unemployment benefits, and instead the employer and the Tribe keep for themselves (and then split) those taxes.

How much money can you make this way? Well, this case involves the Blue Lake Racharia, an Indian tribe in Humbolt County. How many members does it have? 53. How many "employees" did it have?

Unsurprisingly, this found acceptance at the Ninth Circuit, which upheld this dodgy practice, applying a narrow interpretation of the tax code that they would never grant to an American tax payer.

The Ninth makes it sound pretty easy. You need some work-place rules (1 hour for lunch, no sex with underlings, etc. but, hey, since this is an Indian tribe anything goes, I guess). The Indians need to pay their (scoff) employees. They also need to be reimbursed for their (scoff) payroll expenses by the real employer. After that, you're ready to start dodging taxes.

Someone's going to have to explain to me how, if a company can dodge taxes so easily, they can't avoid other regulatory burdens as well. Why can't they put factories on reservations to avoid environmental regs, for example? The tribe will say this won't happen, that this was a narrow ruling on a tax issue. But, that's the principle at work here.

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