In some states, businesses must pay state taxes on a percentage of their gross proceeds or gross income. A state with this system of gross receipts sales taxation is in contrast to a state that collects a percentage of the sales price when particular purchases occur. In such a purchase price system, sellers collect taxes from customers and hold the funds for eventual transfer to the state government. In the former gross receipts case, the technical incidence of the tax is on the seller; under the latter purchase price scenario, it is on the buyer.
This Article examines the ability of a state to levy a gross receipts sales tax directly on a public utility with respect to income derived from sales that take place on an Indian reservation. This examination is accomplished by inquiring into the restrictions made by federal law on a purchase price sales tax, and by then arguing that those restrictions do not change, to the extent relevant here, when applied to a sales tax that is levied directly on gross receipts attributable to on-reservation sales.
It will be shown that the identity of the purchaser is determinative of the ability of a state to tax such sales. Sales by a public utility may be made to tribe members, non-tribal Indians or to non-Indians. Some households purchasing from a public utility may be comprised of individuals from various groups. Finally, sales from public utilities may also be to on-reservation profit making businesses.