A New Way of Business in Indian Country

 

Recently, the United States Supreme Court held that an Indian tribe was liable for damages when it failed to live up to a contract with an outside firm. In a case between the Citizen Band Potawatomi Indian Tribe of Oklahoma and a construction firm, the High Court ruled the tribe surrendered its sovereign immunity by signing a construction contract requiring arbitration to settle disputes.

The contract provided that (i) the parties would submit any disputes on the contract to arbitration, (ii) the arbitration award is final, and (iii) a court with jurisdiction over the agreement may enter judgment on the award. The Supreme Court found that the terms of the contract were clear and unambiguous and that the agreement was enforceable by its own terms against the tribe with specific words waiving tribal immunity to suit.

At first impression, this may seem a setback to tribes. Some have felt their sovereign immunity is threatened. However, the ruling also opens doors of opportunity and a new way of doing business in Indian Country.
Often, business is reluctant to invest in Indian Country because no remedy exists when disputes arise except tribal courts. Many have experienced a dispute with a tribe only to have the tribe claim immunity and leave the business with no recourse. True or not, business perceived partiality in the tribal courts and avoided contracting with the tribes.

Now, aggressive tribal economic development leaders have an avenue that allows business to invest and have confidence of a settlement should a dispute arise. This limited waiver of immunity for the purpose of the contract provides business with confidence that disputes may be settled "off-reservation." Some tribes have already changed their tribal corporate law to allow limited liability companies for this very purpose.

The issue has importance due to the limited time left for all 544 federally recognized tribes. The Omnibus Reconciliation Act of 1983 provided special incentives to business to invest in Indian Country. However, without renewal by Congress, the benefits expire at the end of 2007.

Any for-profit business investing in Indian Country after January 1, 1994, and before December 31, 2007, is entitled to special accelerated depreciation on its assets. Property can be written off in about 60% of the normal time allowing significant tax deferrals.

In addition, Congress provided a tax credit of 20% of the first $20,000 of qualified wages paid a Native American, or the spouse of a Native American. This means a potential tax savings of up to $4,000 per year per employee hired and working for business in Indian Country.

With these tax incentives and the use of limited immunity, aggressive tribal economic development specialists have tools to encourage significant investment for the benefit of their members. It is a new way of thinking and a new way of doing business in Indian Country.