Honoring Nations: Mark Graham: Navajo Nation Sales Tax
Graham, Mark. "Navajo Nation Sales Tax." Honoring Nations Awards event. Harvard Project on American Indian Economic Development, John F. Kennedy School of Government, Harvard University. Tulsa, Oklahoma. November 1, 2005. Presentation.
"As Amy mentioned, my name is Mark Graham. I am Tsenabahitnii born for Irish so I am Sleep Rock clan of the Navajo people born for the Irish. My father is Irish. And I am here on behalf of the Navajo Nation, the Office of the Navajo Tax Commission to present the Navajo Sales Tax. The Navajo Sales Tax is one of our newest taxes, the seventh in our line of taxation that we currently have on the Navajo Nation. Before I make any presentations, I always like to stress Buy Navajo. Without Buy Navajo I don't have a job. There's no businesses; if there's no businesses, there's no taxation. So I always stress Buy Navajo. The two areas that I always stress though is the sales tax and the fuel tax because these are tax revenues that come back to the Nation for use by the chapters in the case of the sales tax and then the fuel for our roads and so I really stress the importance of buying Navajo. Now of course this could apply to all of the nations here in their enactment of their own taxes and thus Buying Native is very important.
The history of the Navajo Sales Tax began actually 10 years before this. It had been drafted and had sat on our shelves for years and years because no one wanted to take the initiative to enact it. Everyone wanted to get reelected. No one wanted to take the initiative, put their name on the line and actually enact it. In 2000 we actually then had that leader, President Kelsey Begaye, take the initiative to put that out there and he directed my boss at the time, Mr. Ray Etsitty, to go out and hold public hearings on this and that's what we did. We started with the five agency offices that we have on the Navajo Nation and we got comments back and here's a packet of those. Then after receiving those comments we thought, "˜Well, what about the youth, we should find out what our youth want.' So we went to the five major high schools on the Navajo Nation and this is comments from just one of the high schools tackling then just the juniors and seniors in that class. We then also went to the two higher education facilities there on the Navajo Nation and this is the Crown Pointe Institute of Technology and also then the Dine College to gather their input and thoughts on the sales tax. A lot of the comments were, "˜It's good that you're going to tax but this is what you should do with it.' And so we had a lot of those kinds of comments and it was really then good knowledge as we went forward.
Now of course then we had gathered this information and then no one on the legislative side wanted to address it yet. So it sat on our shelves again for about another year at which point we then made a presentation to our government services committee, which is our oversight committee. They approved it and the following week it went through two other oversight committees and then the Navajo Nation Council before approval. It was enacted in...it was passed on October 2001 and became effective April 1st, no kidding, April 1st, 2002. Sales tax, why would we want to do a sales tax? Well, we needed to look at ways to diversify our current income. With the Navajo Nation about 75 to almost 80 percent of all the revenue that goes into our general fund comes from our natural resources so we really needed to look at ways to diversify ourselves so that we could not have to fully rely on our natural resources because as everyone knows, natural resources are depleting and we at Navajo have really started to see that. And then the next thing, the most important thing then is we were trying to comply with what we called the Local Governance Act where we were trying to give all of our local chapters, 110 of them, the ability to be their own government and as such we were trying to find them money so that they could become their own government and really then develop themselves even further.
With the development of the sales tax, the statute in Section 620 has a revenue allocation and this is where we really then, in our own tax statute, identified where we wanted to take the revenue and where it was going to be spent. And so as you look at Section 620 sub item B and C it talks about the revenue that would go back to the chapter. This is where within the sales tax we identified whether it was a retail sale in an established facility or a non-retail sale like construction activity. All of the retail sales were easy to identify because they were in a stationary place and thus we could identify what chapter that revenue was generated and so that's why we had this breakout. Item B talks about those chapters that do become local governance certified and so they get all of the money upfront, all of the other money then is put into a special pot and divided up based on the fund management plan. In development of this fund management plan the two areas that I wanted to highlight was Section 4, the distribution and how then we identified how chapters, those local communities, could spend that money. Initially what we had looked at with the sales tax was that the money would come back and be used for infrastructure and economic development. By starting a wheel of economic development and infrastructure, we wanted to see more businesses being developed there and thus more money coming in. Now, as our Navajo Nation Council then reviewed this they had the infinite wisdom that there are 110 chapters out there, not all 110 are going to have businesses so why don't we include just this one extra phrase, "˜other government purposes' that then those chapters that probably will never have businesses develop in their community boundaries then have the ability to spend it in other areas and so we included that as part of the fund management plan. The last one then, Section B, talks about how that revenue once it's in that special fund is divided up like a lot of other revenue to chapters based on what we call the 50/50 formula. Fifty percent of the revenues divided equally amongst the number of chapters, the other 50 percent then is divided up amongst the voter registration within that chapter. And so the bigger chapters really benefit from the larger number of registered voters in their boundaries.
This slide then talks about how much revenue was collected in our fiscal year of 2005 and then distributed just last month with the new fiscal year. As you can see at the end here, the total revenue we collected was $4.8 million just from the retail side. If you include all of the non-retail, that was $14 to $15 million from the activities occurring on the Navajo Nation. We then as is broken out, we based that sale, wherever that sale occurred, in that agency. So we have a central agency, eastern, Fort Defiance, northern and western and that revenue then is kept at that agency and then distributed within those chapters. This really highlights some of the huge economic differences in the agencies just on Navajo. As you can see eastern, that's not a typo. Eastern has basically very little economic development as opposed to the other three agencies that we have and so they get very little money generated and thus get very little money going back to them. This is then a map of the Navajo Nation. You can, the colors are kind of off but the whole side there is our western agency, this red area is our northern agency, this purple side is all of our eastern, the green is the Fort Defiance and then that middle blue is our central agency. Those areas that are a little bit darker, there are six areas, those are our more economically developed chapters and so those are our big chapters where all of the revenue basically comes form and looking at all of the revenue about 80 percent of the revenue generated from the sales tax comes from those six areas.
Now this is the total revenue that we've collected over the last three years. As I mentioned, we enacted it in 2002 so over these last three years, just the revenue going back to the chapters has been $12 million and a lot of these chapters then have really used that to their benefit. This then shows one of the other discrepancies that occur, as I mentioned, the 50/50 formula. And what it shows is the fact that of the amount of revenue going to the central agency most money goes per chapter to an agency that has very few chapters in it. They have fewer children to feed basically because they have fewer chapters in their boundaries. The next area then shows what eastern agency looks like. As I mentioned earlier, it has very little business going on out there but it's also then the largest agency that we have and so these chapters get very little money going back to them and that's really important as we move forward in these other areas. Another interesting aspect of it as I mentioned, those chapters that become LJ certified, one of the big chapters that I highlighted previously is then the Tuba City chapter. When that chapter down below becomes certified, they take a huge chunk of the revenue that is generated because they get all of the money off the top of the bucket. And so they get $332,000 last year. That was for only two quarters of revenue. So this year they're projected to take over 75 percent of all the revenue generated in the western agency, which will greatly affect the other 17 chapters in this agency. Some of the chapter use of the revenue that they've had we have out in the Fort Defiance agency environmental assessments. We've had our chapters use it for power line extensions, waste disposal fees that also occur in the central agency. They also have purchased back hoes to help in their development of their facilities, bathroom extensions. The last two chapters then, our agencies are important because as I mentioned, a lot of chapters then haven't spent their money, especially in the eastern agency. When you only get $8,000 a year, you tend to want to save that and so that's what they've been doing, saving it for the big projects that they want to tackle in the near future. And so with that, I'd like to close my presentation and am available for questions. Thank you."
"Thank you very much for your presentation. There's no sovereignty without a stable source of revenue, so I'm particularly interested in your program. I also notice how much I've learned about the complexity of the Navajo Nation simply by looking at those charts and seeing how diverse the chapters are. I was interested in your experience with collecting the tax because tax administration and the efficiency of a tax is only as good as people's willingness to voluntarily submit the correct amount. Then there's the enforcement question to make sure that people are motivated to do that. So could you talk about the administration of the tax system either from your experience or going forward?"
"I appreciate that question, and normally my presentation takes 45 minutes to an hour and I include a lot of those areas. We have been in place and actually one of the previous presentations talked about being established since 1978. That's how long our office, the Navajo Tax Commission, has been in place and the Navajo tax codes have been in place. So there's been a lot of experience over the last years in administrating and monitoring all of the revenue coming in. And since that time with the enactment of this newer tax, we've felt very comfortable in working with the taxpayers out there, but it did quadruple our tax base. We went from small...or from large companies that were doing a lot of business to small companies that were doing small amounts of business throughout the reservation. But we feel that with especially the retail side, we have high compliance because we know all of the businesses that are going on out there and thus we're able to monitor that and the returns that they have. One of our statutes is called the Uniform Tax Administration Statute and that really gives us the teeth then to do field audits at a taxpayer's place of business. We then issue assessments for additional tax interest and penalties and we feel very comfortable with those and taxpayers have respected the assessments that have been issued and thus pay not only the tax due but any assessments that they may be issued."
Brian C. McK. Henderson:
"I have sort of a related question, and usually when you introduce a tax there tends to be a dampening effect on the overall economic activity of a country or region. And the question is, do you know what the GDP is of the Navajo Nation and related to that, has there been any effect by the introduction of this tax on reducing or flattening the overall GDP growth of the nation itself?"
"I don't know right off hand what that rate was for the Navajo Nation either before or after the enactment of this tax. But what we do have is a division of economic development, that they have an economist who each year over the last five years has developed a profile of the Navajo Nation and when we enacted the tax and started to gain information from those tax returns, he asked to verify that and he felt that the information that we were gathering was very close to where he had already projected as an economist the activity of the Navajo Nation. So to go back and say whether this tax has dampened any of the activity, I don't think so, but it has then given us information to say, "˜That's exactly where we're at, that's where we always kind of thought the number of...activity that was going on out there anyway.'"
"Since you're distributing all of the proceeds from the tax, there isn't really any net to the tribe, tribal governance, the general fund it sounds like, and you don't even take administrative fees out of that."
"If you went back, if I were to go back to one of the previous slides, you'd notice that we have what we call some set-asides that we take off the top. By Navajo law, we have to take 12 percent off for our permanent trust fund and actually if Mr. Zah was here, he was the leader under which this was enacted, so that any of the revenue that came in would be set aside, especially from the natural resources. So as time went on and those resources depleted, we'd have something to help in the funding of that, of the Navajo Nation government. So that is taken out. We also then have right now at a rate of half a percent a special tax administration suspense fund, a liability account for any kind of liability, tax liabilities that may arise from our initiating the tax. And so those two are the current percentages that get taken off the top, just from the retail side and then the retail, the net proceeds then go out to the chapters. Now from the non-retail, the construction and other activities, all of that then deposits into the general fund, so there's a siphoning off between the two."
"So my second question then, did this money that goes out to the chapters now, did that replace funding that had already gone to them I assume?"
"No, it hasn't. This is an additional pot of money for them. But in the near future that may be something that might be pursued because of budget constraints that the nation will be facing."
Brian C. McK. Henderson:
"Just a closing comment. I think it's great that you've introduced this as another means by which government can allocate resources and do it on an equitable basis, but I want to challenge you for the future and maybe think as hopefully you continue to grow, the Nation continues to grow and you may want to appeal to the Irish side of you for the simple reason that as you probably know, Ireland today is the lowest taxed country in Europe. In fact, it has the lowest corporate income tax in the world, which is 10 percent and it has the lowest individual income tax as well. So as a consequence to that, the Irish government has probably one of the largest growing biotech, technology and financial centers growing today in the world. So I challenge you to kind of play into some of those experiences and maybe, who knows, we might find a different presentation up here sometime."
"Right. No, that's a really good comment and actually Navajo has a real low income tax, 'cause we don't charge one and then as far as our sales tax, I think that was one of the selling points is it's only three percent as opposed to all the other border towns, which were six and a half, almost seven percent. So we try and maintain that low rate for our consumers. Thank you."