As local jurisdictions face budget crises, they search for more ways to impose taxes. However, simply because your concession operations may be located on federal land within a local jurisdiction does not necessarily mean that a local tax is legally imposed. If it is not valid, you are not obligated to pay it. Generally speaking, if the federal land was always owned by the federal government, the local authorities can only impose taxes specifically authorized by Congress. A federal agency cannot authorize such a tax. In addition, if the land was sold to the federal government by a state, the state may or may not have reserved its rights to impose certain taxes on activities on that land. In several instances, concessioners have not been required to pay local taxes because the taxes were found to be invalid. If your preference is not to pay taxes not legally imposed, you may want to determine if your local taxes are in fact valid.
Generally, states have the right to tax activities and property of private entities on lands turned over to the federal government unless the state clearly gave up that right or Congress or the Constitution clearly prevented it. States can give up that right if they provide the federal government with exclusive jurisdiction when they turn over the land. In addition, states lose any rights to impose taxes pursuant to Article 1 of the Constitution when they turn over land to the federal government “for the erection of forts, magazines, arsenals, dockyards and other needful buildings.”
For example, Montana deeded some of the land comprising Yellowstone National Park to the federal government. In doing so, Montana ceded exclusive jurisdiction and reserved only the right to execute judicial process issued by Montana state courts. As a result, certain taxes subsequently imposed by Gallatin County in Montana were found to be invalid. Similarly, California deeded the land comprising the Presidio of San Francisco to the federal government. In selling the land, California reserved the right to serve judicial process on the land but no other rights. The area is now administered by the National Park Service. When California later enacted a sales tax on motor fuel and attempted to impose the tax on fuel sales within the Presidio, the tax was held invalid at that time.
In contrast, the state of Washington reserved its authority to tax when it deeded the land for Rainier National Park to the federal government. Thus, a state business activity tax on the concessioner’s operations was upheld by a court. Similarly, the land comprising Hot Springs National Park was deeded by Arkansas to the federal government. In doing so, Arkansas gave up exclusive jurisdiction of the land, but reserved the right to tax. The state, therefore, could impose taxes on activity and property on the federal land. When Arkansas, however, later implemented a statute restricting the liability of innkeepers, the statute was found not to be valid in Hot Springs National Park because it was outside the authority reserved by the state.
Yosemite National Park apparently falls under both categories. Some of the land in Yosemite was acquired by the federal government with no reservation of rights by California, and some was subject to the authority to tax. State taxes, therefore, may be valid in some parts, but not others. Simply because it could impose taxes did not, however, give the state complete authority. For example, in one case, the state was found to have waived its right to regulate activities in the Park and therefore could not regulate the sale of alcohol. Similarly, California vehicle license fees were found invalid for vehicles used solely within Yosemite National Park because the state statute imposing such fees was only for highway purposes. A court found that this term did not include federal roads within the Park.
However, Congress can agree to allow local jurisdictions to impose taxes . In fact, to address some of the situations noted above, Congress has passed laws to allow local jurisdictions to impose certain types of taxes. For example, the Hayden-Cartwright Act, passed in 1936, authorizes states to tax motor vehicle fuels sold within federal reservations, which includes National Parks. The Buck Act, passed in 1947, expanded this further and authorizes states to impose general sales taxes related to the sale of any personal property on private parties who operate in federal areas. Notably, this law does not authorize taxes on real property owned by the government, such as concession improvements with the National Parks. In addition, a federal agency cannot on its own approve or authorize a local or state tax, only Congress can. Therefore, for example, the standard language in National Park Service concession contracts requiring concessioners to pay all applicable local taxes does not require concessioners to pay taxes that are not otherwise legally imposed by the local jurisdiction. One final note is that some local jurisdictions have attempted to create taxes to address federal operations, but those taxes must also be authorized under state law. In one case, a county in Pennsylvania attempted to tax a concession operation but the county was found to lack the authority under state statutes to create the tax set up to address a local NPS concession operation.
As the above discussion shows, it pays to verify that the tax assessments you may receive from local authorities are in fact valid if you operate on federal lands.