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Policy Basics: Tribal Revenue-Sharing Agreements

  • Jade Bahr
  • 10 minutes ago
  • 9 min read

Few people understand the nuances of how taxes work in Indian Country. As a result, taxation authority in Indian Country has been one of the most litigated issues between Tribes, states, and local governments. Because of their sovereign status, Tribal governments can impose taxes on their citizens living on their reservations. However, few Tribal governments do this. One reason is the economic challenges resulting from a legacy of settler colonialism. While Tribal governments once held exclusive taxation authority on their reservations, including over non-Indians, state and local governments have repeatedly challenged this authority. Furthermore, there is considerable misinformation and numerous missed opportunities for innovative and mutually beneficial intergovernmental collaborations that respect Tribal sovereignty. This report examines Montana's revenue-sharing agreements across multiple sectors, revealing a complex patchwork of arrangements that vary significantly between Tribes.

 

In Montana, agreements between Tribal Nations and the state government to share tax money show intergovernmental understanding and cooperation. Revenue-sharing agreements can provide governments with a degree of certainty about revenue allocation while safeguarding against costly litigation. These agreements helped Tribal Nations collect over $10 million in 2025 from excise taxes on tobacco, alcohol, cannabis, and motor fuel sold on reservations.[1]  Excise taxes are imposed at the distributor level and included in the sale price of the item, and are among the few taxes Tribal governments in Montana assess on-reservation. The state remits a portion of the excise taxes to the Tribal governments. These revenue streams help Tribes perform government functions and provide essential services to their communities. However, the current system also warrants examination of the old, unfair power relationships that may not give Tribes sufficient control over their economies.

 

The path forward requires recognizing Tribal tax authority and reforming revenue sharing to reflect the economic impact. Reassessing the tax-back formulas could not only advance equity for Tribal communities but also strengthen Montana's overall economy by unleashing the full potential of Tribal economic development.

 

Historical Context: From Cooperation to Constraint

 

Montana's relationship with Tribal governments has changed significantly over the last 140 years. Despite these institutional advances, the repercussions of federal policies designed to undermine Tribal economic independence continue to influence contemporary arrangements.  To understand today's revenue-sharing agreements, it is necessary to examine the history of federal and state policies regarding Tribal economic independence.

 

Allotment & Assimilation Era.

Between 1887 and 1934, allotment took from Tribal Nations more than 90 million acres, or nearly two-thirds, of all reservation lands - an amount roughly the size of present-day Montana.[2] The federal government allocated to each Tribal citizen or household an allotment and sold “surplus” parcels to non-Indian settlers, most often without the consent of or compensating Tribal Nations. Reservation lands are now a patchwork of ownership and land status, with those in Montana generally falling into one of two categories: trust or fee. Refer to MBPC report Policy Basics: Land Status in Indian Country.

 

Tribal Taxation Authority Over Non-Indians and on Reservations

In 1981, in Montana v. United States, an important case involving the Crow Tribe and the state of Montana, the court formalized the extent of Tribal authority over non-Indians on reservations across America, limiting when Tribes can also impose taxes on non-Indians via commercial transactions occurring on reservation fee (or privately owned, non-trust) land.[3]

 

Although states cannot impose taxes on Tribes or Tribal members on their reservations, the U.S Supreme Court found in Washington v. Confederated Tribes of the Colville Indian Reservation that states can levy certain taxes on non-Indians in Indian Country. For more information, refer to MBPC report Federal Indian Tax Law: The Supreme Court Writes Policy When Congress Won’t.

 

Legislative Foundation for Revenue-Sharing Agreements

In 1981, the Montana Legislature enacted the State-Tribal Cooperative Agreements Act, which authorized public agencies to enter into cooperative agreements with Tribal governments.[4] In 1993, the Montana Legislature amended the State-Tribal Cooperative Agreements Act to specifically allow Tribal-state revenue-sharing agreements. This critical amendment created the legal pathway for Tribes to participate in tax revenue from economic activities on their lands, marking a significant shift from previous policies that excluded Tribal Nations from state tax arrangements.

 

Montana's commitment to Tribal-State relations continued with the establishment of the Committee on Indian Affairs in 1989, which was later renamed the State-Tribal Relations Committee.[5] As a permanent interim committee, it acts as a liaison with Tribal governments, encourages Tribal-state cooperation, proposes legislation, conducts interim studies, and reports findings to the Legislature. Notably, this committee is the only equally bipartisan committee of the Montana Legislature, reflecting the state's recognition that Tribal relations transcend partisan politics.

 

Current Revenue Sharing Framework

 

Montana's revenue-sharing agreements span multiple sectors and Tribal Nations, creating a complex landscape of arrangements that vary significantly in scope, structure, and financial terms. One exception includes the Tribe once known as the "landless" Tribe in Montana. The Little Shell Tribe did not gain federal recognition until 2019, which explains their absence from long-standing revenue-sharing agreements. The Little Shell Tribe of Chippewa Indians Restoration Act of 2019 grants the Tribe the same benefits as other recognized treaty Tribes and allots a small federal land base of 200 acres, which the Tribe must purchase and will be held in trust by the government.[6] This land purchase and fee-to-trust conversion may lead to some future revenue-sharing agreements with the Tribe.

 

Tax Agreements Vary in Negotiations  

The Montana Department of Revenue and Department of Transportation maintain active tax agreements with multiple Tribal Nations covering tobacco, alcohol, cannabis, and motor fuel sales. One inactive tax agreement with the Fort Peck Tribes exists for oil & gas production. The frequency of amendments to these agreements suggests ongoing negotiations and adjustments to terms, reflecting changing economic conditions or evolving Tribal-state relationships. Tax formulas vary by revenue type, sometimes by Tribe, and are based on quarterly or fiscal-year sales.[7]      

 

 

Lodging Facility Tax

No revenue-sharing agreement currently exists for a “bed tax” at hotels in Montana; however, of the 4 percent “lodging facility tax” placed on non-Indian-owned businesses in the state, 0.5 percent is distributed to the State Tribal Economic Development Commission for Tribal tourism promotion.[8] For more information on Hotel Occupancy Taxes, refer to MBPC’s Policy Basics: Taxes in Indian Country Part 2: Tribal Governments.

 

Compacts in Other Industries

Other high-impact industries that may be worth examining for potential compacts with the state include agriculture, livestock, lodging, energy development, and emerging tech sectors such as data centers or cryptocurrency operations. 

 

Impact and Distribution

 

The 2024 revenue data figures indicate that Tribal Nations received over $10 million in shared tax revenue from on-reservation sales, providing important context for understanding the economic significance of these arrangements. However, this figure represents only the portion distributed to Tribes in revenue sharing, not the total economic activity generated or the full tax revenue collected by the state from reservation commerce. The table below presents Tribal and state revenue figures from fiscal year 2024.[9] Tribal revenue is redistributed from the total tax revenue received by the state.

 


State Taxation Authority Limits Tribal Sovereignty

Montana's revenue-sharing agreements, which allocate economic benefits, reveal limitations in their distribution between Tribal and non-Tribal communities, contributing to broader structural inequality. American Indians in Montana face unique economic challenges that revenue-sharing agreements may not properly address. As Montana's most economically disadvantaged communities, Tribal Nations must navigate complex regulatory frameworks to participate in economic activities on their own sovereign lands. Unlike other governmental entities, Tribes cannot simply impose taxes on a single economic activity within their jurisdiction; instead, they must negotiate "sharing" arrangements with state governments.

 

This requirement creates several inequities:

  • Regulatory Burden. Tribes must comply with state regulations and negotiate complex agreements for economic activities that non-Tribal governments can authorize independently.

  • Revenue Limitations. Tax authority over non-Indians within reservation boundaries limits the revenue a Tribe generates on Indian land.

  • Sovereignty Constraints. The requirement for state approval of Tribal economic development represents a fundamental limitation on Tribal self-determination that no other governmental entity faces.

 

Non-Indian Montanans benefit significantly from Tribal economic activity while Tribes face regulatory constraints or sovereignty limitations. These benefits include:

  • Employment Opportunities. Tribal enterprises provide jobs for both Tribal and non-Tribal residents, with employment extending beyond reservation boundaries.

  • Tourism Revenue. Tribal casinos and cultural attractions generate tourism revenue that benefits surrounding communities through hotels, restaurants, and other services.

  • Infrastructure Investment. Tribal economic development often requires infrastructure improvements that benefit broader regional development.

  • Tax Revenue. The state collects revenue from reservation economic activity, while Tribal governments provide services to their communities with limited revenue-sharing compensation.

 

Cannabis Regulation & Barriers

 

Since Montana legalized recreational cannabis in 2021, the state has seen around $1.2 billion in cannabis sales from January 2022 to September 2025 and collected more than $200 million in taxes, according to the Montana Department of Revenue.[10] At the time of this report, only the CSKT Tribe has a revenue-sharing agreement for cannabis, and no Tribally-owned dispensaries currently exist in Montana. Tribally enrolled citizens may own dispensaries, but the revenues are not tied back to their Tribe. Sentiments of controlled substances vary among Tribes, with some preferring to be a “dry reservation,” as seen with alcohol on the Crow and Northern Cheyenne reservations. Cannabis regulation comes with its own complex regulatory framework to navigate for Tribes, such as:

 

  • Cannabis remains federally illegal, creating challenges for Tribes despite Montana's 2021 legalization;

  • Banks avoid cannabis businesses due to federal prosecution fears, forcing cash-only operations;[11] 

  • HB 701 limited Tribes to single-tier canopy licenses with a 1,000-square-foot maximum, required dispensaries within 150 miles outside reservations in cannabis-friendly counties and forced Tribes to compete in saturated markets away from their communities;[12] 

  • High startup costs for licensing, facilities, security, and inventory, as some reservations lack the necessary infrastructure or initial funding.

 

Policy Recommendations for Advancing Equity

 

Achieving more equitable Tribal-State revenue sharing requires fundamental reforms that recognize Tribal sovereignty while ensuring fair compensation for economic activities on Tribal lands.

  • Legislative authorization for expanded Tribal tax authority.

  • States should recognize the original sovereignty granted under the 18 U.S.Code § 1151, defining “Indian Country,” and defer taxation authority within reservation boundaries to Tribal Nations

  • Honoring Tribal taxation authority presents an opportunity to protect and enhance Tribal government functions and services.[13]

  • Provide Tribes with stable, predictable revenue streams for government operations

  • Impact-based calculations that account for the full economic value generated by Tribal enterprises, including employment, tourism, and secondary economic effects.

 

A Path Forward

 

Montana's agreement to share tax money with Tribes is an important part of how the state and Tribal governments work together. The state has made significant progress through laws, such as the State-Tribal Cooperative Agreements Act, and has recently agreed to work with at least one Tribe on cannabis sales. Still, the continuous reexamination of whether these agreements are fair and truly support Tribes' right to control their own economies needs to be addressed. This begs the question: why should states continue to limit Tribes' power to manage business activities on their own lands?

 

For these agreements to work well, state and Tribal leaders need to stay committed to improving them. They also need better information on how the agreements are working and must keep talking to each other to ensure the shared funds are actually helping Tribes make their own decisions.

 

This matters significantly for Tribal communities in Montana. The money Tribes receive affects their ability to pay for schools, health care, social programs, and roads -- all things that help children and families thrive. If Montana fixes these agreements to be fairer and to better respect Tribal independence, the state could become an example for the rest of the country. States and Tribes can build economic partnerships that benefit everyone while still honoring Tribal rights.

 


[1] MBPC calculations using Department of Revenue, “July 1st, 2022- June 30th, 2024 Biennial Report,” “2024 State-Tribal Relations Report,”and PIR – FY23-FY25 Tribal Summary, received on Sep. 23, 2025, on file with author.

[2] MT Legislative Services Division and Margery Hunter Brown Indian Law Clinic, “Tribal Nations in Montana: A Handbook for Legislators,” Nov. 2020 

[4] MT Legislative Services Division and Margery Hunter Brown Indian Law Clinic, “Tribal Nations in Montana: A Handbook for Legislators,” Nov. 2020

[5]MT Legislative Services Division and Margery Hunter Brown Indian Law Clinic, “Tribal Nations in Montana: A Handbook for Legislators,” Nov. 2020

[7] Department of Revenue, “State and Tribal Tax Agreements,” Accessed Dec. 16, 2025.

[8] Department of Revenue, “July 1st, 2022- June 30th, 2024 Biennial Report,” Accessed Dec. 16, 2025.

[9] MBPC calculations using Department of Revenue, “July 1st, 2022- June 30th, 2024 Biennial Report,” “2024 State-Tribal Relations Report,” “Montana Department of Transportation: 2024 Fact Book,” and PIR – FY23-FY25 Tribal Summary, received on Sep. 23, 2025, on file with author.

[10] Department of Revenue, “Cannabis Sales Reports,” Accessed Dec. 16, 2025

[11]Heather Morton, “Banking and Cannabis: Yearning to Be Buds?,” NCSL, March 7, 2022.

[12] Montana 67th Legislature, “AN ACT GENERALLY REVISING LAWS RELATED TO THE REGULATION 5 AND TAXATION OF MARIJUANA,” HB701, enacted on May, 18, 2021.

[13] Srikrishnan, M., Duty S., and Estus, J. "Tribes Need Tax Revenue. States Keep Taking It." Center for Public Integrity. December 20, 2022.

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