Do Indian Casinos Pay Taxes? A Breakdown of Tax Rules

While tribal casino operations, as entities of sovereign nations, are shielded from certain direct taxes, they are integrated into the U.S. tax system in multiple ways. These enterprises contribute significant revenue to state governments through unique agreements and are subject to specific federal tax requirements. The tax obligations extend beyond the casino entity, directly affecting employees, patrons, and the tribal members who receive distributions from gaming revenues.

Tribal Sovereignty and the Indian Gaming Regulatory Act

The status of tribal casinos stems from the principle of tribal sovereignty. Federally recognized Native American tribes are considered distinct domestic nations with powers of self-governance. This status means that, like state governments, tribal governments are not subject to taxation by other governments, including the federal government or the state in which their lands are located. This concept was affirmed in the Supreme Court’s 1987 decision in California v. Cabazon Band of Mission Indians, which upheld the right of tribes to conduct gaming on their lands without state interference.

In response, Congress passed the Indian Gaming Regulatory Act (IGRA) in 1988. This law established a legal framework for tribal gaming, creating the National Indian Gaming Commission for federal oversight and dividing gaming into three classes. Class III gaming includes slot machines, blackjack, and roulette—the games most associated with large-scale casinos. To operate Class III games, IGRA mandates that a tribe must enter into a detailed agreement, or compact, with the state government. This negotiated compact creates a mechanism for states to have a role in regulating high-stakes gaming and to negotiate for a share of the revenue it generates.

Federal Tax Obligations of Tribal Casinos

As governmental entities, tribal casino enterprises are not subject to federal corporate income tax on their earnings. This exemption is an extension of their sovereign status, treating them similarly to state or local governments. The income generated by a tribally owned and operated casino is considered tribal government revenue, intended to fund services for its members, such as healthcare, education, and infrastructure.

This income tax exemption does not mean tribal casinos operate entirely outside the federal tax system, as they pay other federal taxes just like non-tribal businesses. An obligation is the payment of federal employment-related taxes for their workforce. This includes withholding and remitting Social Security and Medicare (FICA) taxes from employee paychecks and paying the employer’s matching portion. Tribal casinos must also pay federal unemployment taxes (FUTA) and a range of federal excise taxes on specific goods or services used in the course of business.

State Revenue Sharing and Local Taxes

While states cannot directly tax a tribal casino’s net income, they receive substantial payments through Tribal-State Compacts. Required by IGRA for Class III gaming, these legally binding contracts allow states to secure a share of casino revenue. This is often in exchange for granting the tribe exclusive rights to operate certain games within a geographic area. These payments are structured as revenue sharing, not a tax, and are often calculated as a percentage of the net win from gaming machines or table games. The funds are designated to reimburse the state for costs associated with casino operations or to fund specific state programs.

Another consideration is property tax. Land owned by the federal government and held in trust for a Native American tribe is exempt from state and local property taxes. Because most tribal casinos are built on these trust lands, the casino property itself is not subject to the annual property taxes that a commercial business on private land would pay.

Tax Responsibilities of Individuals

The tax exemptions for tribal governments do not extend to individuals associated with the casinos. All casino employees, whether tribal members or not, are subject to the same personal income tax laws as any other U.S. worker. Their wages are subject to federal income tax withholding and any applicable state income taxes, and they receive a Form W-2.

Casino patrons who win money also have tax obligations, as the Internal Revenue Service considers gambling winnings to be taxable income. For winnings of $1,200 or more from a slot machine or bingo game, the casino is required to issue a Form W-2G to the winner and the IRS. The patron is then responsible for reporting these winnings on their federal tax return.

Tribal members are subject to federal income tax on distributions they receive from casino profits. When a tribe distributes gaming revenue directly to its members, these payments are known as per capita payments. The IRS considers these payments taxable income, and the tribe reports them to the IRS. The individual tribal member must report the income on their personal tax return.