New regulations enacted by the U.S. Department of the Interior (DOI) applicable to tribal leases will have far reaching impacts on businesses, particularly renewable energy projects, utilizing tribal lands.
On November 27, 2012, the DOI announced the issuance of a revised set of regulations governing business, residential and renewable energy leases on tribal lands. The revised regulations are intended to clarify leasing requirements, expedite lease approvals and provide greater tribal independence. The regulations, found at 25 C.F.R. Part 162, become effective on January 4, 2013.
The new rules apply to all tribal lands except for lands held by tribal nations having independent leasing authority, such as the Navajo Nation. Tribal nations seeking independent leasing authority pursuant to the Helping Expedite and Advance Responsible Tribal Homeownership (HEARTH) Act will be required to enact their own leasing rules consistent with these regulations. Existing regulations governing easements, rights-of-way and encumbrances (including mortgages) are unaffected by these new leasing regulations.
Unlike the previous regulatory scheme that subjected all non-agricultural leases—whether a business or residential lease—to the same requirements, the new regulations attempt to create greater leasing flexibility for private parties and Indian tribes by establishing separate rules for residential, business and renewable energy leases. In particular, the new regulations establish separate requirements for wind energy leases, including shorter term leases to evaluate wind resources, as well as solar leases. The regulations also establish specific procedures, deadlines and standards for receiving lease approval from the Bureau of Indian Affairs. Additionally, the new rules grant tribes greater flexibility in establishing rental rates by permitting tribes to waive previously required lease valuations.
The new rules could also provide significant tax reductions to businesses operating on tribal lands due to strict prohibitions on lease taxation by state and local governments. Specifically, the regulations prohibit state and local taxation of operations occurring under a lease. Therefore, this prohibition should preclude business use, privilege, public utility, excise and gross revenue taxes imposed by state and local governments on operations occurring on tribal lands. State and local taxation of leasehold interests and permanent improvements is also prohibited.
Businesses considering entering into tribal leases should make sure they understand the various requirements imposed by the DOI's new regulations, particularly for proposed solar and wind energy projects that will be subject to specific leasing requirements.