The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020, to help navigate the current challenges brought on by COVID-19.
The act includes specific programs and relief funds for tribes, as well as other general programs for which tribes or their businesses may be eligible.
An overview of how tribes and tribal businesses can seek relief through the CARES Act follows.
Unemployment Reimbursements to States
Most tribes aren’t currently required to pay per-worker unemployment taxes. Many opt to enter into reimbursable arrangements with state unemployment programs, whereby the state bills the tribe for 100% of the actual unemployment claims paid for former tribal employees and workers who were furloughed or laid off.
The CARES Act provides relief to tribes by directing the federal government to reimburse states for 50% of unemployment benefits paid on behalf of self-insured entities, like tribes, for the period March 13, 2020 through December 31, 2020. See Section 2103 of the act. Tribes and their businesses would still be responsible for reimbursing the state for the remaining 50%.
Additional Unemployment Relief for Employees and Tribal Members
Passed shortly before the CARES Act, the Take Responsibility for Workers and Families Act (TRWFA) provides an additional $600 a week for any worker eligible for unemployment.
The TRWFA indicates that state unemployment programs would be fully reimbursed by the federal government for the cost of administering the supplement and the supplement itself. As a result, states likely won’t pass through any additional costs to tribes as a result of the increased payments.
Coronavirus Tribal Relief Funds
The CARES Act established a Coronavirus Relief Fund (CRF) which includes $8 billion set aside for tribal governments.
The amounts paid under this section will be distributed within 30 days and allocated based on consultation with the Secretary of Treasury, Secretary of Interior, and input from tribes.
The act indicates that the amount allocated to each tribe should be based on increased expenditures of each such tribal government, or a tribal-owned entity, relative to aggregate expenditures in fiscal year (FY) 2019.
Consultations on how the funds will be allocated among tribes are ongoing at this time.
When received, the CARES ACT indicates the funds shall be used only to cover costs that:
- Are necessary expenditures incurred due to the public health emergency with respect to COVID-19
- Weren’t accounted for in the budget most recently adopted as of the date of enactment of this section
- Were incurred during the period that begins on March 1, 2020 and ends on December 30, 2020
Additional guidance to assist tribes on how to interpret allowable costs to be paid from the CRF are also currently under way. Tribes are concerned about the guidelines above for the use of funds.
Many tribes will face increased new costs as a result of fighting the pandemic in addition to significant reductions in tax revenues and gaming distributions as a result of the impacts of COVID-19 mitigation efforts.
Ongoing discussions are taking place to determine if a tribe that has to re-budget and move expenditures from one fund or funding source to another, for example from the gaming distribution fund to the tribe’s general fund, will meet the above requirements. See Section 5001 of the act.
Paycheck Protection Program under the SBA 7(a) Loan Program
The Small Business Administration’s (SBA) 7(a) loan program, also referred to as the Paycheck Protection Program, has expanded during this time.
Tribal business concerns, those with at least 51% Indian Tribe ownership, are specifically included as eligible entities under this new program, with a few areas unique to tribes.
In general, tribal businesses that are considered to be separate legal entities of the tribe, with 500 employees or less may be eligible to participate in the program. For purposes of the act, the number of employees includes individuals employed on a full-time, part-time, or other basis. See Section 1102 of the act.
Rules on Tribal-Related Entities
Additionally, the SBA has specific rules (13 CFR Section121.103) about how to treat related entities using the term business affiliate. Tribes are often, but not always, exempt from the existing business affiliates rules, so it’s important to understand if you meet the exemptions provided.
As noted, the existing guidance typically applies to separate legal entities. Tribes often structure their business activities in a variety of ways, such as:
- Separate employer identification numbers (EINs) used for an activity, but not a separate legal structure
- Multiple business activities operating under one EIN with multiple separate legal structures
- No legal separation from the Tribal government with operation as an enterprise fund of the tribe
- Many other structures
Additional clarification may be needed to understand how these different tribal legal structures impact a business’ ability to participate in the program.
Prohibited Business Activities
Additionally, existing SBA guidance prohibits the administration from providing loans or other financing to most casinos or for illegal activities, including marijuana operations. Given this existing guidance, it’s not clear whether or not this new program will be made available to tribal casinos, although many would likely not meet the maximum employee threshold regardless.
Other Compliance and Regulatory Considerations
Historically, the SBA’s 7(a) existing program operated under the Catalog Federal Domestic Assistance Number (CFDA) 59.012. Per the federal government’s CFDA program website, it appears that loans, loan guarantees, or grants received under this existing program could be subject to both the Uniform Guidance and the Single Audit Act.
If the additional funding provided under the CARES Act operates in a similar manner, tribal businesses would need to ensure they understand the implication of following these requirements. However, it’s also possible that the new funding will be assigned a new CFDA, and these requirements may not apply.
Payment of Employer Payroll Taxes Deferred
Tribal employers can defer payment for the employer portion of payroll taxes incurred beginning on the date the CARES Act was enacted and ending before January 1, 2021—as defined in Section 2302 of the act.
If deferred, the employer would instead pay 50% of this amount by December 31, 2021, and the remaining 50% by December 31, 2022. The eligible payroll taxes are the employer’s portion of Social Security taxes—6.2% of an employee’s wages.
Businesses owned and operated by an individual tribal member are also eligible for the above deferral, including any business owners who are self-employed. Self-employed taxpayers can also defer the employer’s portion of Social Security taxes in the self-employment tax.
However, this deferral won’t apply to an employer if they have indebtedness forgiven with respect to a Small Business Act Loan under paragraph (36) of section 7(a) of the Small Business Act—Section 1106 of the act.
Employee Retention Credit for Employers
This credit is generally available to eligible employers carrying on a trade or business and 501(c) tax-exempt organizations. There’s some uncertainty as to whether or not this credit is available to tribes.
It’s believed that tribal businesses would appear to meet the definition of an eligible employer and likely eligible for the credit. It’s less clear whether this credit is available to tribal government operations, as they don’t readily fit into the definition of an eligible employer carrying on a trade or business, and they weren’t specifically scoped in like 501(c) tax-exempt organizations.
However, unlike the US government, state governments, and their agencies and political subdivisions, tribes weren’t specifically excluded from the credit either.
Eligible business employers will qualify for the credit unless these employers took advantage of the Small Business Act loan.
Eligible employers may claim a credit against Social Security taxes for each qualifying calendar quarter, equal to 50% of qualified wages, up to $10,000 of all quarters, per employee. Qualified wages include employer health plan expenses. The credit is available on qualified wages paid after March 12, 2020. If the credit for the quarter exceeds the employer’s Social Security tax liability, the excess is refunded.
Eligible employers operating a business during 2020 must have experienced either:
- A partial or full suspension of the operation of their trade or business during the calendar quarter due to governmental orders that limited commerce, travel, or group meetings due to COVID-19
- A significant decline in gross receipts from 2019
A significant decline begins with the quarter in which the gross receipts for the quarter were less than 50% of those in the same quarter in the prior calendar year. The decline ends with the quarter in which gross receipts are greater than 80% of the gross receipts for the same quarter in the prior calendar year.
For employers that averaged 100 or fewer employees during 2019, qualified wages include wages paid to all employees during the impacted period. For employers that averaged more than 100 employees, the wages eligible for the credit are the qualified wages paid to employees who aren’t providing services due to circumstances described above.
Employers that take advantage of the payroll protection program—Section 1102 of the act— aren’t eligible. Also, qualified wages don’t include amounts paid for the sick leave credit or The Family and Medical Leave Act (FMLA) credit enacted by HR 6201.
Additional Grant Considerations
The CARES Act also provides several new or expanded grant funding opportunities that will be available to tribes, and the development and publication of notices of these funding opportunities is under way.
You may have many tribal members or citizens who are furloughed or been laid off by their employers during this time, which could result in an increased number of members or citizens applying for services under the tribe’s programs, like job training or housing assistance programs.
These individuals may be able to receive a variety of benefits as part of the CARES Act, so you’ll want to ensure that your program staff has determined how any additional benefits or funds received by your members and citizens will impact their eligibility to receive services and benefits under your existing tribal programs.
Your program staff should review your existing eligibility guidelines and determine if any updates should be considered.
We’re Here to Help
We’ll continue to monitor the CARES Act’s impact to tribes as additional guidelines and notices are finalized. To learn more about how your tribe or business can receive relief from the CARES Act, contact your Moss Adams professional.