Yes, Tribal Members Who Live Off the Reservation SHOULD be Paying State Tax

We did, when our last full year of per capita paid in 2006 from the Pechanga Band of Luiseno Indians was $268,000, we paid over $20,000 in state income taxes.   And that was with a bundle of deductions from mortgage interest payments.

The Pechanga Tribe has a line of Mailboxes and PO Boxes which are currently undergoing re-allocations.  

Capitol Weekly has a good story up on The TAX MAN

Indians can avoid paying taxes on some income, but that exemption doesn’t apply to money generated by Internet poker or other endeavors involving off-reservation computer servers — unless those businesses also satisfy those rules.
The FTB sends out between 500 and 600 of these letters a year, according to spokesman Dan Tahara. He added that the letters don’t represent a new crackdown, nor are they the result of a court case the FTB won earlier this year against a southern California gaming tribe.
In fact, he said, its business as usual.
“This is actually nothing new,” Tahara said. “This is part of an ongoing effort.”

Tribal income is exempt from taxation — but only under very specific and often misunderstood circumstances. These rules, meanwhile, could have implications for how new gaming enterprises are structured in the future, especially if tribes are able to gain a large stake in online poker franchises in California.

The FTB also puts out a booklet, “Taxable Income of Native Americans,” that details what kinds of income are exempt from state taxes. Another brochure available on the agency’s website notes that “many people are under the impression that California Indians do not pay income tax.”

In order to exempt payments from state income taxes, the money has to come from a “tribal enterprise” conducted by a federally recognized tribe. It has to be generated on a reservation, and the tribal member has to be a member of that tribe living on the same reservation where it was generated