(1) Wages are exempt from individual income tax when:

(a) the individual is an enrolled tribal member of the governing tribe of the reservation on which the enrolled tribal member works and resides; and

(b) the wages are derived from reservation sources.

(2) When wages are derived from both reservation sources and nonreservation sources, only wages derived from reservation sources are exempt from taxation, provided the individual meets all the criteria in (1).

(3) When a Native American does not reside on his or her reservation for an entire year, only wages earned while he or she was residing on the reservation are exempt from taxation, provided he or she meets all the criteria in (1).

(4) A Native American residing outside the boundaries of his or her reservation has no special exemption other than income derived directly from allotted or restricted lands, held in trust by the United States.