Yesterday, a U.S. District Court judge dismissed a case in which the Tulalip Tribes argued that Washington and Snohomish County have no right to collect retail sales and use, business and occupation, or personal property taxes from non-Indian owned businesses located in Quil Ceda Village (a shopping area on tribal land).

This is good news for the state and Snohomish County. As the Everett Herald reports, “About $40 million or more in annual taxes was at stake in the long-awaited ruling.” The ruling could be appealed.

Plaintiffs argued that the state and county are preempted by federal law from administering and enforcing state and local taxes and that such taxation interferes with their sovereign rights. According to the opinion, the preemption question “requires a fact-specific balancing of the parties’ interests to determine whether federal law preempts the authority of Washington and Snohomish County to impose a generally applicable tax on commerce within their borders.” (This is the Bracker standard.)

In support of the preemption claim, the U.S. government cited statutes whose purposes were “the federal government’s support for tribal economic development.” The opinion states,

But . . . these statutes do not provide any discernable regulatory framework for the activity that is the subject of taxation in this case: the retail and commercial activity at Quil Ceda Village. If this Court were to find that these statutes provided the extent of federal regulation necessary to satisfy the standard applied in Bracker, state authority over nearly all economic activity within the Tulalip reservation—and indeed, virtually all tribal reservations—would potentially be preempted.

Further,

both Washington and Snohomish County provide a substantial portion of services that support Quil Ceda Village and the Tulalip reservation, in the form of public education, health and human services, maintenance of roads, and law enforcement and justice systems. Defendants also supply these and other services to the taxpayers living outside the Tulalip reservation that enable them to travel to [Quil Ceda Village] and engage in the commercial transactions related to the taxes at issue. These services more than justify imposition of the taxes at issue.

Ultimately, the judge found, “Under circumstances similar in every material respect to these, not a single court to date has found a state’s authority to tax is preempted by federal law.” And, “Not a single modern case has found an infringement of tribal sovereignty under similar circumstances.”

The second tribal tax case is Washington State Department of Licensing v. Cougar Den Inc. It will be heard by the U.S. Supreme Court on Oct. 30. In this case, a fuel distributor owned by a member of the Yakama Nation argues that it doesn’t have to pay state fuel taxes on fuel it transports from Oregon to the Yakama Reservation because the Yakama Treaty of 1855 states that members of the tribe have “the right, in common with citizens of the United States, to travel upon all public highways.” The Court will consider whether that treaty “creates a right for tribal members to avoid state taxes on off-reservation commercial activities that make use of public highways.”

The state Supreme Court ruled last year that Cougar Den cannot be taxed. The state argues that the U.S. Supreme Court should reverse the state Supreme Court because

A contrary ruling would create a massive loophole in state tax regimes, allowing Yakama businesses to avoid taxes nationwide simply by transporting goods over highways. It also would give the Yakama Nation an unwarranted economic advantage over other tribes and non-tribal businesses. Cougar Den is already expanding its fuel business to other states, claiming exemption from their fuel taxes. Other Yakama businesses are claiming exemption from state and federal cigarette taxes on the same theory: cigarettes shipped by highway cannot be taxed.

Additionally, “if the Yakama Treaty precludes state taxation of goods carried over highways, it places a cloud over the state’s ability to regulate Yakama use of highways in other ways as well.”

The U.S. government similarly argues that the Washington Supreme Court should be reversed.

(As an aside, as part of their arguments both the state and the U.S. government note that “Washington’s fuel tax is not a tax for use of the highway, it is a tax for possessing fuel.” I wonder what would happen if Washington moves away from a traditional fuel tax toward a road usage charge—would it not apply to Yakama members due to the treaty language?)