Courtesy Magnus Manske
The Tulalip Resort Casino in Quil Ceda Village is a Northwest entertainment destination. Attractions within walking distance include the Tulalip Amphitheater, the Hibulb Cultural Center & Natural History Preserve, and Seattle Premium Outlets, the largest outlet mall in the state.

Tulalip Tribes Sues State, County; Says Taxes on Trust Land Unconstitutional

Richard Walker

Washington State and Snohomish County officials contend they have the authority to tax business transactions conducted by non-Indians on Indian land, including the Tulalip Tribes municipality of Quil Ceda Village.

The Tulalip Tribes contend that county and state taxes preclude Tulalip from imposing its own taxes to support public services at Quil Ceda Village, because an additional tax would drive businesses and consumers away. As a result, the Tulalip Tribes is subsidizing public services out of other revenues.

Tulalip is suing the state and county in U.S. District Court, alleging “Unlawful State and County Taxation of Commerce on lndian Trust Lands” violates the U.S. Constitution.

“Congress has provided by statute that lands held in trust by the United States for the benefit of an Indian tribe or its members are not subject to state and local taxation,” the Tulalip Tribes states in its lawsuit, filed June 12. State and county taxation is depriving Tulalip Tribes of revenue that could be invested in “essential services for tribal members and the reservation community,” including public safety, education, healthcare and social services.

According to the lawsuit:

“The State of Washington and Snohomish County, to the exclusion of Tulalip and the Village, annually collect tens of millions of dollars in sales and use, business and occupation, and personal property tax revenues from these businesses and their patrons.”

State and county taxes “preclude Tulalip and the Village from imposing and enforcing their own like tribal taxes [contrary to] federal statutory and regulatory provisions that support Tulalip’s economic development of its reservation trust lands without interference by state and local governments.”

The court’s ruling could have far-reaching implications: A federal court will decide whether a state and county have the authority to impose sales and use taxes on non-Indian businesses located on Indian land. But it could apply the ruling only to Quil Ceda Village.

Seattle lawyer Gabriel S. Galanda, Round Valley Indian Tribes, successfully challenged Thurston County’s attempts to tax the Chehalis Tribe’s Great Wolf Lodge hotel and indoor water park. He said Tulalip’s case isabsolutely the strongest tax preemption case that has ever existed or could ever exist.”

He added, “It would be a dramatic win, not just for Washington Indian country, but all Indian country.”

Some background: The Consolidated Borough of Quil Ceda Village comprises 2,000 acres – more than three square miles – fronting Interstate 5 on the Tulalip reservation. Quil Ceda Village was incorporated in 2000 under the laws of the Tulalip Tribes and approved by the U.S. Secretary of the Interior. Quil Ceda Village is owned by the Tulalip Tribes and held in trust by the United States.

Since incorporation, the village has become – thanks to its location on the interstate and the vision of Tulalip leaders -- an economic powerhouse in the region, providing jobs for approximately 6,000 people, Native American and non-Native. According to the Economic Alliance of Snohomish County, 3,500 full-time equivalent employees work for Tulalip Tribes’ business enterprises, making Tulalip the fourth-largest employer in the county – tied with Providence Regional Medical Center and ahead of Snohomish County.

Quil Ceda Village businesses includes Tulalip Resort Casino, Hotel and Spa; the Tulalip Amphitheater; Seattle Premium Outlets, the largest retail outlet and open-air mall in the state; Cabela's sporting goods; Home Depot; Walmart; and numerous restaurants. Nearby is Hibulb Cultural Center & Natural History Preserve.

In Washington State, the state returns to cities and counties a share of the sales tax revenue they generate, for use in funding public services. But the state doesn’t recognize Quil Ceda Village as a municipality, so the village’s share of tax revenue goes to Snohomish County – up to $40 million a year.

John McCoy, a former general manager of Quil Ceda Village who represents Tulalip and Snohomish County in the state Senate, said the village has the authority to tax, but any tax would be in addition to those imposed by the county and state. That would be in violation of the Village Charter, which requires that the “cumulative tax burden imposed within the Village” not exceed the tax burden imposed upon “property, transactions, persons and entities” within municipalities in Snohomish County. In addition, an additional tax could drive businesses and consumers away.

“We didn’t want to be in a disadvantage economically,” McCoy said of the village’s reluctance to impose taxes. “Businesses wouldn’t come in [to the village].”

In 2005, as a member of the state House of Representatives, McCoy introduced a bill that would grant Quil Ceda Village a share of the tax revenue it generates, just like any other municipality. It was approved by the House 93-3, but died in the Senate.

A full-service municipality

McCoy said the state and county are getting “free money” – a return on investments that they had nothing to do with. And that, too, may work against the state and county.

Tulalip Tribes planned, designed and developed Quil Ceda Village to advance economic diversification, provide a tax base to generate revenues for essential government services, and create on-reservation employment and business opportunities for Tulalip citizens.

“Tulalip determined to fulfill these objectives by creating an integrated commercial development offering a broad range of retail and entertainment activities that would transform the area into a regional commercial destination attractive to business lessees, patrons, and other visitors,” the lawsuit states.

Tulalip and Quil Ceda Village – which is overseen by a three-member village council elected by the Tulalip Tribes Board of Directors – “planned, designed, financed, constructed, and maintained the physical and governmental infrastructure that supports activities within the Village; maintain authority to determine which businesses may locate within the Village and select tenants to maximize the Village’s appeal as a premier retail and entertainment destination; and provide the day-to-day government services …”

Public services provided by the village – and subsidized by Tulalip Tribes – include police, fire and emergency medical services; environmental protection; utilities; refuse collection; road and sidewalk maintenance; landscaping and maintenance; and a civil court system for the resolution of disputes arising within the village.

Development of the village was not without challenges. The area had to be regraded to compensate for a hole – 200 feet in diameter and 50 feet deep – left by contractors working on Interstate 5, according to the lawsuit. The area around Quil Ceda Creek needed to be restored. And there was no infrastructure to support municipal functions or economic development.

Tulalip Tribes designed, constructed, and installed roads and sidewalks; parking areas and medians; sewer and stormwater lines; a four-million gallon capacity wastewater treatment facility; two two-million gallon water reservoirs; natural gas lines; water lines and pumping stations sufficient for water use and fire suppression; fire hydrants; 200 satellite-controlled irrigation zones; an electrical substation and electrical utility lines; telecommunications lines; street and traffic lighting; and signage. Tulalip also paid for improvements to the Interstate 5 interchanges at the southern and northern ends of the village.

Large portions of the village, including the areas surrounding Quil Ceda Creek, were dedicated -- and are maintained by Tulalip Tribes – as park land, picnic areas, walking and biking trails, an interpretive science path, and wetland preserves.

According to the lawsuit, infrastructure investments by Tulalip Tribes and the federal government are in the “tens of millions of dollars.”

“The State of Washington has performed or financed few if any infrastructure development activities within Quil Ceda Village,” the lawsuit states. “Snohomish County has performed or financed few if any infrastructure development activities within Quil Ceda Village.”

Through development of Quil Ceda Village, Tulalip and Quil Ceda Village have spurred economic development outside the boundaries of the village and reservation, including along the east side of Interstate 5 and in the greater Marysville area. The Marysville Tulalip Chamber of Commerce’s offices are in Quil Ceda Village.

According to the Tulalip Tribes’ lawsuit, Quil Ceda Village has attracted more than 150 businesses, plus vendors, suppliers, contractors, and builders; millions of dollars of commercial investment; and hundreds of thousands of visitors to the Tulalip Reservation.

“In doing so, they have generated hundreds of millions of dollars in annual sales activities and tens of millions of dollars in annual tax revenues,” according to the lawsuit. “None of these sales and revenues was generated as a result of a competitive tax advantage offered by Tulalip and the village vis-à-vis comparable businesses and economic activities off-Reservation.”

The case is Tulalip Tribes et al v. Smith et al, U.S. District Court, Western Washington. Tulalip Tribes is represented by the Office of Reservation Attorney and the Seattle-based law firm of Kanji & Katzen. Snohomish County is represented by the county prosecutor’s office. The State of Washington is represented by the state attorney general.

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