Courtesy Magnus Manske
Tulalip Resort Casino

Feds Side With Tulalip Tribes in Quil Ceda Tax Fight

Richard Walker

Tulalip Tribes Chairman Mel Sheldon was waiting for Boyz II Men and Brian McKnight to take the stage at the Tulalip Amphitheater, in the midst of the Tulalip city that the state insists it has the right to tax, and reflected on how Tulalip and the state got to this point.

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

The Tulalip Tribes planned and invested in and built this city, which evolved quickly into the fourth-largest source of jobs in Snohomish County. The Tulalip Tribes incorporated it as the Consolidated Bureau of Quil Ceda Village under its laws, and its status as a municipality was approved by the BIA and the IRS. As such, it is considered a federally created city – one of two in the United States, the other being Washington, D.C.

Quil Ceda operates as any other municipality, with an elected village council, a village manager, a city clerk and a variety of public services, including utilities, police and fire protection, emergency medical services, and 911.

The state and county impose sales and use taxes on businesses at Quil Ceda Village – an estimated $40 million a year – even though the village is located on trust land that is owned by an indigenous nation. Unlike other municipalities in Washington State, the state doesn’t return to Quil Ceda Village a share of tax revenue generated there – revenue that would be used to support public services. Quil Ceda’s share goes to Snohomish County.

A state bill in 2005 would have granted 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.

Sheldon said 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.

“There’s no legislative fix,” Sheldon said on August 6. “We had success in one chamber and were shot down in the other. We’ve asked and asked [for a compromise with the state]. Now, we’ve appealed to a higher authority.”

And Tulalip’s case just got a big boost.

The United States filed a motion on August 4 to intervene, or become a co-plaintiff, in the Tulalip Tribes’ lawsuit challenging the Washington State and Snohomish County’s authority to tax non-Indian businesses on Indian land.

The United States claims the state and county’s imposition of taxes on commerce in Quil Ceda Village undermines tribal and federal interests, infringes on tribal self-government, and violates the Indian Commerce Clause of the U.S. Constitution.

U.S. District Court Judge Barbara Rothstein is scheduled to consider the motion on August 21, according to court documents obtained from a federal court database. As of August 11, the State of Washington had not filed a response to the lawsuit.

“The United States takes seriously the federal role in protecting tribal self-government, which has its foundation in federal statutes, treaties, and regulations,” Assistant U.S. Attorney General John C. Cruden said in an announcement of the federal government’s intervention.

According to the U.S. Justice Department, the United States “has substantial interests in this action by virtue of the Indian Commerce Clause of the U.S. Constitution, as well as federal statutes and regulations designed to foster tribal self-determination and economic independence. The United States also has substantial interests in the interpretation of its statutes and regulations and in the principles governing state and local taxation and regulation of activities on Indian reservations.”

“It’s huge,” Sheldon said of the U.S. intervening in the case. He compared it to when the U.S. intervened on behalf of Western Washington’s Treaty Tribes in the effort to uphold fishing rights reserved by indigenous treaty signers more than a century earlier. Those treaty rights were upheld in 1974 in what is widely known as the Boldt Decision.

In the taxation case, “Having the Department of Justice onboard speaks to the legitimacy of our position,” Sheldon said.

State Sen. John McCoy, D-Tulalip, who served as Quil Ceda Village’s first village manager, agreed. By intervening in the case, “The United States has indicated we have standing. This case will have ramifications throughout Indian country.”

Here’s the conflict: Washington State and Snohomish County officials contend they have the authority to tax business transactions conducted by non-Indians on Indian land, including Quil Ceda Village.

Tulalip sued the state and county in U.S. District Court on June 12, alleging “unlawful state and county taxation of commerce on lndian Trust Lands” in violation of 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. 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 U.S. complaint, the State of Washington and Snohomish County did not contribute in any significant respect to the development of Quil Ceda Village. “Moreover, they provide no significant governmental services at the Village and they play no role in the Village’s ongoing operations. The state and county, however, impose over $40 million in annual property, business and occupation and sales taxes on the on-reservation activities at Quil Ceda. Even though Tulalip has its own applicable tribal tax laws, state and county taxation in effect precludes Tulalip from imposing its own taxes and deprives it of the tax base needed to fund important governmental services.”

The court’s ruling could have far-reaching implications: It will decide whether any state and county have the authority to impose sales and use taxes on non-Indian businesses located on Indian land, or it could apply the ruling only to Quil Ceda Village. Either way, it is expected to set a precedent.

In an earlier interview, Seattle lawyer Gabriel S. Galanda, Round Valley Indian Tribes – who successfully challenged Thurston County’s attempts to tax the Chehalis Tribe’s Great Wolf Lodge hotel and indoor water park – said Tulalip’s case is “absolutely 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.”

An economic powerhouse

Since incorporation, the village has become – thanks to its location on an 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.

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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