Native Americans and Taxes: Tulalip Tribes Challenge State Taxation on Tribal Lands

Who gets a cut of non-Native business revenue on tribal land? The Tulalip Tribes are fighting taxation of Quil Ceda Village.

The Tulalip Tribes’ challenge of the state and county’s taxation of business conducted on its lands is scheduled for a 10-day trial beginning June 5, 2017 in U.S. District Court. Washington State, Snohomish County, and Tulalip Tribes failed on October 24 to resolve a dispute over the state and county’s contention they have the authority to tax business transactions in the Tulalip Tribes’ incorporated community of Quil Ceda Village, located on the reservation, and so the case is headed to trial.

“The parties are not in agreement that further settlement discussions would be beneficial,” a court document states. “Accordingly, further settlement discussions are terminated.”

Tulalip Tribes filed the lawsuit on June 12, 2015. The United States became a co-plaintiff on August 4, 2015.

The state and county contend that they have the authority to tax business transactions conducted by non-Indians on Indian land—in this case, in Quil Ceda Village.

The Tulalip Tribes contend that “state and county taxation of commerce on Indian trust lands” violates the U.S. Constitution. The Tulalip Tribes also contends that county and state taxes preclude the Tulalip Tribes 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, officials say, the Tulalip Tribes is subsidizing the village’s public services out of other revenues.

The U.S. contends the state and county’s taxation of 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.

At one point, the Tulalip Tribes would have been content to receive a share of the sales tax revenue generated at Quil Ceda Village, just as other municipalities in the state receive a share of sales tax revenue generated within their boundaries. But the state and county do not recognize Quil Ceda Village as a municipality, even though it is so recognized by the U.S. Department of the Interior and the IRS.

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.”

The lawsuit adds, “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.”


At stake: $40 million a Year in Tax Revenue

Some background: The Consolidated Borough of Quil Ceda Village comprises 2,000 acres—more than three square miles—fronting Interstate 5 on the Tulalip Tribes 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 along the interstate and the vision of Tulalip Tribes leaders—an economic powerhouse in the region, providing jobs for approximately 6,000 people, Native 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 include 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.

As aforesaid, 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.

State Senator John McCoy

State Senator John McCoy

“We didn’t want to be in a disadvantage economically,” McCoy said in an earlier interview 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 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.

McCoy said the state and county are getting “free money”—a return on investments that they had nothing to do with.

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 Tribes 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.

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 Tribes 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.”

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.