​Washington state seeks business taxes on tribal lands, an attack on sovereignty

ICT editorial team

U.S. District Court judge will decide constitutionality of state, county taxation on tribal lands

Richard Walker

Special to Indian Country Today

SEATTLE – It's a typical day at Quil Ceda Village, a 2,100-acre retail community along Interstate 5 on the Tulalip Tribes reservation.

Visitors shop or dine at the state's largest outlet mall. Concertgoers buy tickets for one of the upcoming concerts at the nearby Tulalip Amphitheatre: Creedence Clearwater Revisited, Blue Oyster Cult, Melissa Etheridge, Isley Brothers, Clint Black, Styx, Dwight Yoakum.

At Cabela's, visitors shop for outdoor recreation gear amid a showcase of Coast Salish art by such noted artists as James Pasaiukes Madison.

At Tulalip Resort Casino, guests are pampered at the largest spa in the Northwest, dine at one of seven restaurants, or book a tour or outdoor adventure. Within walking distance is Hibulb Cultural Center and Natural History Preserve.

Quil Ceda Village is the result of the vision of several generations of Tulalip Tribes leaders. It's located on Tulalip Tribes land, was built by the Tulalip Tribes, and was incorporated as a village under federal and Tulalip Tribes law. It's also an economic powerhouse that has enabled the Tribes to provide scholarships to all college-bound high school graduates and provide internet access to all homes on the reservation.

Washington State and Snohomish County want a piece of the pie.

The county and state contend they can impose taxes on businesses in Quil Ceda Village if those businesses are owned by non-Indians. The Tulalip Tribes say county and state taxation violates its sovereignty and the U.S. Constitution, and precludes it from imposing its own taxes to help support local services.

Final arguments in a two-week trial were made June 8 in U.S. District Court. Judge Barbara J. Rothstein reportedly gave no indication as to when she expects to rule. But no matter who prevails, state Sen. John McCoy, D-Tulalip, said, the case won’t end there.

“I think this case will go all the way to the U.S. Supreme Court,” said McCoy, who served as Quil Ceda Village’s general manager at the time the village was incorporated as a municipality. “Whether the tribes win or lose, it will be taken there. And I think the tribes will win in the end.”

The case is Tulalip Tribes et al vs. State of Washington, et al. The United States is a co-plaintiff.

The U.S. Constitution, Article 1, Section 8, Clause 3, states that only Congress has the authority to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." Nevertheless, the county and state collect millions of dollars a year in taxes from businesses in Quil Ceda Village. The Tulalip Tribes owns the land, and the municipality is governed by a Village Council.

Businesses on 130 parcels pay the county a tax on the land they lease from the Tulalip Tribes -- called a leasehold tax -- and a business and occupation tax based on their gross receipts.

Those businesses also pay a sales and use tax of 8.9 percent – 6.5 percent to the state, and 2.4 percent to the county.

Quil Ceda Village has a sales tax on the books but doesn’t collect it because, according to the Tulalip Tribes, doing so would put businesses at an economic disadvantage. Sales taxes in neighboring Marysville is 9.1 percent; in nearby Everett, 9.7 percent.

Tulalip Tribes Chairwoman Marie Zackuse said the State of Washington and Snohomish County are imposing a standard on the Tulalip Tribes that is not imposed on other governments within Washington: One, counties and cities don’t impose taxes in other counties and cities. Two, the county and state contend that because of the Tulalip Tribes’ economic vibrancy, it is not – in their words – “suffering economic harm” from the taxation.

“Their rebuttal was, ‘Tulalip makes all this money, they give out per capita (payments),’ ” Zackuse said. “It’s a standard the state doesn’t apply to other governments within its boundaries.”

The state and county also maintain that the revenue they collect from Quil Ceda Village helps support public services they provide to businesses and residents of the reservation. In their closing brief, the state and county argue that they provide “the vast majority of the government services to non-Indian taxpayers,” “provide public goods and other government services to the taxpayers in return for tax revenue,” “provide transportation networks, which are critical to any commercial enterprise,” and “provide important law and justice services,” provide “other services, both on and off the reservation, that benefit the community, including Tulalip.”

McCoy and Zackuse say the Tulalip Tribes and Quil Ceda Village, not the county and state, provide the bulk of public services on the reservation and in the village and that the county is reaping the benefits from economic development it had nothing to do with.

The record seems to bear that out.

From ammunition site to third-largest source of jobs

Quil Ceda Village was the former site of a U.S. military ammunition depot when the Tulalip Tribes began restoring and redeveloping the land in the 1990s. Leaders of the Tulalip Tribes had long envisioned the area as an economic center.

Professor Joseph Kalt, director of Harvard University’s Project on American Indian Economic Development, recounted in court Tulalip Tribes’ investment of approximately $153 million, and the corresponding federal investment, in developing the infrastructure needed to attract investment and to support commerce at the Village. According to court documents, Tulalip Tribes and the federal government invested $20.9 million developing interior roads, $35.4 million developing freshwater and wastewater treatment systems, $8 million installing an electrical substation and lines, $63.8 million building two highway interchanges, and $4.4 million installing a fiber telecommunications system.

Over time, Quil Ceda Village became a retail and entertainment destination; attractions include a resort hotel and spa, the largest outlet mall in Washington, an amphitheater, and restaurants. Large retailers include Cabela’s, The Home Depot, and Walmart. Cultural attractions include a cultural museum, and Coast Salish art is a prominent part of the landscape.

Neighboring communities have benefitted as well. The Tulalip Tribes is now the third-largest source of jobs in Snohomish County, ahead of Naval Station Everett, according to Economic Alliance Snohomish County.

"When considering the impacts of both construction and retail activity, Dr. Kalt found that the Village created 43,012 jobs (in worker years), $1.65 billion in labor income, $2.98 billion in value added (i.e., net gain), $4.87 billion in output (i.e. gross margin), and $572 million in taxes,” Tulalip Tribes states in its closing brief.

Quil Ceda Village’s government departments provide building plan review, permitting and inspections; business and food service inspections; law enforcement; maintenance of parks and trails; freshwater, stormwater and wastewater systems; traffic planning; utilities; and wetlands mitigation.

The Village provides fire protection and emergency medical services under a negotiated fee-for-service contract with the Marysville Fire District. The Tulalip Police Department responds to approximately 6,000 calls for service each year, and refers 90 percent of the cases for criminal prosecution arising in the Village, according to court documents. The Tulalip Tribes contracts with the county for jail services, funds one full-time county prosecutor, and contributes funding to the sheriff’s office and state patrol.

“The Tulalip Tribal Court provides a forum for all civil disputes arising in the Village, including between Village businesses and their customers,” court documents state. “From 2011 through 2015, nearly 100 civil disputes arising in the Village were filed in Tribal Court. The Tribal Court also exercises jurisdiction over criminal offenses by Indians, and by non-Indians in certain domestic violence cases. From January to May 2015, the Tribal Prosecutor had a total of 114 cases arising in the Village, including theft, drug, and trespass cases.”

A combination of Tulalip and federal funds paid 93 percent of the costs of two interchanges on Interstate 5, and those improvements serve off-reservation communities on the east side of the highway as well, court documents state. Tulalip Tribes pays the state Department of Transportation to maintain traffic signals near the interchanges, and pays for care of the shoulder and median.

The Tulalip Tribes also pays half the salary of a high school principal, and contributes other funding to local schools, court documents state.

A challenge to Tulalip’s sovereignty

As Quil Ceda Village took shape, neighboring communities took notice.

The City of Marysville’s 2005 Comprehensive Plan noted of the city’s own economic development plans: “One of the clear potential assets for the future of Marysville is the vacant land potentially available for retail, business, industrial, and eventually office parks in the area to the north of older areas of Marysville. However, competition from a well-situated, high-quality, visible Quil Ceda Village could prove to be problematic.”

Jurisdictional issues arose early, with the county asserting taxing authority over business transactions conducted by non-Indians on Tulalip land. Tulalip Tribes tried to compromise: the county could collect sales and use taxes, as long as the Village received a share of tax revenue generated there -- just as other municipalities do -- for use in funding public services. The county and state declined. “In the past, there were [legislative] efforts to allow revenue sharing,” McCoy said. “Some [legislators] have acknowledged that we should get something. Others have taken a hard line — ‘This is state money, and therefore, no.’”

Brionna Aho, communications director for the state Attorney General’s Office, stated in an email that the State of Washington recognizes Quil Ceda Village as a municipality. “Quil Ceda Village is legally organized as a municipality,” she wrote. “Quil Ceda Village’s status as a municipality is not in question.” Nevertheless, the Tulalip Tribes, the Consolidated Borough of Quil Ceda Village, and the reservation are not mentioned as entities in the Snohomish County Assessor’s property tax revenue report. They are presumably lumped under “Unincorporated.”

In a nutshell: The U.S. District Court will decide whether a county and state can tax business transactions by non-Indians on Indian land. “If Tulalip wins this, it will spread across all the other reservations under the jurisdiction of the 9th Circuit,” McCoy said. “And eventually, it will get across the United States.”

What the law says …About Indian Country: 18 U.S. Code § 1151 defines Indian Country as “(a) all land within the limits of any Indian reservation under the jurisdiction of the United States Government, notwithstanding the issuance of any patent, and, including rights-of-way running through the reservation, (b) all dependent Indian communities within the borders of the United States whether within the original or subsequently acquired territory thereof, and whether within or without the limits of a state, and (c) all Indian allotments, the Indian titles to which have not been extinguished, including rights-of-way running through the same.” Tribal nations and the United States, not states and local governments, have jurisdiction over Indian Country.

About regulation of commerce in Indian Country: U.S. Constitution, Article 1, Section 8, Clause 3 states that Congress shall have power “To regulate commerce with foreign nations, and among the several states, and with the Indian tribes.” In 1831, the U.S. Supreme Court ruled in Cherokee Nation v. Georgia that Indian Nations are “domestic dependent nations” under the protection of the federal government, and that state laws therefore cannot be imposed on Tribes.

Richard Walker is a writer living the Seattle area. Contact him atrichardmollywalker@gmail.com.

This story has been updated since it was first posted.

Comments (1)
No. 1-1
C.R.I.T. lady
C.R.I.T. lady

I live on C.R.I.T. reservation near Parker AZ. Time for everyone to tell states to foot the bill on their own. We are our own nation within a nation.