That's according to a ruling last week by U.S. District Court Judge Lonny Suko.
At stake is nearly $20 million in fuel taxes the state claims the tribe owes, The Yakima Herald-Republic reported Thursday.
Suko's ruling also tossed out a previous Yakama Tribal Court ruling that blocked the state from canceling the agreement and enforcing state fuel tax laws on tribal land.
Suko decided the matter properly belongs in federal court because that is where a 1994 consent decree creating the agreement was established.
"This court retains exclusive inherent jurisdiction over a consent decree of which it cannot be divested, even by a stipulation of the parties," Suko wrote in his decision.
At issue is the state's move in December to end the agreement because it contends the tribe is failing to submit required audits of fuel sales for the past five years. The state Department of Licensing said it made the move after negotiations to remedy the matter failed.
Responding to the move, tribal leaders sued the state in tribal court, where a judge ruled in favor of the tribe. Subsequently, the state took the matter to federal court.
Now the case is headed for a Jan. 31 hearing, when a federal judge will decide whether to allow the state to scrap the agreement altogether. The tribe has filed a motion in federal court seeking to dismiss the state's complaint.
Without an agreement, tribal gas station owners could face paying the full state tax on all bulk fuel purchased, state officials have said.
The Yakamas are exempt from state fuel taxes on their 1.2 million-acre reservation. However, the reservation is a checkerboard of tribal and nontribal land, and tribal fuel stations get a fair share of non-Indian customers. State officials have long argued that the tax exemption gives tribal station owners an unfair price advantage.
The agreement was an attempt to level the playing field by requiring non-tribal customers to pay the state fuel tax of 37.5 cents per gallon. Under the agreement, tribal station owners only paid the state tax on 25 percent of the total amount of bulk fuel purchased. Station owners are required to submit audits of sales to the state to determine whether additional fuel taxes are owed.
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