Millions at stake in Tulalip lawsuit over sales tax revenue

SEATTLE — A high-stakes trial beginning Monday in a federal court room could rewrite the rules for who gets to collect millions of dollars in sales tax generated by businesses in Quil Ceda Village on the Tulalip Indian Reservation.

The Tulalip Tribes sued the state of Washington and Snohomish County to stop them from collecting the tax. Tribal leaders contend federal law preempts them from doing so. Moreover, the tribes say the state and county are not entitled to the revenue because the tribes are providing the required infrastructure and government services for Quil Ceda Village.

Attorneys for the state and county counter that they only require non-tribal businesses to collect the tax on sales to non-Indians which is allowed under federal law. They also argue the state and county do provide millions of dollars in services to the village and its businesses each year.

And they note the tribes could impose a sales tax of their own at any time — on top of the state and local tax — but haven’t.

U.S. District Judge Barbara Rothstein will preside over the trial, which is expected to last until the end of May.

As many as 80 people could testify in court or by written declaration in the next two weeks. There will be no closing arguments. Attorneys will instead file closing briefs 10 days after the trial ends.

Among those who may take the stand are:

Glen Gobin, a former vice chairman of the tribes and former member of the Quil Ceda Village Council, to discuss the history of the village;

Carlos Echevarria, a former Tulalip police chief, to address law enforcement and related criminal justice services provided within the village and on the reservation;

Mark Johnson, former general manager of Seattle Premium Outlets, to talk of the outlet center’s day-to-day operations between 2005 and 2015;

Timothy Jennrich, an assistant director for the state Department of Revenue, to go through types of taxes imposed in Washington, who pays them and how the revenues are used;

Brian Haseleu, budget and systems manager for the Snohomish County Department of Finance, will testify regarding the taxes, revenues, expenses, budgeting processes, and finances of the county.

Officials of nearly every state agency and county department also are on the list of potential witnesses.

Quil Ceda Village is a political subdivision of Tulalip Tribes. It consists of 2,163 acres of tribal trust land bordering I-5 west of Marysville. The more than 150 businesses there include Cabela’s and Seattle Premium Outlets.

Established through a federal charter in 2001, it is governed by a council with much the same authority as a city council, including taxing and policing. But there are no residents.

The state Department of Revenue recorded $413.8 million in taxable sales there during 2016. That generated an estimated $26.9 million in tax revenue for state government and another $8.9 million for local government. The county receives most of the local portion, with a smaller amount going to Community Transit.

One of the concerns for the state is the potential precedent this case poses.

A narrow decision against the state could limit its effect to Quil Ceda Village. A loss also could result in the state no longer being able to collect sales tax from non-Indian owned businesses operating on lands held by the other 28 federally recognized tribes in Washington.

The lawsuit isn’t raising a new issue.

In 2005, as construction was getting under way for the Seattle Premium Outlets, the state House passed a bill aimed at resolving some of the concerns.

It would have set up a pilot project in which the state would keep getting its share of taxes but Snohomish County would not. Instead, the tribes would begin to impose a sales tax of up to 1 percent.

The bill passed by a near unanimous vote in the House. It died in the Senate partly out of concern from other local governments of the precedent it set. While Snohomish County was good with the deal, at the time, other cities and counties didn’t like it and worried they’d be forced into similar pacts.

The tribes sued in June 2015. In the original filing they alleged the collection of taxes by the state and county “unlawfully burden” commerce on the reservation, are preempted by federal law, and “unlawfully interfere” with their sovereignty.

Under existing law, Native Americans don’t pay sales tax on retail purchases in Washington and Indian-owned businesses are exempt from business and occupation taxes.

This legal challenge deals with taxes imposed on non-Indian consumers when they make purchases from non-Indian retailers.

The lawsuit aims to stop the state from collecting those taxes. If successful, it is presumed the Tulalips would impose an equivalent-sized tax.

In March 2015, weeks before the tribes sued, then-chairman Herman Williams wrote then-County Executive John Lovick to assure them they would not act to give themselves a leg up.

“Double taxation is not an option for Village businesses and consumers, and the imposition of State and County taxes thus prevents Tulalip from exercising its own authority,” Williams wrote. “To be absolutely clear, Tulalip does not seek any tax advantage for Village businesses over other businesses in Snohomish County.”

Jerry Cornfield: 360-352-8623; jcornfield@herald net.com. Twitter: @dospueblos.