The Seattle Premium Outlets shopping center is part of the Quil Ceda Village on Tulalip land west of I-5 (Sue Misao / Herald file)

The Seattle Premium Outlets shopping center is part of the Quil Ceda Village on Tulalip land west of I-5 (Sue Misao / Herald file)

Tribes and governments file closing briefs in tax lawsuit

At stake are millions of dollars in revenue from the Tulalips’ Quil Ceda Village business district.

SEATTLE — The tribes and the tax man have played their last cards.

The Tulalip Tribes last week laid out a closing legal argument for shutting state and county government out of the tax game at Quil Ceda Village, the retail mecca on Tulalip land west of I-5. That capped a trial that unfolded over eight days in May at the federal courthouse in Seattle. It ended not with rhetorical flourishes in the courtroom but with dueling legal briefs filed online Friday.

“The Tulalip people, with the support of the United States, have fought against overwhelming odds to reclaim a measure of the economic self-sufficiency that was their historical trademark,” the tribes’ attorneys wrote.

With the backing of the U.S. Department of Justice, they reasoned that case law makes a clear argument for stopping Washington or Snohomish County from collecting sales tax at Quil Ceda Village stores such as Walmart, Cabela’s or Seattle Premium Outlets. They see it as fulfilling a goal of tribal self-determination established by Congress.

The tribes filed the lawsuit in 2015.

Lawyers for the state and county believe they have a stronger hand. While the tribes pressed their sovereign rights, the state’s closing argument urged the court to treat Quil Ceda much like any other shopping mall. Contrary to the tribes’ claim, the state and county contend that they’re providing the bulk of government services to shoppers, an estimated 50 percent or more who travel there from the Vancouver, British Columbia, metro area.

The village consists of 2,100 acres, with stores, a resort and a casino, but no homes. It’s overseen by a governing council appointed by the Tulalip Board of Directors. It shares revenues with Tulalip tribal government and the organization that oversees casinos and other Tulalip gaming activities.

“Tulalip’s stable and financially successful tribal government negates the claim that State and County taxation of non-Indians at the Village has infringed on Tulalip’s sovereignty or interfered with its self-government,” the state and county attorneys wrote.

Representing the tribes is one of their own attorneys, along with Seattle law firms Kanji & Katzen and Stokes Lawrence. On the other side are the offices of the state attorney general and county prosecutor.

U.S. District Judge Barbara Jacobs Rothstein is presiding. It’s unclear when a ruling might emerge. The judge must wade through stacks of exhibits, some running into the hundreds of pages, and a thicket of case law. Appeals are likely to follow, whichever way it goes.

The winner stands to claim a big prize: sales tax revenues that have approached $40 million in some recent years. While most of the sales tax flows to the state’s general fund, the county’s share is enough to cover the salaries of 50 full-time employees that might disappear if the case goes against them.

The state’s Business & Occupation Tax also is at stake, as are personal property taxes levied on business equipment.

In their closings, each side attempted to discount the other’s star witness.

Professor Joseph Kalt had testified for the tribes about the wealth that Quil Ceda Village commerce has created on and off the reservation. That included $4.87 billion, and $572 million in taxes, by his estimation, over the village’s history. Kalt leads The Harvard Project on American Indian Economic Development.

Those claims, “should be given no weight,” the state and county attorneys said. Kalt’s approach, they said, “appears intended only to produce a big number representing economic impact for the region.”

Kalt’s analysis didn’t take into account whether similar business would have sprung up nearby, off the reservation, if Quil Ceda Village hadn’t existed, they said.

Similarly, the tribes and the U.S. Department of Justice attempted to brush off the testimony of an accountant who quantified the tribes’ economic success, largely thanks to the Tulalip Resort Casino at the center of the village.

From 2011 to 2015, the tribes’ assets grew every year, consultant Todd Menenberg said on the stand. By the end of 2015, he said, their balance sheet showed nearly $900 million in net assets, with very little long-term debt. The tribes generated more than $328 million in revenue that year and more than $190 million in net income from Tulalip Gaming alone.

“After deducting expenses for government activities, expenses in the Village and other expenses, Tulalip had a surplus of $130 million, $72 million of which it used to fund per capita distributions to Tribal members,” the attorneys summarized.

The tribes’ attorneys called Menenberg’s testimony a “straw man” argument.

“The fundamental problem with this evidence is that a tribe’s overall financial condition has no legal relevance,” they said.

Much of the case revolves around past court rulings that resulted in state governments being prevented from taxing commerce on Indian land. The state and county argue those comparisons don’t apply.

The area that now forms Quil Ceda Village was condemned by the U.S. government for use as a weapons depot during World War II and the Korean War. The tribes later entered into a long-term lease that allowed the Boeing Co. to use the land. Development for other purposes started in the 1990s. The first store lease was signed in 1999 and the federal government recognized the village as a political entity a couple of years later.

The tribes claim the state and the county “have contributed little towards the infrastructure or services underpinning the Village economy, and the services they do provide are either paid for through other taxes or by Tulalip itself.”

The state and county paint a different picture.

“While Tulalip does provide some services to taxpayers for the few hours they spend in the Village, those services are primarily for the benefit of Tulalip’s own commercial interests,” the government attorneys wrote.

For the state, the case is a winner-take-all proposition. Either they collect the taxes or the tribes do. There’s no middle ground, in their view.

The tribes offered the court an alternative: divvying up the state’s tax collections to reflect the share of government services provided by the tribes, compared with the other governments. If the dispute gets resolved through a percentage-based approach, the tribes contend that they provide the overwhelming share of village services and as such should receive most of the taxes.

The state and county say there’s nothing, as is, preventing the tribal government from imposing its own tax of up to 1.5 percent. The tribes counter that even a small extra tax burden would devastate village businesses.

The current rate there is 8.9 percent, or $8.90 for every $100 spent. Should the tribes prevail, they expect to collect a similar amount. They say they’re not seeking a competitive advantage through lower taxes over stores off the reservation.

Noah Haglund: 425-339-3465; nhaglund@herald Twitter: @NWhaglund.

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