U.S. supports Tulalips in lawsuit to fight local, state taxes

SEATTLE — The U.S. Justice Department filed a motion on Tuesday asking to join the Tulalip Tribes in a federal lawsuit against the State of Washington and Snohomish County that seeks to stop them from collecting millions of dollars in taxes from non-Indian businesses and people on tribal land so that the tribes can collect those funds instead.

The Justice Department said the tribes have a constitutional right to develop reservation resources without “unlawful interference from state and local taxation.”

“The United States takes seriously the federal role in protecting tribal self-government, which has its foundation in federal statutes, treaties, and regulations,” said Assistant Attorney General John Cruden, with the department’s Environment and Natural Resources Division. “To this end, we are committed to eliminating barriers, such as these, which hinder tribes from developing healthy economies and providing necessary governmental services on the reservation.”

Alison Dempsey-Hall, spokeswoman for the Washington State Attorney General’s Office, said they can’t comment on open cases.

Jason Cummings, Chief Civil Deputy with the Snohomish County Prosecuting Attorney’s Office, said the tribes and county have a “valued and respected relationship,” and said they are reviewing the latest filings in the lawsuit and “will discuss its allegations with our elected officials, and will respond accordingly.”

The Tulalip Tribes filed a lawsuit in U.S. District Court in Seattle in June against Gov. Jay Inslee, the state and Snohomish County, arguing that they don’t have a legal right to the $40 million collected annually in property, sales, use and other taxes for activities on reservation land that was developed and is managed by the tribes.

The Tulalips Tribes are entitled to collect tribal taxes on business activities, Mel Sheldon Jr., the tribes’ chairman, said in a statement emailed Tuesday. “But as a practical matter, if state and county taxes remain in place, this would result in double taxation on the businesses and the customers,” he said.

In 1990, the tribes devised a plan to develop about 2,200 acres of vacate lands next to Interstate 5 near Marysville. The land had been held in trust by the United States. By 2000, the tribes had chartered the Consolidated Borough of Quil Ceda Village and began the development process, the lawsuit said.

The land was vacant and lacked any infrastructure to support a village, so the board of directors launched a plan to design, build and install roads, sidewalks, parking areas, sewer, water and natural gas lines. They also built an electrical substation, utility and telecommunication lines and other needs.

The tribes spent tens of millions of dollars to develop the village, the lawsuit said.

Soon after, the Tulalip secured leases with Wal-Mart and Home Depot. It also constructed a retail center containing 16 storefronts which now host commercial tenants including a pharmacy, United Postal Service store, and restaurants, the lawsuit said. By 2012, the tribes had a casino, Cabela’s store, and the Seattle Premium Outlets with about 140 subleases.

The tribes provide the day-to-day government services including police and fire protection, snow and garbage removal and a civil court.

About 6,000 people are employed within the Village, the lawsuit said.

Neither the state nor the county has participated in this development and neither has provided any services, the lawsuit said.

Yet, in 2013 alone, the state collected $37 million in sales and use taxes; $2.1 million in business and occupation taxes; and about $1 million in property taxes from the Village, the lawsuit said. A portion of the $40.1 million in taxes collected was shared with Snohomish County, the lawsuit said.

But none of those tax revenues were given to the Tulalip Tribes or the Village, the lawsuit said.

The state and county taxes “interferes with Tulalip’s ability to exercise its sovereign taxation authority and deprives Tulalip and the Village of the opportunity to raise tax revenues to support infrastructure and essential government services and to ensure the health, safety and welfare of its members and those visiting the Village,” the lawsuit said.

The lawsuit asks the court to issue an order saying the state and county taxes are a violation of the Indian Commerce Clause. It also asks the court permanently stop the state and county from collecting the funds.

The Justice Department’s motion said the tribes have “the inherent and federally recognized sovereign right to make its own laws and be ruled by them.” Outside collection of taxes “interferes with and frustrates Tulalip’s inherent right of self-governance and its ability to further economic self-sufficiency.”