An uphill tax battle for county

Snohomish County and the state of Washington were already facing a difficult legal battle against the Tulalip Tribes confederation. Now, the U.S. Justice Department is seeking to join the lawsuit and is strengthening the case for the tribes.

In June, the Tulalip Tribes filed suit to stop the county and the state from collecting sales and other taxes from non-Indian businesses at the tribes’ successful Quil Ceda Village. About $40 million annually is collected, mostly from sales tax from non-Indian customers at the development’s non-Indian businesses, such as Wal-Mart, Home Depot, Cabela’s, several restaurants and about 140 smaller stores in the Seattle Premium Outlet mall.

The tribes could levy their own tax on those sales but have avoided that move so as to not burden their tenants with a tax rate higher than that of other businesses in the region. Before the tribes start collecting their tax, they want the state and county to lift theirs. Now, the Justice Department has asked to join in the lawsuit, arguing that the tribes have the right as a sovereign nation to that potential revenue without “unlawful interference from state and local taxation.”

The Tulalip Tribes can make the case that the state and county are collecting that sales tax revenue without having to provide any services. The tribes built the development, down to the roads and utilities, with tens of millions of dollars of their own money. As well, the confederation provides the public services for the development, including police and fire protection and road maintenance. Each year, the county receives about $9 million of about $40 million in tax revenue collected, with the rest going to the state. No portion has gone to the tribes, the tribes’ lawsuit claims.

The county may have an even weaker claim to that revenue than the state if you compare the Tulalip reservation to an incorporated city, which collects its own sales tax revenue rather than the county.

No doubt, the loss of $9 million each year would be devastating to the county. It wouldn’t be welcomed by the state, either, and the state would be hurt even more if the reach of the lawsuit is extended to similar situations with other tribes throughout Washington. For the county, the lost revenue represents about 4 percent of its budget and could force the layoffs of as many as 90 county employees.

The situation didn’t catch the county by surprise. The tribes have made this point since 2001 when Quil Ceda’s first store, the Wal-Mart, opened. Likewise, the county and other taxing districts lost out after a 2013 ruling in a similar tax revenue lawsuit in Thurston County found that counties couldn’t collect property taxes on developments on federal lands held in trust for tribes.

At the time the lawsuit was filed in June, the parties were continuing negotiations to broker a settlement. We hope an agreement can be reached. But it’s hard to argue against the tribes having a right to the revenue generated by its own development, to use as it sees fit for its community.

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