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High Court to Weigh Tribal Exemption from Washington Fuel Tax

Bloomberg Law News Oct 29, 2018

High Court to Weigh Tribal Exemption from Washington Fuel Tax By Emma Beyer Oct 29, 2018 • Case involves Washington’s attempt to collect fuel import tax from gas station on tribal lands • Cougar Den argues 1855 treaty bars tax, Washington says it doesn’t • Supreme Court to hear arguments Oct. 30 A U.S. Supreme Court case on the scope of a 19th century treaty may have far reaching consequences on tax and state sovereignty. The case centers on a fuel import tax dispute between Washington state and a gas station on tribal land. Other states are closely watching the outcome, and have raised concerns that a ruling against Washington could cost other states billions of dollars in lost tax revenue from fuel and tobacco. The court will hear arguments Oct. 30 in the case, Washington State Department of Licensing v. Cougar Den Inc. The outcome could have a broad impact on states’ revenue collection. A majority of the states have a taxation structure like Washington’s, levying a fuel tax at the wholesale level, making them vulnerable to a ruling in favor of Cougar Den, the on-reservation gas station. Several tribes have weighed in to support Cougar Den, urging the court to continue reading treaties broadly—ensuring that the U.S. fulfills promises it made during treaty negotiations.

The Case The high court will consider whether Washington state can tax the import of motor fuel by a Yakama Nation tribal member from Oregon to Cougar Den. The court is reviewing a 2017 ruling by the Washington state Supreme Court, which ruled in favor of Cougar Den in a 7–2 decision.

The Arguments Cougar Den maintains that it is exempt from Washington’s fuel import tax under the Yakama Treaty of 1855, under which the tribe surrendered most of its territory to the U.S. The treaty contains a unique provision securing the Yakama people a right to travel on the highways. “The Treaty protects the right to travel,” Cougar Den said in its brief to the Supreme Court. “If a Yakama is exercising that right, the Treaty preempts the tax.” Washington state disagreed with Cougar Den’s exemption claim and assessed the company $3.6 million in taxes, penalties, and interest over the more than 5 million gallons of fuel the company transported through a 27-mile gap between the state line and the reservation between March and October 2013. Washington argues that if fuel is being transported by vehicles like tractor trailers or railcars, the fuel becomes taxable the moment it crosses state lines. “The right-to-travel clause simply does not address (much less expressly preempt) taxes on goods that happen © 2018 The Bureau of National Affairs, Inc. All Rights Reserved. Terms of Service // PAGE 1


High Court to Weigh Tribal Exemption from Washington Fuel Tax

to be transported over public highways,” Washington said in its brief.

Why it Matters Cougar Den’s exemption would lead to millions of dollars in lost tax revenue and give it an unfair advantage in the fuel market, Washington argued. Washington also warned that the exemption will allow Yakama businesses to escape other off-reservation taxes, such as taxes on hazardous waste and tobacco products. Briefs from the U.S. Solicitor General, a state coalition led by Idaho, and the Washington Oil Marketers Association, echoed this statement, further arguing that this ruling could lead to similar exemptions in other states. A ruling in favor of Cougar Den “will effectively blow gaping holes in the fuel tax revenues and transportation budgets of Washington and other states,” the Washington Oil Marketers Association said in its brief. The Nez Perce and Confederated Salish and Kootenai Tribes, in an amicus brief in support of Cougar Den, disagreed that the case could have a widespread effect on collection of fuel and other taxes. The tribes said they have entered into fuel tax agreements with Idaho and Montana, and don’t have any disputes with states concerning treaty “right to travel” language or tobacco taxes. A ruling in favor of Cougar Den not only preserves the rights outlined in the treaty, but recognizes the historical importance of tribes in the U.S., according to briefs in support. Yakama and other tribes view the case as a test of legal precedent on treaties between tribes and the government. “Indian treaties must be interpreted broadly, as the Indians would have understood them, with ambiguities resolved in the Indians’ favor,” the National Congress of American Indians said in a brief. Wash. State Dep’t. of Licensing v. Cougar Den Inc., U.S., No. 16-1498, review granted 6/25/18 . To contact the reporter on this story: Emma Beyer in Washington at ebeyer@bloombergtax.com To contact the editor responsible for this story: Rachael Daigle at rdaigle@bloombergtax.com

© 2018 The Bureau of National Affairs, Inc. All Rights Reserved. Terms of Service // PAGE 2


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