Washington state stands to lose hundreds of millions of dollars in fuel tax revenue and possibly more if a state Supreme Court decision involving fuel brought to the Yakama Reservation is allowed to stand.
It's an issue that is likely to go to the U.S. Supreme Court. Other states have joined the push to have the high court take up the case because it could impact them, and last week, the U.S. solicitor general, who the Supreme Court asked to weigh in, recommended they hear the case to clear up conflicting rulings.
While the states and federal government are concerned about trade implications, the case is being closely watched by tribes due to its potential to bolster or weaken treaty rights.
The case, Washington State Department of Licensing v. Cougar Den, centers on whether an 1855 treaty, signed with the confederated tribes and bands that would become the Yakama Nation, protects a Yakama member-owned fuel distributor from a 2007 state fuel tax. The treaty promises "the right, in common with citizens of the United States, to travel upon all public highways."
The question is whether Cougar Den, a Yakama fuel distributor licensed in Oregon that buys gas there tax free to transport to the reservation in Washington, should be subject to the Washington state fuel tax, which applies to the wholesale of gas.
While Cougar Den argues their travel to get the fuel to the reservation shouldn't be taxed, Washington argues the tax isn't levied on the use of the highways, which is what the treaty intended to protect, but on the ownership of fuel.
After previous court rulings held that states can't tax gas sold at stations on reservations, states were told they could move the tax further up the supply chain and off reservations.
So the Washington State Legislature created a tax on the first wholesale owner of fuel. In state, the refinery or bulk tank owner selling the fuel is the one who pays the tax, but for fuel coming in from out of state, whoever owns the fuel in state lines first has to pay the tax.
When the state tried to fine Cougar Den $3.6 million in 2013 for failing to get an importer's license or pay taxes on the fuel, the business pushed back, first getting a favorable ruling in an administrative review, then again at Yakima Superior Court and the state Supreme Court, all of which interpreted the treaty in favor of the business and tribe.
In its March 2017 ruling, Washington's Supreme Court held "that the right to travel provision in the treaty protects the tribe's historical practice of using the roads to engage in trade and commerce."
That broad interpretation has brought a lot of interest in the case, especially from states where similar fuel taxes are levied or where tribes, including the Nez Perce, signed a similarly worded treaty. Idaho, Kansas, and Wyoming are a few who support Washington's stance, and oil industry organizations in Washington have also raised concerns about being put at a disadvantage.
Washington state's attorney general has asked the U.S. Supreme Court to take up the case, arguing in part that the state ruling contradicts other higher court rulings that found members of tribes are subject to nondiscriminatory state taxes and laws when they go off the reservation, unless federal law says otherwise.
"The ruling will cost Washington hundreds of millions of dollars in fuel tax revenue and means that whether any other state tax — including cigarette taxes — is preempted as to the Yakama will now depend primarily on whether the tax is challenged in state or federal court," the state's petition reads. "No state should face this dilemma."
Idaho and other states argue that since the wording of the treaty says "all public highways," the decision could have far-reaching impact on trade carried out by the tribes whose treaties carry that language.
But Cougar Den's attorneys argue the Supreme Court should let the state ruling stand as the case is not one of national importance, only applying to three tribes whose treaties use the specific language.
"This case is another chapter in the petitioner's long campaign to maximize revenue by infringing on treaty rights," the brief opposed to the court taking the case states. "If Washington state wishes to lawfully tax fuel consumption by non-Indians, without placing the incidence of the tax on tribal retailers selling on reservation or otherwise violating treaty rights, it has adequate resources to do so and can amend its statutes accordingly, as it has done in the past. Unless and until Congress amends the treaty promises at issue here, the department must abide by them." ♦