Lawsuit: State illegally giving gas tax money to tribes
Posted 2/7/2011
By SCOTT GUTIERREZ
SEATTLEPI.COM STAFF
The state Supreme Court will be asked to hear a lawsuit against Gov. Chris Gregoire and the state Department of Licensing over $90 million in fuel tax money that gas station owners say has been unlawfully given to Indian tribes.
A Grays Harbor County Superior Court judge dismissed the case Friday on a separate legal question, yet acknowledged a higher court may want to take a look.
The lawsuit, filed by the Automotive Trades United Organization, or AUTO, seeks to stop DOL from paying millions each year to tribes in refunds on the state's motor vehicle fuel tax. Tribal members are exempt from the tax on fuel purchased at reservation gas stations, but the lawsuit alleges the state is issuing refunds for taxes that tribes didn't pay.
The lawsuit alleges the payments enable tribal gas stations to sell fuel at cheaper prices, "in the range of 5 cents or more per gallon," creating unfair competition. It argues the payments violate the state Constitution, which stipulates the motor vehicle fuel tax is to be reserved "exclusively for highway purposes," such as road construction, maintenance or ferries.
The case was dismissed over the issue of tribal sovereignty. Tribes weren't named in the lawsuit because they can't be sued in state or federal court.
Thus, state officials argued the case can't move forward because tribes are "indispensible parties" to the legal dispute, which means the issue can't be fully and fairly considered without their participation. The judge agreed.
AUTO's lawyers say it presents a "Catch 22" with unacceptable implications. They plan to appeal and will petition directly to the state Supreme Court.
"From a legal standpoint, it still boggles my mind -- that there would be no recourse to challenge illegal acts of Washington state officials because the matter touches in some fashion on Indian tribes," said Phil Talmadge, one of AUTO's attorneys and a former state Supreme Court justice. "That just doesn't make any sense."
Rene Tomisser, an assistant attorney general handling the case, said comparable disputes involving gambling and tobacco revenue have been decided by appellate courts in a similar manner. Courts have consistently ruled tribes are not subject to state or federal jurisdiction, he said.
The lawsuit arises from changes that state legislators made to the gas tax law in 2007 to resolve years of litigation between the state and tribes. After losing in a lawsuit filed by two tribes over the gas tax in 2006, lawmakers authorized DOL to negotiate compacts with federally-recognized tribes that operate or licenses gas stations on tribal lands. The state and tribes agree to share gas tax revenue. Under most of the compacts, the tribes get 75 percent back. (The gas tax is currently at 37.5 cents per gallon).
A key requirement is that tribes spend the money on "transportation planning, construction, and maintenance of roads, bridges, boat ramps, transit services and facilities, police services and other highway-related purposes," according to legislative records.
"One of the difficulties in contributing to infrastructure within the reservation was the lack of basic transportation dollars," said Kelly Croman, general counsel for Marine View Ventures, the economic development arm of the Puyallup Tribe of Indians in Pierce County.
Puyallup tribal members operate four gas stations and are opening a fifth, a 12,000-square foot gas station, liquor store and food mart in Fife. Retail gas stations have provided jobs and tax revenue for tribal governments, she said.
"We find it really interesting that the focus has been on the tribes," she said. "The allegations about subsidizing fuel prices just aren't true. Frankly, we're just good business people running our businesses very well in a very tough market, where the real pressure is not from the tribe."
Through October 2010, about $26 million in refunds were paid in 22 agreements, according to DOL's latest report to the state Legislature. That's up from about $7 million at the time the law first passed in 2007, and $14 million in 2008.
The overall amount increases as more tribes enter compacts, open gas stations or expand the number of stations they operate on tribal lands. AUTO, a nonprofit trade organization that represents 300 non-tribal independent gas stations and service shops, is concerned the payments have become a huge economic incentive for larger tribes in metropolitan areas to open a wave of convenience stores, said Tim Hamilton, AUTO's executive director.
It's also putting similarly branded non-tribal gas stations owners out of business because they can't compete, he said.
"We wouldn't be screaming bloody murder and hiring a former state Supreme Court justice to enter into a lawsuit against the state unless our people were really hurting," he said.
AUTO's lawsuit also challenges the level of transparency with the agreements. While the tribes must agree to be audited on how the money is spent and submit annual reports to DOL, the reports are considered personal information and exempt from public disclosure. Only an annual report summarizing the status of existing compacts is submitted to the state Legislature.
According to the lawsuit, some tribes have not spent the money for transportation, and instead used it for things such as park and greenway development.
Hamilton, AUTO's executive director, says he can't ignore the fact that the tribes are one of the largest financial contributors to Gregoire and the state Democratic Party. A few years ago, Gregoire was dogged for a decision favorable to tribes when she quashed a revenue-sharing compact over gambling with the Spokane Tribe that was worth up to $140 million to the state
"We're not trying to do anything to infringe on the sovereign treaty rights of the tribes, he said. "We're simply saying the governor has usurped the constitution, the governor has violated the law."
But state officials point out the legislation had bipartisan support. Tomisser, the assistant attorney general, said he hasn't seen anything that makes him think the tribes aren't using the money as required.
State and tribal lawyers say AUTO's lawsuit misses what the state is trying to accomplish. Without the compacts, they say, the state could potentially miss out on any gas tax money from sales on tribal lands.
In 2003, two tribes -- the Squaxin Island tribe in Mason County and the Swinomish in Skagit County -- were considering plans to blend their own fuel on the reservation and impose a tribal tax on it. When the state wouldn't agree to exempt them from the state's gas tax, the tribes sued in federal court.
A federal judge ruled that due to the original wording of Washington's gas tax law, it placed the "legal incidence" of the tax on consumers at the pump. In effect, if gas is purchased from a station on a reservation, Washington state couldn't force the tribe to collect the state's tax because of tribal sovereignty.
But a few weeks later in a similar case out of Kansas, the U.S. Supreme Court ruled that if the incidence of the tax fell on transactions outside a reservation -- such as when the fuel is sold to distributors before it transferred to gas stations ---then tribes weren't exempt, even if the tax is built in to a higher fuel price.
In 2007, Washington state lawmakers reworded the state's gas tax law under Senate Bill 5272 to clarify where the incidence of the tax fell: Off the reservation and at the terminal rack, where fuel is purchased from wholesalers at Harbor Island and loaded into trucks for distribution. Since that complies with the U.S. Supreme Court case, AUTO argues the tribes shouldn't be entitled to refunds.
But at the request of DOL and the governor's office, state lawmakers still included a provision in the bill for the tribal compacts to "provide mutually agreeable means to address any tribal immunities or any pre-emption of the state motor vehicle fuel tax."
Another requirement is tribes agree to only purchase fuel from state "licensed fuel suppliers, importers, exporters and blenders." That way, the compacts also are an incentive for tribes not to start their own fuel distribution businesses, or to invest in a refinery, or begin blending their own fuel, which would put them completely off-limits, state officials say.
That avoids the risk of the state losing on all revenue from gas sales on tribal lands, state officials say.
"Tribes could jump up and down the chain of sale, which could be disruptive to the system," said Marty Loesch, director of external affairs and senior counsel in the governor's office. Loesch previously worked for the Swinomish tribe and represented the tribe in gas tax lawsuit.
"What the state got out of the whole exercise was harmony and a system that has been successful," he said.
Croman, of the Puyallup Tribe's business venture, points out the money is sent to tribal governments, not individual retailers.
The Puyallup Tribe has put money toward a variety of transportation needs, and has partnered on projects with the state and City of Tacoma. According to a DOL report, the tribe has contributed to an Interstate 5 re-alignment project and relocation of the Puyallup River Bridge.
Other tribes have reported completing road maintenance, aiding counties in road projects, hiring transportation planners and paying for transit service.
"That proves in my perspective that it's working exactly as the way it was presented to the Legislature that it would work," she said.