Tuesday, February 7, 2023
Feb. 7, 2023

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Washington tribe says state failed to uphold sales-tax exemption

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SEATTLE — The Sauk-Suiattle Indian Tribe alleged the state Department of Revenue has unlawfully collected state sales tax on the tribe’s online purchases, and the state’s tax exemption laws are unfair and discriminatory toward the tribe, in a complaint filed in federal court in Seattle this week.

When the Sauk-Suiattle tribe’s medical clinic was running low on supplies earlier this year, staff ordered replenishments online. But the Washington state sales tax was automatically slapped on the order.

“That apparently had been happening for several years on every item purchased not only by the tribe, but by the members and mailed or delivered to the reservation over the last approximately six years,” said Jack Fiander, the tribe’s lead attorney and a member of the Yakama Nation.

For example, if a Portland resident were to order a new pair of headphones online, they wouldn’t be charged any sales tax, because their state doesn’t have it.

Like Oregon residents, tribal members living on the reservation should be able to order headphones without having to pay retail tax. Federal law generally prohibits states from taxing tribes and enrolled tribal members in Indian Country. This means any purchases by tribal members made on the reservation or delivered there are not subject to the state’s sales tax.

At a minimum, the tribe estimates the tribe and its members have been charged somewhere around $300,000 in state taxes in that time frame, but by nature, the tribe hasn’t directly reaped any of the benefits of the tax.

There are means to seek a refund for sales tax on online purchases delivered to the reservation, said Lisa Koop, general counsel for the Tulalip Tribes. But the tax should never have been applied in the first place.

The Sauk-Suiattle tribe has a reservation near the town of Darrington, about 80 miles northeast of Seattle. The tribe’s services for its 300 members, including police, water and utilities, a day care, preschool, medical center, Boys & Girls Club and more, are all funded by the tribe’s own revenue.

The tribe doesn’t have a casino of its own, but instead leases gaming machines to other bigger tribes along I-5 like Snoqualmie, Nisqually and Cowlitz, Fiander said. The income from those leases, the tribe’s smoke shop and from utility fees is used for services on the reservation.

“Although the 6.5% of the Washington State Sales Tax is small, this is a sovereignty issue,” Chairman Nino Maltos II said in a statement. “The Sauk-Suiattle and other tribes by Treaty gave up millions of acres of land to the United States in return for a homeland in which we were going to be governed by our own laws.”

The ancestors of today’s Sauk-Suiattle tribal members ceded their land in the 1855 Treaty of Point Elliott in exchange for the right of taking fish at usual and accustomed grounds and stations, tribal sovereignty and guaranteed rights to traditional ways of life, education and health care.

Antique laws are now beginning to show their age as they get in the way of tribal sovereignty, Fiander said.

If a tribal member wants to purchase something off the reservation — typically a necessity for the rural Sauk-Suiattle tribe — the state requires that it be delivered to the reservation in order to be tax exempt.

That’s far more challenging, the tribe argues, than it is for an Oregon resident to receive a sales tax exemption. Oregonians who shop in Washington can keep their receipts and file a refund with the Washington state Department of Revenue.

On the other hand, if a tribal member wanted to receive a sales-tax exemption on a car, they’d need to have it delivered to the reservation. They couldn’t just buy it on the lot, said Koop, the Tulalip attorney.

The Sauk-Suiattle reservation is tucked in the shadow of the North Cascades, 30 miles from I-5, said Fiander, the Sauk-Suiattle tribe’s attorney. Not everything they need can be delivered, and there are few places to shop for anything on the reservation.

“So I guess the question is why are residents of other states which don’t have a tax, like Oregon, allowed to buy the items and take it back themselves, whereas tribal members — in order to be exempt from the state tax — have to have someone deliver it to them?” he said. “It kind of looks like a double standard.”

Fiander said he expects other tribes to support the complaint. Taxation in Indian Country is complex and nuanced.

Koop said the lawsuit could encourage the state to reevaluate its policies around sales tax and tribes.

South of the Sauk-Suiattle reservation, the Tulalip Tribes spent decades trying to reach an agreement on tax collection at their Quil Ceda Village shopping center. For years, pending an agreement, the tribes didn’t receive a dollar of the tax revenue generated at the shopping center.

As part of the agreement reached in 2020, the tribes will collect an estimated $30.2 million by 2025. And before the revenue-sharing was to begin, the tribe had to spend $35 million to design and build a mental health facility in Stanwood.

Sometimes, interpreting taxation laws comes down to reading century-plus old treaties. In 2019, the U.S. Supreme Court ruled that the Yakama Nation’s right to travel clause exempted tribal members from the state’s fuel tax.

“Why should the tribe and its people be paying taxes to the state?” Fiander said. “The tribal government is providing all the essential services.”

A state Department of Revenue spokesperson said the lawsuit was under review by legal counsel, and the “department does not engage in discrimination while administering the state’s tax laws.”

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