Extras on Excise: U.S. Supreme Court Will Decide Washington State Fuel Tax Exemption Case This Term


The U.S. Supreme Court will soon hear arguments in a hotly contested Washington state fuel tax dispute. In Washington State Department of Licensing v. Cougar Den, Inc., the Supreme Court will have to decide whether Cougar Den, a Yakama Nation corporation, is exempt from Washington’s fuel tax under a treaty negotiated with the United States in the 1850s. The case may have far-reaching negative consequences, according to briefs filed by Washington state and supporters including the U.S. Solicitor General, the Multistate Tax Commission, and a dozen other states.

Washington State Fuel Tax, Cougar Den’s Exemption, and the Washington Supreme Court’s 7–2 Decision

Washington fuel tax is triggered in one of two ways. First, if fuel enters Washington by pipeline, the tax is triggered at the moment the fuel is removed from the pipeline regardless of where it occurs within the state. Second, if fuel is being transported by vehicles like tractor trailers or railcars, the fuel becomes taxable the moment it crosses state lines into Washington.

Cougar Den maintains that it is exempt from Washington’s fuel tax under the Yakama Treaty of 1855. Unlike the vast majority of treaties negotiated between the United States and other Washington tribes, the Yakama Treaty contains a unique provision securing the Yakama people a right to travel on the highways. The treaty says that members of the Yakama Nation have “the right, in common with citizens of the United States, to travel upon public highways.”

Washington state disagreed with Cougar Den’s exemption claim and assessed the company $3.6 million for approximately 5 million gallons of fuel the company transported through Washington between March and October 2013. The dispute worked its way up to the Washington State Supreme Court which ruled in favor of Cougar Den in a 7–2 decision.

The Washington State Department of Licensing appealed the ruling to the U.S. Supreme Court, which granted certiorari to the case in June. The court has scheduled oral arguments for October 30.

Washington Says Yakama Treaty Doesn’t Make Cougar Den Exempt From Fuel Tax

Cougar Den’s exemption would lead to millions of dollars in lost tax revenue and give Yakama businesses an unfair advantage against its competitors in the fuel market, Washington asserts in its brief. Washington says of the Yakama Treaty that “[t]he right-to-travel clause simply does not address (much less expressly preempt) taxes on goods that happen to be transported over public highways.”

Washington also warns that the exemption will allow Yakama businesses to escape other off-reservation taxes, such as taxes on hazardous waste and tobacco products. “This is not a hypothetical scenario. King Mountain Tobacco, a company incorporated under the laws of the Yakama Nation, has been in litigation with the federal government, the State of Washington, and City and State of New York regarding its refusal to pay federal, local, and state taxes on cigarettes that it transports by highway, off-reservation.”

Briefs filed by the Multistate Tax Commission, U.S. Solicitor General, and Idaho (joined by New York City and 11 states), all express concerns that a ruling against Washington would unconstitutionally impair states imposing taxes on fuel and extend to other goods including tobacco products. National anti-tobacco organizations and Washington industry groups echoed several of these fears in the briefs they submitted in support of the state.

Cougar Den Says “[t]he State’s Practical Concerns are Unwarranted”

Cougar Den responds in its brief that Washington’s concerns about its fuel tax exemption are exaggerated and that in any case, the state is bound by the terms of the Yakama Treaty.

Cougar Den asserts that the distinction that the Washington State Supreme Court made between Washington fuel taxes being a tax on possession versus importation was misguided because the deciding factor for preemption must be the impact on the exercise of rights secured by the Yakama Treaty. Cougar Den argues that a tax triggered by a treaty-protected activity, e.g., transportation, is preempted whenever it is burdened by a tax.

Cougar Den disputes Washington’s claim that the exemption creates a “massive loophole.” The Yakama company points to the fact that no other Washington tribe has a treaty with a right-to-travel provision. Its brief suggests that Washington could amend its laws to impose fuel tax on the end-consumer and have tribes collect and remit tax on reservation purchases by non-members. Cougar Den speculates that Washington hasn’t followed this model, used in Oklahoma, because it may be politically unpopular.

Cougar Den says that the Yakama’s exemption from Washington fuel tax does not extend to the state’s taxes on cigarettes and tobacco products. It argues that because an exemption is only triggered when a tax restricts Yakama transportation of goods, no exemption exists merely by virtue that the goods were transported across a highway. Cougar Den cites King Mountain Tobacco Co. v. McKenna where the 9th Circuit ruled against a Yakama nation tobacco company because the tax was not triggered by transportation of cigarettes, but rather sales of cigarettes.

Amicus briefs were filed this week by the Yakama Nation, Sacred Ground Legal Services, and the National Congress of American Indians in support of Cougar Den. The Nez Perce Tribe and Confederated Salish and Kootenai Tribes, whose respective treaties also include right to travel provisions, also submitted a joint brief.

Will the Supreme Court’s Repeat the 4–4 Split from Last Year’s Treaty Case?

It’s not always easy to predict the outcome of a U.S. Supreme Court decision in advance, but a case from last year may foreshadow the outcome for Washington State Department of Licensing v. Cougar Den.

Last year the court heard Washington v. U.S., which dealt with the implications of the Yakama Treaty. The issue in that case was whether Washington State was responsible for replacing culverts under state roads that restrict salmon passage in order to satisfy “right-to-fish” provisions in treaties like the Yakama Treaty. Justice Kennedy did not participate in the decision, leading the court to affirm the lower court’s decision in an even 4–4 split.

With Justice Kennedy now retired from the court, and a Kavanaugh confirmation vote delayed for further hearings, the same eight justices who decided Washington v. U.S. will likely decide Washington State Department of Licensing v. Cougar Den, Inc. Time will tell whether the justices will again split evenly. Perhaps oral arguments in the case, scheduled for Oct. 30, will provide more insight.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn. How likely is the U.S. Supreme Court to reverse the decision of the Washington State Supreme Court? What are the impacts the case will have if the court affirms?

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