U.S. High Court to Consider Tribal Exposure to Fuel Taxes

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By Paul Shukovsky

The U.S. Supreme Court will hear a case that could result in vast swaths of the U.S. being tax-exempt for treaty-protected tribal commerce.

At issue is whether the state can tax the import of motor fuel by a Yakama Nation tribal member from Oregon to his on-reservation gasoline station—Cougar Den. Or whether it is shielded from Washington taxes on wholesale fuel by the Yakama Treaty of 1855. The treaty reserved and secured a range of rights for the Yakama bands, whose sprawling reservation in Washington state hugs the eastern slopes of the Cascade range.

The pivotal question in Washington Department of Licensing v. Cougar Den Inc. is whether a right-to-travel provision in that treaty preempts Washington’s tax. Cougar Den imports fuel from Oregon without an importers license and without paying state fuel taxes. Cougar Den prevailed before the state Supreme Court.

The U.S. Court of Appeals for the Ninth Circuit, the federal appellate court encompassing Washington state, “has held that the Yakama Treaty exempts Yakama members from charges imposed specifically for using the highway, but not from taxes or charges like the ones at issue here, which would apply no matter how Cougar Den transported this fuel into Washington,” Washington Attorney General Bob Ferguson (D) told Bloomberg Tax in an email.

“This is not a parochial controversy affecting only one State and one tribe or its members,” Idaho, Kansas, Nebraska, South Dakota, and Wyoming wrote in their friend-of-the-court-brief supporting Washington’s petition for review. The Idaho Attorney General’s Office declined to comment on the Supreme Court deciding June 25 to grant the petition.

States Watching Closely

But the now-retired author of the states’ friend-of-the-court brief, attorney Clay Smith, told Bloomberg Tax if the high court affirms the Washington Supreme Court, “Cougar Den could do what it’s doing in Washington—certainly in the states of Idaho and Montana and possibly in California depending on how you construe the term ‘public highways’ of the United States.” Smith said he was speaking in his private capacity and not as the chief editor of “The American Indian Law Deskbook.”

Smith pointed out that a tribe in Idaho and another in Montana have identical language in their treaties that could allow their members to do the same as Cougar Den if the gas station prevails. And the state official said that a substantial majority of the states have a taxation structure similar to Washington’s that levies a fuel tax at the wholesale level that could make those state’s vulnerable to a ruling in favor of Cougar Den.

But the potential impact of a Cougar Den victory is rooted deeply in the history of the Yakama bands, who historically roamed far and wide trading goods deep inland and up and down the West Coast, Smith said. Tribal history combined with how the high court construes the term public highways could encompass sweeping areas of the nation.

“If you construe the treaty provisions to be geographically co-terminus with the prior trading area, it’s likely to include portions of Colorado, Utah, and California,” Smith said.

Linked With Right to Trade

Attorneys for Cougar Den and the Yakama Nation didn’t immediately respond to requests for comment. But Cougar Den’s supplemental brief linked the right to travel on those highways with the right to trade. Cougar Den contends that courts have long held that Indian treaties must be construed as the tribal negotiators would have understood them at the time. And the Yakamas’ friend-of-the-court brief with the Washington Supreme Court asserts that the treaty guarantees the Yakamas “‘the right to transport goods to market’ for ‘trade and other purposes.’''

The case is Wash. Dep’t of Licensing v. Cougar Den, Inc. , U.S., No. 16-1498, petition for review granted 6/25/18 .

To contact the reporter on this story: Paul Shukovsky in Seattle at pshukovsky@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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