Northwest Victory

Marketers win right to sue state over fuel tax refunds to tribes

OLYMPIA, Wash. -- Marketers in the Northwest have won a big battle in their war against millions of dollars being paid to Native American tribes under state tax treaties. The Washington Supreme Court has ruled that citizens can challenge the state's gasoline tax refund policy, even though the tribes have sovereign immunity.

"This is truly a major victory for all citizens and the small businesses that live or operate in the state of Washington," said Tim Hamilton, the director of the Automotive United Trades Organization (AUTO), which filed the original lawsuit. Marketers now have the right to challenge the "closed-door deals" made between Gov. Christine Gregoire (D) and the tribes, he said.

The tax compacts rebate 75% of the state gasoline taxes collected on fuel sales at tribal stations, or about 28 cents of the state's 37.5-cents-per-gallon tax. The payback was worth $28 million in 2010 to the 23 tribes that have so far signed the treaties. Approximately $105 million has been paid out to the tribes since 2008, and the state projects that refunds to the tribes will grow to total $427 in the next decade.

Washington's constitution requires that motor fuel license fees and taxes be used "exclusively for highway purposes." However, some of the money is used for other purposes, marketers contend, including undercutting rival dealers by as much as 10 cents per gallon on the street. There are now believed to be more than 50 tribally-owned stations in the state and some of them price their major-branded fuel at just 2-4 cents per gallon over Safeway and Costco, sources say.

One tribe, the Puyallup, has tried to acquire rival retail outlets in a reverse EBay-style auction process, according to Hamilton. Competing marketers were invited to sell their sites to the tribe at or under a price established by the Puyallup. Marketers were given the chance of bidding low and getting out while the going was good, or being stuck with one of those low-balling sites across the street, he said.

The tribes maintain that they use funds from their casino and other business interests to fund their marketing operations and deny that they sell below cost. Their compact with the state requires only that they offer "a fair market price," according to the Puyallup, which does not make its books available for public inspection. In fact, there is no sure way to know how tribes spend the tax rebates since the tax treaties do not allow for state audits of their finances.

Marketers sued over the refund issue in 2010 but lost. The state argued that a citizen cannot challenge any agreement reached between the state and a treaty tribe. The tribes cannot be sued because they have sovereign immunity and the suit should be thrown out, the state said, and a lower court agreed.

However, the Supreme Court ruled 5-to-4 that citizens do have the right to sue the state over potential violations of the constitution. The notion that potentially unconstitutional government conduct must be redressed through the legislature only "is frankly astonishing," the court said, giving the go-ahead for the marketers' action to proceed. "Sovereign immunity is meant to be raised as a shield by the tribe, not wielded as a sword by the state."

The Supreme Court ruling is likely to present problems for the future of the state tax treaties. The Washington constitution requires that expenditures from the state treasury must be appropriated by the legislature but no money was set aside for the $100 million plus that has been sent to the tribes so far, Hamilton said. Given that the state's general budget fund is expected to run short by $1 billion or so next year, according to local media reports, lawmakers may find it hard to justify cuts to programs in order to continue paying the tribes.

The constitution also says that state tax policy may not be discriminatory, yet tribal operators are receiving nearly 28cts/gal in payments that are denied other marketers, Hamilton noted. If marketers emerge the eventual victors, the courts could invalidate the refunds. In that case, the excise tax collected at the rack would remain in the public transportation account of the state treasury, sources say.

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