Tulalip Tribes v. Washington

349 F.Supp.3d 1046

The TULALIP TRIBES and the Consolidated Borough of Quil Ceda Village, Plaintiffs,andThe United States of America, Plaintiff-Intervenor,

v.The State of WASHINGTON, Washington State Governor Jay Inslee, Washington State Department of Revenue Director Vikki Smith, Snohomish County, Snohomish County Treasurer Kirke Sievers, and Snohomish County Assessor Linda Hjelle, Defendants

NO. 15-CV-940 BJR

United States District Court, W.D. Washington.

Signed October 4, 2018

Elizabeth A. Findley, Mathew L. Harrington, Stokes Lawrence, Jane Garrett Steadman, Philip H. Tinker, Phillip Evan Katzen, Cory J. Albright, Kanji & Katzen, Mark G. Beard, Lane Powell PC, Kyle A. Forsyth, US Attorney's Office, Seattle, WA, Lisa M. Koop, Michael E. Taylor, The Tulalip Tribes, Tulalip, WA, Riyaz Amir Kanji, Kanji & Katzen, Ann Arbor, MI, Cody L.C. McBride, Daron T. Carreiro, JoAnn Kintz, US Department of Justice, Washington, DC, for Plaintiffs and Plaintiff-Intervenor.

Heidi A. Irvin, David Mark Hankins, Jessica E. Fogel, Leslie R. Seffern, Joshua Weissman, Attorney General's Office, Olympia, WA, Christina L. Richmond, Jessica Kraft-Klehm, Rebecca J. Guadamud, Rebecca E.L. Wendling, Snohomish County Prosecuting Attorney, Everett, WA, Daniel J. Dunne, Jr., Mark Steven Parris, Orrick Herrington & Sutcliffe LLP, Seattle, WA, for Defendants.

MEMORANDUM OPINION

Barbara Jacobs Rothstein, U.S. District Court Judge

I. INTRODUCTION

Plaintiffs the Tulalip Tribes ("Tulalip" or "the Tribes") and the Consolidated Borough of Quil Ceda Village ("Quil Ceda Village," "QCV," or "the Village"), a municipality located on Tulalip tribal land, together with Plaintiff-Intervenor the United States, bring this case challenging the administration and enforcement of certain taxes within Quil Ceda Village by Defendants. Plaintiffs seek a declaration and an injunction prohibiting the individual named Defendants,¹ the State of Washington, and Snohomish County from collecting retail sales and use tax, business and occupation ("B & O") tax, and personal property tax from businesses located at QCV, arguing that collection of these taxes imposes on Tulalip's tribal sovereignty, and is preempted by operation of federal law.

Having heard eight days of live trial testimony in this matter, and having reviewed dozens of witness declarations and expert reports and hundreds of exhibits, the Court now finds and rules as follows.

II. BACKGROUND

A. Overview of Plaintiffs' Claims

The Tulalip Tribes is a federally recognized Indian² tribal government, whose enrollment as of 2017 numbered an estimated 4,686 members. Ex. T-1215, Stipulated Facts ("SF") 59, 84.³ The 22,000-acre Tulalip Reservation is located within the State of Washington and Snohomish County, approximately 35 miles north of Seattle. Id. , SF 86. Quil Ceda Village, 2,100 acres of land held in trust by the U.S. government for the benefit of the Tribes, is located within the Tulalip Reservation, bordered by the Interstate-5 highway on the east, and roughly on the north and south by 112^th and 88^th Streets, respectively. Ex. T-1215, SF 87; Ex. T-12. Over the last 20+ years, Tulalip has turned this once-undeveloped 2,100-acre section of tribal land into the thriving Quil Ceda Village commercial center, which attracts tens of thousands of visitors and customers a day.

Today, Quil Ceda Village is home to dozens of commercial and retail businesses. Several of these businesses are owned by the Tulalip Tribes, including the Tulalip Casino and the Tulalip Resort Hotel. Many of the businesses at Quil Ceda Village, however, merely lease land from Tulalip, and are neither Indian-owned nor operated, and employ few members of the Tulalip Tribes. Transcript of Trial ("Tr."), at p. 397. These include stores such as Wal-Mart, Home Depot, Cabela's, and the 100+ retail stores located in the Seattle Premium Outlets Mall, including Calvin Klein, a Levi's Outlet Store, a NIKE Factory Store, and The North Face. See Expert Witness Report of Mukesh Bajaj, Ex. S-605 at 5. By and large, customers of these businesses are not tribal members, but travel to QCV from outside the reservation. None of the goods sold by these businesses are produced by Tulalip or on the Tulalip reservation. Ex. S-596, SF 587.

The State of Washington and Snohomish County collect tens of millions of dollars in taxes annually from the non-Indian owned businesses at Quil Ceda Village.⁴ Ex. T-1215, SFs 9, 29. Tulalip claims that Defendants' collection of taxes, including the combined 8.9% sales tax, precludes Tulalip from collecting its own taxes from these businesses. Compl. ¶ 1. In their Complaint, Plaintiffs stated two claims that have survived a motion for summary judgment: (1) that federal law preempts Defendants' administration and enforcement of State and County taxes; and (2) that the taxation at issue interferes with Tulalip's sovereign right to make and be governed by its own laws. Compl. ¶¶ 94-114.⁵

Over the past several decades, federal law concerning preemption and tribal sovereignty has evolved, beginning in the modern era with the seminal Supreme Court case of White Mountain Apache Tribe v. Bracker , 448 U.S. 136, 145, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980). Bracker involved a state's attempt to impose certain license and fuel-use taxes on a non-Indian logging company harvesting timber on tribal land. For cases involving matters of Indian sovereignty, the Supreme Court held, "questions of pre-emption ... are not resolved by reference to standards of pre-emption that have developed in other areas of the law, and are not controlled by ‘mechanical or absolute conceptions of state or tribal sovereignty.’ " Cotton Petroleum Corp. v. New Mexico , 490 U.S. 163, 176, 109 S.Ct. 1698, 104 L.Ed.2d 209 (1989)citing Bracker , 448 U.S. at 145, 100 S.Ct. 2578. Instead, recognizing "the broad power of Congress to regulate tribal affairs" and "the semi-autonomous status of Indian tribes," the Court held that even in the absence of an express Congressional statement of preemption, federal law may still preempt a state's attempt to exercise authority over activity on Indian land. Ramah Navajo Sch. Bd., Inc. v. Bureau of Revenue of New Mexico , 458 U.S. 832, 837, 102 S.Ct. 3394, 73 L.Ed.2d 1174 (1982), citing Bracker , 448 U.S. at 142, 100 S.Ct. 2578.

Nevertheless, the Bracker Court continued, unlike in cases where on-reservation conduct involving only Indians is at issue, "[m]ore difficult questions arise where, as here, a State asserts authority over the conduct of non-Indians engaging in activity on the reservation." 448 U.S. at 144, 145, 100 S.Ct. 2578. Thus, in Bracker and subsequent cases involving "more difficult questions" such as those before this Court, courts have repeatedly employed a flexible, fact-intensive inquiry into certain factors bearing on the question of whether federal law limits taxes that may be imposed by the State. See, e.g., Barona Band of Mission Indians v. Yee, 528 F.3d 1184, 1189 (9th Cir. 2008), citing Bracker at 142, 100 S.Ct. 2578. These factors include "the degree of federal regulation involved, the respective governmental interests of the tribes and states (both regulatory and revenue raising), and the provision of tribal or state services to the party the state seeks to tax." Salt River Pima-Maricopa Indian Community v. Arizona , 50 F.3d 734, 736 (9th Cir. 1995) (citation omitted). The Court's focus in this case, therefore, is on: (1) the comprehensiveness of federal regulation over the activity that is subject to taxation; (2) the weight of the respective interests the parties have in whether the taxes at issue are allowed; and (3) the value of the services the parties provide to the Quil Ceda Village customers and businesses, on whom the burden of the taxes at issue falls.

As this Court has already noted in this case, Plaintiffs' claims require "a particularized inquiry into the nature of the state, federal, and tribal interests at stake, an inquiry designed to determine whether, in the specific context, the exercise of state authority would violate federal law." Tulalip Tribes v. State of Washington , No. 2:15-CV-00940-BJR, 2017 WL 58836, at *4 (W.D. Wash. Jan. 5, 2017), quoting Bracker , 448 U.S. at 145, 100 S.Ct. 2578. Plaintiffs argue that under such inquiry, the federal and tribal interests in this case "overwhelm" the Defendants' interests. It must be emphasized, however, that the Bracker balancing test does not take place in a vacuum; the right to tax does not merely fall to the party whose interests are greatest, or that has provided the most value in government services to the taxpayers at issue. Instead, although Bracker and its progeny prescribe a fact-intensive balancing test as part of the preemption analysis, the balancing takes place within the context of the underlying question, which is whether federal law preempts "the plenary power of the States over residents within their borders." Ramah , 458 U.S. at 836–37, 102 S.Ct. 3394, citing McClanahan v. Arizona State Tax Comm'n , 411 U.S. 164, 165, 93 S.Ct. 1257, 36 L.Ed.2d 129 (1973). Ultimately, "State jurisdiction is preempted by the operation of federal law if it interferes or is incompatible with federal and tribal interests reflected in federal law , unless the State interests at stake are sufficient to justify the assertion of State authority." New Mexico v. Mescalero Apache Tribe, 462 U.S. 324, 338–39, 103 S.Ct. 2378, 76 L.Ed.2d 611 (1983) (emphasis added). With this standard in mind, the Court turns to the facts of this case as presented at trial.

B. Development of Quil Ceda Village

1. History of Quil Ceda Property

During World War II, the 2,100-acre parcel that is now Quil Ceda Village was used by the U.S. Army for basic military training and for storage of munitions. Ex. T-6. Using federal funds, Tulalip purchased the land in 1949, and in 1959 entered into a long-term lease with the Boeing Corporation. Id. Boeing used the land for a test site until the late 1990s,...