Attorneys working for tribes, including some employed by the Swinomish Indian Tribal Community, helped write a Washington State Department of Revenue’s guidance document that had a profound effect on local taxpayers.
Last year the Skagit County Assessor’s Office removed 931 La Conner area parcels from the county property tax rolls, which caused the tax burden to shift to the remaining taxpayers. Property taxes went up by more than 20 percent for many La Conner families – some saw their bills jump by thousands of dollars.
Research by this newspaper shows the state Department of Revenue collaborated with the tribes to craft a document released March 31, 2014 by the Department of Revenue titled “Property Tax Advisory; Taxation of Permanent Improvements on Tribal Trust Land,” which was cited as official guidance following a federal appellate court ruling, the so-called Great Wolf Lodge decision.
Tribal lawyers maintained that the ruling means all structures on land held in trust by the federal government are immune from all county and state taxes, no matter who owns the buildings. However, in other areas, including in Riverside County, California, structures on leased tribal lands are still taxed to support public services.
La Conner was hit particularly hard when the homes in Shelter Bay and in the Pull & Be Damned Road neighborhood built on leased Swinomish Indian Reservation land came off the tax rolls.
Skagit County Assessor Dave Thomas, who was elected last year, said the Department of Revenue’s Property Tax Advisory was one factor in the county’s decision to take the properties off the tax rolls. Another factor, he said, was that Snohomish County had already done that.
In July 2014, Snohomish County refunded some $5 million in back property taxes to about 1,200 parcels where structures were built on Tulalip Indian Reservation land.
Snohomish County Assessor Linda Hjelle, who was a deputy in the assessor’s office at the time and was elected to the top position last year, said, “My thought was we removed them due to the reinterpretation of the law.”
She said the Department of Revenue is “an oversight entity for the assessors’ offices throughout the state.” Therefore, she said, when the information came from the state agency, Snohomish County took action.
Like Thomas, she said she was unaware that tribes were involved in crafting the state Department of Revenue’s official interpretation of the court ruling.
Thomas said had he been assessor at the time and had information on how the tax advisory was developed, he likely would have sought more legal interpretations before taking action.
Skagit County Civil Deputy Prosecutor Will Honea, who was representing the county at the time, said he, too, was unaware that tribal lawyers helped set the state policy. Even so, at the time, Honea had said there could have been legal arguments made against removing the Shelter Bay and Pull & Be Damned Road properties from the county tax rolls. But because the state had already issued guidance, it would have been a long and expensive battle.
When contacted for comment on the tribe’s role in crafting the advisory, Swinomish Tribe general manager Allan Olson said via email “the Department of Revenue, Snohomish and Skagit counties all have access to legal counsel with expertise in tax matters, and those governments undoubtedly reached their legal conclusions and made independent decisions concerning the Great Wolf Lodge case after a thorough review by their counsel.”
Though the assessors in Skagit and Snohomish counties and the state legislators representing our area have said the Property Tax Advisory memo came as a surprise, the Department of Revenue on Tuesday said that it “actively sought feedback from tribes and assessors,” as it was being developed, according to Communications Director Kim Schmanke. She also said in an email that “ranking members of the Legislature” were also notified of its guidance.
The county assessors and state legislators are elected by voters, while officials at the Department of Revenue are appointed by the governor.
“I’ve been very concerned about the serious consequences of the Great Wolf Lodge court decision and its effects to the taxpayers in the La Conner and greater Skagit County area,” said state Rep. Dave Hayes, R-Camano Island. “We need to ensure fairness to all parties concerned, including the ability for them and all of our citizens to have equal access and input to the process.”
He said as a member of the state Legislature, he wants to ensure the proper processes have been followed by the state.
Still, Hayes said, “Since this is also primarily a federal issue involving tribal sovereignty, much of the jurisdiction involved is out of our hands at the state legislative level and must be addressed at the congressional level.”
The fallout from that Department of Revenue Property Tax Advisory has been costly not only for local taxpayers, but also for La Conner School District, which had to trim its budget for the upcoming year, after voters rejected a replacement levy in February but passed a smaller property tax levy in April.
About two-thirds of the students in La Conner’s schools live on land that the county does not tax, including tribal students as well as non-tribal students who live in Shelter Bay. While the district lost around $800,000 when it could no longer tax the properties last year, the Swinomish Tribe agreed to donate $400,000 to the schools last year and another $450,000 this year.
As soon as the properties came off the tax rolls, the Swinomish Tribe rolled out its own Tax Authority and began assessing property tax on buildings not owned by tribal members, who do not pay property tax, even when they buy homes in the same leased-land developments.
Basing its tax on the higher rate caused by the tax shift, the tribe stood to collect around $2 million in taxes last year. Most of the property tax the tribe collects from the non-tribal homeowners goes to support tribal government services.
The local tribal land tax issue began with Confederated Tribes of the Chehalis Reservation v. Thurston County Board of Equalization in federal court.
Chehalis in 2002 purchased 43 acres of land and two years later asked the U.S. Department of Interior to buy the land from the tribe and put it in trust as reservation. In 2006 the tribe entered into a 25-year lease agreement with CTGW, a Delaware Limited Liability Company, to build the Great Wolf Lodge.
The Great Wolf Lodge opened in 2008, and Thurston County began assessing property tax on the structures, but not the underlying reservation land. The tribe immediately sued in Federal Court, and in 2010, the federal 9th Circuit Court ruled in favor of Thurston County.
The Chehalis Tribe appealed that ruling, and years later, the 9th Circuit Court of Appeals on July 30, 2013 overturned the 2010 ruling and decreed that property tax could not be collected by Thurston County.
Still, in that ruling, the appellate court said its opinion did not apply to another taxing program on Indian land. In the California city of Palm Springs, which is also within the 9th Circuit Court’s jurisdiction, taxes are still collected on leased parcels on the Agua Caliente Reservation.
In our state, taxpayers were impacted after the Department of Revenue issued its advisory to county assessors. A search of public records has shown that tribal involvement in this state’s response was solicited in early October 2013, about two months after the federal Court of Appeals ruling, when the Washington Department of Revenue sent emails to every tribe in the state inviting their representatives to a meeting to discuss how to proceed.
The first meeting was held Oct. 29, 2013, with a follow-up held on Feb. 4, 2014.
Besides the meetings, there were emails between state employees and tribal lawyers. Included in hand written notes taken by state employees and in emails were comments from Swinomish attorney Alix Foster and attorney Marty Loesch and Upper Skagit Tribe attorney Harry Chesnin as well as Tulalip attorneys.
Emails indicate that a draft of the Department of Revenue’s guidance was circulated after the October meeting and that it was amended with more tribal input before its final version was released to county assessors.
Swinomish attorney Alix Foster in an email sent to the Department of Revenue on March 25, 2014, argued for changes to the draft advisory to include properties held in trust for individual tribal members as well as tribes.
In Shelter Bay, some parcels of the leased land are held in trust for individual tribal families, rather than the tribal government itself.
Foster’s request was granted, and the Department of Revenue’s final advisory issued six days later on March 31, 2014, concluded that property tax immunity applied to “permanent improvements built on land owned by the United States and held in trust for an Indian Tribe or tribal member...”
A note at the bottom of the state Department of Revenue’s Property Tax Advisory stated that its guidance did not address state and local excise taxes – an alternative tax mechanism used to support public services in another tribal leased land situation.
Palm Springs, like La Conner, lies within the 9th Circuit Court’s jurisdiction. But taxes to support public services in Palm Springs are assessed on development on leased tribal land, said David Montgomery, assistant assessor for Riverside County, California.
Montgomery said when a lease is recorded on Palm Springs tribal land, a possessory interest is created and the person who leases the land receives a tax bill from the county.
He said the Agua Caliente Band of Cahuilla Indians is challenging the county’s tribal land taxing program in court, but at the present time, people whose homes or commercial buildings are on leased Indian land in Palm Springs pay taxes to support public services.
In Palm Springs, the land status map looks like a checkerboard with every other square mile Agua Caliente Reservation. Much of downtown Palm Springs is built on leased tribal land. The checkerboard is because in the 1870s, before the reservation was established, the federal government gave every other square mile to the railroads to encourage development. Most of the old railroad land is privately owned now.
Even so, Palm Springs is a cohesive city, with tribal and non-tribal land virtually indistinguishable to visitors and many residents.