Tax uncertainty is taxing for everyone

Agencies and taxpayers are nervous over the financial impacts of a federal court ruling that makes most of the properties in Shelter Bay and on Pull & Be Damned Road exempt from property taxes.

If the 931 homeowners on leased tribal land decide not to pay the second half of this year’s taxes due on October 31, as some owners have suggested, the La Conner School District and Fire District 13 are going to be scrambling to fill huge budget holes.

Worse, if the homeowners sue to have up to three years of property taxes refunded, the agencies and smaller pool of taxpayers left to fund them could be stuck with a $5 million bill.

Tribal and county officials are working to avoid that.

The La Conner area is the only part of Skagit County to be impacted by the so-called “Great Wolf” ruling handed down by the United States Court of Appeals for the 9th Circuit last year. That court overturned a lower court’s ruling that Thurston County could collect property taxes for the Great Wolf Lodge buildings owned by a corporation and built on reservation land held in trust for the Confederated Tribes of Chehalis.

In that instance, the Chehalis Tribe was a principal owner of the buildings. In the La Conner area, private, non-tribal individuals own homes built on land that is leased and held in trust for the Swinomish Indian Tribal Community. While the land has never been taxed, the agencies in the county have levied property taxes based on the value of the actual structures.

Skagit County Commissioner Ron Wesen said the court ruling and an interpretation by the Washington State Department of Revenue make it clear that Skagit County has no authority to collect property tax on buildings built on tribal land.

However, the ruling appears to give tribes the authority to levy taxes. Last Wednesday, Wesen and other county officials met with Swinomish Tribal senators and attorneys to discuss the issue. Swinomish officials have said earlier that Shelter Bay will not become a tax-free zone. However, their attorneys and administration have not returned several phone calls over the last few weeks seeking updated information.

And while he would not discuss the details of last week’s county-tribal talks, Wesen said “everyone agrees the services have to be funded.” How that will occur is still being worked out, he said.

The county serves as a pass-through for nine agencies that are funded through taxes collected on tribal land. A home on tribal trust land in Shelter Bay with a building valued $150,000 generates $1,974 this year in property taxes. Of that amount, $849 goes to the school district, $361 goes to the state, and the La Conner Library gets $66. Skagit County takes $263 for its road fund and $244 for county government operations, Fire District 13 gets $119, and the rest goes to Medic 1, the Port of Anacortes, and a conservation futures fund.

If no replacement funding is established, the La Conner School District, in which voters approved a $20 million bond to fund renovations and reconstruction in the schools, will lose $779,000 per year in revenue; Fire District 13 will lose about $104,000.

Unless the tribe institutes a tax to support the existing public services, the remaining taxpayers will pay all the bills for everyone.

Two agencies, the La Conner Library and Medic 1, don’t have the ability to raise enough taxes to cover the shortfall because they have reached their levy limits on individual taxpayers.

However, there is no limit on the school district’s ability to collect on its bonds, because they were voter-approved. And even though the voter precincts on tribal land favored the bonds 2-1 in last year’s election, those property owners won’t pay unless the tribe establishes a school tax.

Fire District 13 Chief Roy Horn said at last week’s Board of Commissioners meeting, even if the district is forced to refund three years of back taxes, the district will eventually get the money back.

But Fire District 13, which still has plenty of room to raise taxes on individual properties, will not be collecting any tax from most of the households it serves. Last week Chief Horn told the commissioners that 68.5 percent of the district’s households are on tribal trust land.

The Fire District’s boundaries stretch on both sides of the Swinomish Channel — the eastern side includes homes on Pleasant Ridge and Channel Drive as well as many acres of farmland and dozens of farm houses.

Without a tribal tax code, a major share of the property tax to support fire services on the reservation side of the channel would fall to the people on the La Conner side. (Property owners within the boundaries of the town are not subject to Fire District 13 taxes because they pay for their own town fire department.)

Based on state law, there appears to be a process in which areas can withdraw from fire districts, said David Cunningham, head of the county elections department. Under RCW 52, which pertains to fire districts, some brief and vague wording addresses withdrawal. It mentions a referral to the boundary review board and links to a water district law in which 25 percent of voters in an area desiring to withdraw can petition and force an election.

The county’s position has been that people in Shelter Bay and in the Pull & Be Damned Road neighborhood should go ahead and pay the second half of their property taxes, which are due on Oct. 31. The taxes collected this year pay for services already delivered last year. And since the county and the tax-supported agencies it funnels the property tax to are not sitting on piles of cash, there will be no refunds without a lawsuit.

Nevertheless, at a meeting of Shelter Bay Community members held at the clubhouse on Aug. 19, some people indicated that they wouldn’t pay the second half of this year’s taxes. Furthermore, according to a La Conner Weekly News correspondent present at that meeting, some people indicated that they would want representation on the Swinomish Tribal Senate should the tribe start collecting taxes.

Shelter Bay attorney Philip Burl recommended that residents go ahead and pay their bills due Oct. 31, though they can do it with a letter of protest to preserve their rights. Also, Shelter Bay officials expressed optimism that the tribe and county will get the situation resolved.

Meanwhile, uncertainty is not helping home sellers in Shelter Bay right now. “Uncertainty slows sales,” said Jim DeGroot with La Conner Realty. “When sales slow, prices go down.

But Kirby Johnson with the same firm said there will be no lasting impact on home values. The tax deal will get worked out, he said, and in the long run, “I don’t think it will make a bit of difference in the value of property.”

Bottom line is this is a beautiful place to live and, “It’s a good thing the rest of the world doesn’t know about this place or we couldn’t afford to live here,” he said.