Did the state throw taxpayers to Great Wolf?

The Washington Department of Revenue says it asked the state’s 39 county assessors for comment as it crafted the property tax policy that hit La Conner residents so hard.

When homes were taken off the county’s tax rolls, a $1.8 million tax burden was shifted to the remaining taxpayers, some of whom saw their property tax bills jump by thousands of dollars.

The state’s documentation of the process as it developed its response to the so-called Great Wolf Lodge decision shows assessors were never called in for meetings with state officials. But tribes were invited to send their representatives, mainly lawyers, to two sit-downs with state officials.

Skagit County Assessor Dave Thomas, who was elected last year, said that in other instances the Department of Revenue has gathered assessors around the table to help craft state tax policy. But the response to Great Wolf, which led to 931 parcels in the La Conner area being taken off the tax rolls, wasn’t one of those times.

Thomas said the state brought assessors together to create a policy concerning bank sales of foreclosed properties and also brought them together to develop a Department of Revenue handbook concerning “current use” assessor practices.

“Those provide examples of what should have occurred in this case,” he said.

While Great Wolf was a federal decision and should be handled on the national level, “the great concern is in the implementation and the consequences,” said State Rep. Norma Smith, R-Clinton, who is interested in the state’s role in developing guidance.

“Did it treat all parties involved fairly and equitably? That’s the question to which I feel we don’t have a satisfactory answer,” Smith said. “As we pursue all the facts in this situation, I will be joining my colleagues to determine what appropriate next steps need to be taken.”

The fallout from a Property Tax Advisory guidance memo the department issued came after the federal 9^th Circuit Appellate Court’s decision in a case that originated inThurstonCounty. The court overturned a decision that allowedThurstonCounty to collect property tax on the Great Wolf Lodge water park structures that were owned by a corporation and built on leased Chehalis Reservation land.

Until last year,SkagitCountyassessed personal property tax on the buildings, but not the land, for homes owned by non-Indians built on Swinomish Indian Tribal Community reservation land.

Skagit County Civil Deputy Prosecutor Will Honea, who was representing the county at the time, said there were strong legal arguments to be made against removing the properties from the tax rolls. But since the state had already weighed in on the side of the tribes, it would have been an uphill battle.

Also, Honea said, the county was worried about another provision in the Department of Revenue’s guidance document: “We were extremely concerned that the state’s ruling would have required the school district to give back three years of taxes.”

ShelterBayis a gated community developed on land that is held in trust for the Swinomish Tribe. In the 1960s, the developer leased bare land from the tribe and built the community’s amenities that include roads, a marina, golf course, clubhouse and pool. The developer sub-leased lots to people who built their homes in the development.

Today the Shelter Bay Community pays about $1.3 million in annual rent to the tribe for the land. And homeowners, who used to pay county taxes, now pay property tax to the tribe instead. While the tribe has contributed money to the schools and a few other public entities, most of the tax money it collects goes toward tribal government services.

The Department of Revenue’s guidance, which stated that all structures on tribal land are immune from state and local taxes, has had major impacts in La Conner, where about two-thirds of the children in the local school district live in homes the state and school district cannot tax. Absorbing the school tax has been a major financial hit for the remaining taxpayers in La Conner.

There is evidence that the Washington Department of Revenue’s guidance on property tax was strongly influenced by tribal lawyers.

In its March 2014 Property Tax Advisory, the state Department of Revenue told county assessors that all permanent improvements on land held in trust for tribes or tribal members are immune from state and local taxes. That was the argument put forth by tribal lawyers.

However, in another case filed in federal court in 2014 ­­— after the Great Wolf Lodge decision — the United States of America last month filed an amicus, or friend of the court, brief that essentially says a statute the tribes relied on for their argument that structures on leased tribal land are tax exempt does not outright preempt state and local taxes. Instead, theUnited States’ brief states that the federal regulation requires a balancing test weighing the state interests and tribal interests, though the tribal interests are strongly favored.

That case, which is in Riverside County, California, is also within the federal 9^th Circuit and was filed by the Agua Caliente Band of Cahuilla Indians againstRiversideCounty, challenging the county’s right to tax improvements on leased tribal land.

This newspaper sent the Department of Revenue and Swinomish representatives emails asking about the statue and whether the balancing test was employed. Both responded with answers that essentially said all structures on tribal land are exempt from state and local taxes, period.

Poking further into the weeds on our local situation, the state was asked to document its contacts with county assessors in developing its guidance document.

“As you can see, we reached out and included assessors from initial notification of the Ninth Circuit Court’s decision through our final guidance,” Department of Revenue spokeswoman Kim Schmanke wrote in an email.

Her response shows that initial contact with assessors was made via email in August 2013 seeking comment on the Great Wolf Lodge ruling.

However, in that first contact, the Department of Revenue stated: “The Court’s ruling applies to properties that fit the facts of this case, i.e., permanent improvements with at least 51 percent Tribal ownership and held in trust by the United States are exempt from property tax.”

Under that guidance, the appellate court’s ruling did not apply in our county. The Chehalis Tribe holds 51 percent ownership in the corporation that owns the Great Wolf Lodge, which was built on leased reservation land inThurstonCounty. InSkagitCounty, the homes inShelterBayand in the Pull & Be Damned Road neighborhoods, also built on leased reservation land, are owned by the people who built them and bought them, not a tribe. Here, the structures are privately owned by homeowners, while the land beneath them is leased land held in trust by the federal government for the Swinomish Tribe.

The Department of Revenue also documented that it sent follow-up emails to assessors seeking comment in September 2013 and called four assessor’s offices, including Skagit’s, in late October. Then, in November, the month following, its first face-to-face meeting with tribal lawyers, the state agency sent out it’s next interim guidance memo.

This time the language was murkier, but still said the ruling applied to structures owned in part by tribes. It said immunity from state and local taxation “should be afforded to permanent improvements located on land held in trust by the United States for a Tribe or Tribal member that is leased to a Tribe, individual Indian or an entity in which the tribe or Indian has at least a 50 percent ownership interest.”

The state had asked assessors to answer three questions. On Dec. 30, 2013, Thomas, who at that time was working under then-assessor Don Munks, answered. First,SkagitCountycould identify all tribal property. Second, the county has records of improvements on tribal land leased to third parties including ownership. And third, “has over 1,000 parcels of leased residential improvements on tribal land valued around 140M and there is concern of a significant tax shift should these become exempt.”

Also counted in the agency’s documented assessor outreach efforts, Department of Revenue representatives attended the state Association of County Assessor’s legislative conference in January 2014 and discussed the court case.

On March 17, 2014, the month following its second face-to-face meeting with tribal lawyers, the agency emailed assessors a draft of its final guidance with an invitation to call in for a phone conference two days later.

SkagitCountywas not one of the four assessors on that conference call.

On March 25, 2014 an attorney working for the Swinomish Indian Tribal Community requested an edit to the final draft to include land held in trust for individual tribal members in addition to land held for tribes.

On March 31, 2014, the Department of Revenue issued its final Property Tax Advisory, which La Conner taxpayers are living with today.