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Gas Tax Case: What Have We Heard?

July 22, 2015
Judge's Ruling Expected to Favor Treaty Rights in Gas Tax Case
By Kate Prengaman
Yakima Herald


Treaty rights exempt a Yakama tribal member's fuel distributing company from state gasoline taxes and business licensing requirements, a Yakima County Superior Court judge said Wednesday.

Judge Michael McCarthy hasn't issued a final ruling in the case pitting Cougar Den Inc. against the state Department of Licensing, which seeks $20 million in back taxes and penalties. But on Wednesday, he laid out in writing to both parties the basis for his decision in favor of Cougar Den. The decision will soon be released in a formal order.

Owned by Yakama businessman Kip Ramsey and licensed by the tribe, the Cougar Den acts as a wholesaler.

It imports tax-free gas from Oregon to the Yakama reservation and sells the fuel to businesses, including gas stations, that are owned by tribal members. Those stations then sell the fuel at a discount to the public.

McCarthy agreed with the Cougar Den that a clause protecting freedom of travel in the Yakama's 1855 treaty was understood at the time to protect tribal members' rights to trade freely as they were accustomed. Extended to the present day, that means the state lacks the right to tax tribal members for transportation and delivery of fuel for use by tribal members and entities, he wrote.

With the state's gas tax standing at 37.5 cents a gallon and set to rise to 44.5 cents a gallon on Aug. 1, the decision translates to significant economic advantage. While it could put a small dent in the state's transportation budget, non-tribal owners of gas stations on and near the Yakama Nation Reservation say they could be put out of business.

But the issue is likely far from settled. One of Cougar Den's attorneys said that while pleased with the McCarthy's decision, he also expects an appeal.

"This is the sort of result you get from clear treaty rights and fair-minded judges," said Andre Penalver. "But I think it's headed for the state Supreme Court."

A spokesman for the state Attorney General's Office, which represented the licensing department, said it was too soon to comment on the likelihood of an appeal.

"At this point, obviously we are disappointed, but our next steps are reviewing the decision with the AG's office," said Brad Benfield, a spokesman for the DOL.

The dispute started when Cougar Den objected to a tax bill and took the issue to a state administrative law judge, a process used to settle disputes between businesses and state agencies. But in that process, the director of the DOL had the final say.

A series of tax assessments cases dating back to 2013 have been through this process now, with two different administrative law judges finding in favor of Cougar Den. In each of the cases, licensing department Director Pat Kohler overruled the findings.

An appeal of the director's first decision brought the case to Yakima County Superior Court. McCarthy heard arguments from the Cougar Den and the state on July 10.

At the hearing, the state's attorney, Fronda Woods, tried to separate the issue of treaty-protected travel from the issue of fuel taxes. She argued that Cougar Den was liable for state taxes, not for transporting fuel but for owning it when it arrives in the state. But McCarthy wrote that the fuel-import business clearly involves travel, and therefore, triggers the consideration of the treaty.

"It is clear to this Court that Article III of the Treaty shields the transport of fuel, owned by Cougar Den and intended for sale to tribal members and entities on the reservation, from taxation under Title 82 of the Revised Code of Washington," McCarthy wrote in the opinion letter.

"The taxable event is the movement of the fuel across the Columbia River and into the State of Washington. And, under the terms of the Treaty, this event cannot be taxed by (the Department of Licensing)."
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