SCOTUS to Hear Yakama Fuel Tax Case

In 2017 the Yakama Nation won an important case further expanding a well-recognized right to travel under their treaty. In a constant impasse of state tax and Native American rights, the Yakama Nation exhibited how difficult it is for states to impose their taxes on Indian tribes. The case can also serve as a basis for similarly situated Indian nations challenging a myriad of state taxes under their respective treaties.

At issue was Washington’s motor fuel taxes, which, like most states, is imposed at the wholesale level. Cougar den, a Yakama Nation corporation, brought fuel from Oregon to sell on the reservation. Washington’s Department of Licensing imposed a $3.6 million assessment for taxes that were not paid upon the importation of the fuel. After the Yakama’s victory in administrative court, the Department reversed. The Yakamas were again victorious on appeal and the case found its way to the Washington Supreme Court.

Gerald “Jerry” Donnini II is a shareholder of the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Donnini concentrates in the area of state and Federal tax matters, with a heavy emphasis on the tobacco, alcohol, motor fuel and related industries. He also handles a myriad of multi-state state and local tax issues. Mr. Donnini is a co-author for CCH’s Expert Treatise Library: State Sales and Use Tax and writes extensively on multi-state tax issues for SalesTaxSupport.com. For more information please call us at 888-966-8216.

Generally, Native Americans are subject to state taxes, absent federal law to the contrary. However, the Yakamas, like many tribes, have entered into a federal treaty, which constitutes federal law. Under the terms of the treaty, which must be read in the Native Americans’ favor, the Yakamas granted 90 percent of their land to the United States in exchange for the unabridged right to travel. The Native Americans argued that this right was impeded by the imposition of the tax on their motor fuel.

In balancing the Indians right to travel against the state’s power to tax the trade of goods, the Court looked at several important Native American tax cases. First, in Cree , the Ninth Circuit held that requiring the Yakamas to pay license and permit fees to transport timber off of the reservation was a violation of the treaty’s right to travel. Similarly, the Court described Smiskin, which held that bringing unstamped cigarettes onto the reservation was an unauthorized restriction of the Native Americans’s right to travel. The Court also described a contrary finding in King Mountain Tobacco, in which the court allowed a tax on the right to trade because the taxes at issue were put into trust for healthcare related costs.

While the cases in this area are hair splittingly close, the Court turned back to the tax on fuel in this case. Ultimately, the court determined that the tax affected the inidan’s right to transport the goods, not the right to trade. The Court seemed to place heavy weight as this was a tax on importation, not merely possessing the regulated goods. Therefore, the tax on the importation of the fuel was held to violate the treaty.

The recent Washington Supreme Court opinion serves as another arrow in the quiver in the obscure area of Native American taxation. Many taxes on regulated substances such as motor fuel, alcohol and tobacco are imposed on the importation, transport, or distribution of the goods. Under this opinion, it would be difficult for virtually any tax on a regulated substance imposed on a tribe to be upheld. Therefore, it seems worthwhile for the tribes to continue to challenge the endless attempts by states to tax them.

On June 25, 2018, the Supreme Court of the United States granted cert, which means they will hear the case. At this point, the briefs have been filed and oral argument is set for October 30, 2018. The outcome of this case will have far reaching effects on state tax and Native American Taxation.