A Wapato Point sublessee has filed a class action lawsuit in Grant County, Washington, against the Chelan County Treasurer to obtain a refund of Washington State real estate excise taxes on "transactions involving the assignment of subleases of real property and improvements thereon situated on Indian land."
Wapato Point is a famed Colville Indian allotment along the shores of Lake Chelan, Washington, a major tourist destination.
Plaintiff sued on behalf of all persons "who have been subjected to the imposition of Washington real estate excise tax on transactions involving transfers or assignments of leasehold interests on Indian property situated in the state of Washington." Presumably at least the Plaintiff, if not the entire putative class of persons, is non-Indian. The size of that class and scope of any tax refunds from those transfers or assignments---use privileges---remains to be seen.
Plaintiff was allowed to sue the Chelan County Treasurer in Grant County Superior Court under a Washington state statute that allows county defendants to be sued in an adjoining county, in order to eliminate any home-court advantage for county government. The Grant County Superior Court likely has minimal experience with Indian legal or jurisdictional issues.
The lynchpin to the Plaintiff's lawsuit are the BIA's following leasing regulations, which took effect in January 2013 and which are rooted in federal statute, specifically 25 U.S.C. 465:
Plaintiff's case finds support in the Eleventh Circuit Court of Appeals' decision last year in Seminole Tribe of Florida v. Stranburg, most notably this passage
§ 465 precludes state taxation of that “bundle of privileges that make up property or ownership of property.” See id. at 158, 93 S.Ct. at 1275. The ability to lease property is a fundamental privilege of property ownership. By taxing the “privilege” of “engag[ing] in the business of renting, leasing, letting, or granting a license for the use of any real property,” the State of Florida is taxing a privilege of ownership just as New Mexico's tax in Mescalero taxed the privilege of use. . . . In conclusion, we hold that Florida's Rental Tax is expressly precluded by 25 U.S.C. § 465, and, in the alternative, is preempted by the comprehensive federal regulation of Indian land leasing.
The real estate excise taxes at issue certainly seem to implicate the privilege of "leasing, letting, or granting a license for the use" of the Wapato Point lands at issue in the Grant County suit.
Presumably, in addition to arguing federal statutory exemption, Plaintiff will also argue Bracker preemption. Bracker, the Supreme Court test that generally governs the taxation of non-Indians in Indian Country, is among the "federal law" referenced in the quoted BIA leasing regulations.
As with all Indian tax cases, the Grant County suit will prove to be a fierce battle against state taxing forces, especially given the venue in deeply red (GOP) rural America; the financial implications of the proposed class action for both Chelan County and the state; and Washington State Department of Revenue (DOR)'s general aversion to the BIA's leasing regulations. DOR can be expected to somehow back the Chelan County Treasurer in defense of the suit.
Complicating things further, the balancing of tribal (Colville) and federal interests may occur without a tribal party to the suit. Historically speaking, both of those interests needed to be aggressively developed by Indian parties for Bracker interest-balancing to be meaningful. Today, however, federal laws like § 465 coupled with the BIA leasing regulations may suffice to balance those two interests.
In all, the case is one to watch, closely.
Gabriel S. Galanda is the managing lawyer of Galanda Broadman, PLLC, in Seattle. Gabe is a descendant of the Nomlaki and Concow Tribes, belonging to the Round Valley Indian Tribes of Northern California. He thanks Leslie Cushman for brainstorming the implications of this new lawsuit with him.
