Great Wolf tax case begins in federal court

March 19, 2010 

TACOMA - A federal judge heard oral arguments Thursday in the lawsuit brought by the Chehalis Indian tribe to prevent Thurston County from collecting property taxes on the Great Wolf Lodge.

The case pits the right of state and local governments to levy and collect taxes to provide public services against the sovereignty of Indian tribes and their efforts to expand economic activity beyond casinos.

The ruling could significantly affect the feasibility of future joint projects between tribes and nontribal companies.

U.S. District Judge Benjamin Settle is set to issue his ruling in a week or so. He also will decide whether the trial, scheduled to begin next month, is needed.

In 2005, the Chehalis Indian tribe and Great Wolf Resorts Inc., a publicly traded company, formed CTGW LLC under Delaware law to develop and operate the lodge, which includes an indoor water park, a hotel and a conference center. The tribe is the majority owner in the limited-liability company and leases its tribal land to CTGW. The lodge is on a 43-acre parcel between Interstate 5 and Old Highway 99 in South Thurston County.

No one argues that the tribal land isn’t exempt from property taxes, but there’s disagreement whether the improvements on it are subject to taxes.

The tribe sued Thurston County in September 2008 after Assessor Patricia Costello tried to levy property taxes on the improvements. Costello argues the lodge is subject to property taxation, and the exemption the tribe seeks would shift the tax burden to other property owners. She estimates the lodge would bring in about $1 million a year in taxes.

Federal pre-emption severely limits the ability of states to impose taxes in Indian Country. An exception can be made if the state’s interest in taxation outweighs the federal and tribal interests against taxation.

The so-called Bracker analysis, originating from a 1980 U.S Supreme Court case, is a legal test to determine whether such state authority would violate federal law, and it provided the foundation for legal arguments heard Thursday.

The analysis hinges on several factors: the interests of the tribe and state, the degree of federal regulation involved and the level of services provided to the entity proposed for taxation.

Harold Chesnin, the attorney representing the tribe, said the analysis tips in favor of a tax exemption. The tribe has made a significant financial commitment in the lodge and has a substantial level of control in the joint venture, he said, arguing that the amount of public services provided to the lodge is nominal, and those agencies are compensated.

Deputy prosecuting attorney Jane Futterman argued that Chesnin’s statement that the lodge is a tribal resource exaggerates.

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