Great Wolf Lodge case needs federal resolution

April 12, 2010 

"We won." With those two simple words, Thurston County Assessor Patricia Costello summed up a three-year battle to force Great Wolf Lodge to pay property taxes on its hotel/water park resort.

With her “we won” statement, Costello was referring to the 15-page decision by U.S. District Judge Benjamin Settle who recently said that the destination resort in southern Thurston County is taxable. Had the county lost, it would have shifted Great Wolf’s annual tax bill of about $1 million to other county taxpayers.

It’s a huge decision.

But this issue is far from settled. Costello is convinced that the Chehalis Indian Tribe will appeal Judge Settle’s decision. We agree. This is one of those cases that should be settled by the U.S. Supreme Court because of its far-reaching, national implications. There’s a lot riding on the final outcome.

Throughout the country, Indian tribes are entering into contracts with private corporations for operations on tribal lands. The question is whether those operations that are part tribal and part private are taxable. Judge Settle concluded that the state’s interest in taxing the improvements at Great Wolf outweighs the federal and tribal interest in pre-empting such taxation in Indian Country.

The Olympian’s editorial board has long argued that this dispute needs judicial clarification because of the potential tax impact locally, statewide and nationally. It’s time for Attorney General Rob McKenna to take this case from county prosecutors and use the expertise of his office to carry the case forward through the appellate process.

Judge Settle’s ruling was no doubt a blow to the tribe. But it was also a blow to the state Department of Revenue and Thurston County commissioners. Here’s how.

Costello was pretty much a lone wolf on this case. “My job is to put all the property on the rolls until it is proven exempt,” Costello said. “I work for the taxpayers and they want equity. So that’s what I did in this case. I put it on the tax rolls.”

Costello got a lot of push back from the state Department of Revenue who sided with the tribe, saying Great Wolf should be tax exempt. Costello said the state agency even withheld documents from her. Early in the process, the county assessor even questioned whether Revenue was an impartial player in the dispute. Costello said, “I’m glad it’s gone to the courts. I don’t have a lot of confidence on any kind of ruling that the Department of Revenue would issue at this time.”

Given Judge Settle’s ruling, the state Department of Revenue has egg on its face. Costello said Revenue officials are going to have to answer to the public on why the state agency isn’t collecting lodging or sales taxes at Great Wolf.

Once the case went to court, Costello found out she also had no friends in the county commission office. Cash-strapped commissioners said they had no money to fight the battle in the courts.

“That’s my biggest disappointment,” Costello said. “Since when do commissioners not fund the prosecutor’s office to defend the county in court?”

Do you suppose the county commissioners will find a way to spend their portion of the nearly $1 million the county is set to collect from Great Wolf under Judge Settle’s ruling? By Costello’s calculation, the lodge owes $1.9 million in back taxes plus interest and penalties for 2009 and 2010.

While the monetary sum is significant, more important is the legal precedence this case could establish.

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. The tribe 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.

The property is exempt from property taxes because it’s tribal land, but there has been disagreement about whether the improvements on the property are subject to taxes. The tribe sued the county in September 2008, after Costello moved to tax the improvements.

The tribe holds a 51 percent interest in the joint venture that owns the hotel and indoor water park.

Settle said that the tribe doesn’t have direct ownership interest in the improvements owned by CTGW, a non-Indian entity, and the majority of the funding for its development came from nontribal and nonfederal sources. He also wrote that the tribe has limited day-to-day control of its operation.

And that was the core of Costello’s argument. “We’re not taxing the tribe. We’re taxing a non-tribal Delaware corporation,” she said.

She took on the tribe, the state Department of Revenue and county commissioners. Yet she and her supporter, Prosecutor Ed Holm, emerged victorious — for the time being.

Tribes have a lot riding on the outcome. Taxpayers must stay tuned, too, because if Great Wolf ends up not paying, tax responsibility shifts to their pocketbooks. And for other private companies considering joint ventures with tribes — in Washington and elsewhere — the final court decision could make or break those partnerships.

With so much riding on the outcome, this is definitely one of those cases that merits resolution by the federal courts with the state attorney general arguing on behalf of taxpayers.

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