Costello must press tax liability lawsuit

Thurston County Assessor Patricia Costello is right to continue to pursue her tax case against Great Wolf Lodge.

The courts need to resolve this issue. The precedence set on the Great Wolf case could have implications across the state and even the nation. If Costello backs down now, the question whether the county can tax the non-tribal part of the ownership of a business on tribal lands goes unresolved. It’s important to get the answer to that question.

County commissioners are extremely shortsighted in their refusal to give Costello and the prosecuting attorney’s office an additional $75,000 for the coming months to pursue the litigation, because the answer to the taxation question has huge ramifications for other county taxpayers. When one entity gets a tax break, the tax shifts to others. Thurston County taxpayers will see their taxes increase if Great Wolf Lodge escapes tax liability.

Costello and Prosecutor Ed Holm are cutting costs and shifting priorities in their strained budgets for the remainder of this year and the start of next year to free up some money to get the case to trial, which is scheduled to begin in the spring.

“I was astounded, because I feel it’s the responsibility of the commissioners to provide the funds to the prosecuting attorney to defend the county in a suit,” Costello said.

Commissioner Sandra Romero said commissioners don’t have money to give after grappling with a budget crisis brought on by the decline in tax and other revenue because of the recession. The county has cut more than 10 percent of its work force and trimmed its operating budget by more than $7 million.

“We have so many needs in Thurston County, I mean daily, and we have to draw the line,” Romero said. “We can’t be adding much right now, especially any place where we have no idea what the final cost might be. We can pretty much assume the other side will have unlimited resources. Thurston County can’t go it alone.”

The lawsuit focuses on whether federal law prohibits Thurston County from levying and collecting property taxes on Great Wolf Lodge, which features an indoor water park, a hotel and a conference center.

Great Wolf Lodge is owned by CTGW LLC, a joint venture between Madison, Wis.-based Great Wolf Resorts Inc. and the Confederated Tribes of the Chehalis Reservation.

The tribe bought 43 acres of property adjacent to Interstate 5 at Grand Mound for $1.5 million in 2002. While the property is not on the tribe’s reservation, it is considered tribal trust land, and therefore exempt from taxes.

No one disputes that the property itself is exempt from property taxes.

What clouds this issue is the unique partnership between the tribe and Great Wolf Resorts, which together formed CTGW LLC under Delaware law to develop and operate the resort on 39 of the 43 acres.

The tribe owns 51 percent of the venture, and Great Wolf Resorts owns 49 percent. The profits generated by the joint venture are divided by the same percentages.

Costello has contended that 100 percent of the lodge’s value should be subject to property taxes. The assessor’s rolls had the value at $82 million, but Great Wolf officials have said their investment is worth $100 million.

The tribe and CTGW argue the county can’t levy property taxes on a building owned by a venture controlled by the tribe. They say Costello’s action is an attack on the tribe’s self-governance.

The lodge owners filed suit in September 2008. They are asking the federal court to prevent the county from assessing the resort, which employs almost 500 people and draws an estimated 350,000 visitors to the county each year.

The tax bill at stake was projected to be $800,000 this year. The county is not collecting the tax until the question of tax liability is determined in U.S. District Court.

Commissioners Sandra Romero and Cathy Wolfe were wrong to oppose continued financing of the court case. Commissioner Karen Valenzuela was on the right side of the issue.

Chief Deputy Prosecuting Attorney Jon Tunheim said his office’s lawyers will do the best they can and was unwilling to say the commissioners’ decision puts them at a disadvantage. But he suggested this isn’t the last the commissioners have heard about the matter.

“We’re certainly going to need to have the support of the board as we go further into this to try to put together the best defense possible,” he said.

If county commissioners continue to balk and the assessor and prosecutor both run out of money short of trial, let’s hope Attorney General Rob McKenna steps in to lend assistance. The answer to the question on tribal tax liability has ramifications across all Washington reservations.