Washington State Department of Licensing v. Cougar Den, Inc.

INDIAN TREATY INTERPRETATION AND PREEMPTION

The Washington State Department of Licensing (“the State”) argues that its fuel tax applies to Cougar Den because the Yakama Treaty (“the Treaty”) does not expressly preempt the state tax. The State cites the U.S. Supreme Court’s bright-line test from Mescalero Apache Tribe v. Jones, which determines whether a state may tax an Indian tribe or its members. Generally, a state may not tax a tribe or its members within reservation land. However, outside of reservation land, a state may impose a non-discriminatory tax, according to the State. The State notes that the off-reservation tax is subject to a caveat: the federal government may preempt a state’s ability to impose its tax. However, the State argues that the preemption must be “clearly expressed” and “unambiguously proved.” Otherwise, the State maintains, courts “will not imply tax exemptions.”

Here, the State contends that the right-to-travel provision in the Treaty does not constitute an express federal preemption of its fuel tax. In support of its argument, the State cites Mescalero, a case in which the Court refused to exempt from tax income derived from tax-exempt land because the federal statute granting the tax exemption did not expressly exempt income derived from the land. Similarly, the State argues, the Treaty’s right-to-travel provision says nothing about taxes and never mentions fuel or any other goods. Thus, the State maintains that as in Mescalero, “in the absence of clear [treaty] language,” this Court should not imply a tax exemption in this case.

Cougar Den counters that the right-to-travel provision preempts the Washington fuel tax although the provision never explicitly refers to taxes. Cougar Den argues that the State’s “clear-statement rule”—that the Treaty cannot preempt a tax unless it unmistakably refers to taxes—conflicts with Ninth Circuit precedent. Cougar Den notes that in Yakama Indian Nation v. Flores, the U.S. District Court for the Eastern District of Washington held that the Treaty’s right-to-travel provision preempted the application of Washington’s licensing and permitting fees to Yakama-owned logging trucks even though the provision never explicitly mentions taxes.

Additionally, Cougar Den contends that the State’s clear-statement rule contravenes well-established canons of construction for Indian treaties. Cougar Den maintains that courts must interpret Indian treaties “as the Indians themselves would have understood them.” Cougar Den notes that, although the right-to-travel provision does not explicitly refer to taxes, the Yakama would have understood that the Treaty preempted taxes associated with treaty-protected rights, like the right to travel in this case. Further, Cougar Den explains that, unlike a federal statute, a treaty is an agreement between parties. Thus, Cougar Den maintains, the Court must consider the parties’ intent when interpreting the Treaty. Additionally, Cougar Den posits that courts must liberally construe Indian treaties and resolve any ambiguities in the Indians’ favor. Cougar Den claims that the State’s clear-statement rule is fundamentally at odds with this liberal construction principle, because, under the State’s clear-statement rule, the Court is to resolve in the State’s favor any ambiguities regarding whether the Treaty preempts taxes.

WHAT IS THE WASHINGTON FUEL TAX “ON”?

The State argues that its fuel tax does not restrain highway travel. . The State highlights that the Treaty guarantees “the right . . . to travel upon all public highways” (emphasis added). The State does not dispute this right; rather, the State claims that Cougar Den’s decision to transport fuel by highway does not convert the fuel tax into a tax on highway travel because the fuel tax attaches to fuel possession. The State notes that the tax is imposed on a per-gallon basis and “is assessed regardless of whether Cougar Den uses the highway.” For instance, the State claims that the tax also applies to fuel imported by a railcar or barge. Therefore, the State maintains, the method of transportation is irrelevant. Although the only practical way to import fuel may be by highway, the State posits that the Treaty says nothing “about preempting off-reservation taxes on possession of goods simply because the only practical way to transport them is by highway.” Further, the State argues that Cougar Den incorrectly characterizes the tax as an importation tax because the tax applies to fuel purchased both in and out of Washington, which underscores that possession and not transportation triggers the tax. Indeed, the State claims that the tax is assessed on the first possession of fuel within the State, whether withdrawn from an in-state refinery or brought into Washington by any means of transportation.

Cougar Den counters that what the tax is “on” is irrelevant to preemption. Whether the tax is “on” fuel possession or fuel transportation, Cougar Den argues that the Court must focus on whether the State is taxing a treaty-protected right. Here, Cougar Den contends that fuel possession cannot be separated from the treaty-protected right to transport goods. Cougar Den claims that to transport something, one must necessarily possess the thing being transported. Therefore, even if the tax were on possession, the Treaty would preempt the tax. Further, Cougar Den maintains that even if the case turns on what the tax is “on,” the Treaty preempts the tax because importation expressly triggers the tax. Cougar Den posits that to “import” goods is to “transport” goods. Thus, Cougar Den contends that the State must prove that Cougar Den transported goods—a treaty-protected right—to assess the fuel tax. Further, Cougar Den argues that the “first possessor” will always be the refinery (for in-state possession) or the importer; accordingly, a “first-possession” tax is a tax on importation unless the party is an in-state refinery. Additionally, Cougar Den argues that whether the tax applies to other means of transportation is irrelevant: the Treaty protects the Yakama’s right to travel on highways and whether the tax burdens Cougar Den’s highway use should determine whether the Treaty preempts the tax.

THE ROLE OF HISTORICAL UNDERSTANDING

The State argues that the Yakama Nation’s historical understanding of the right-to-travel provision does not prevent the State from imposing its fuel tax on Cougar Den. The State acknowledges that probing the parties’ historical understanding is a valuable way to discern the parties’ intended meaning of terms used in the Treaty, “but it cannot justify adding terms that are not there.” The State posits that this is especially true for off-reservation tax exemptions. Because the general rule is that a state may tax an Indian tribe or its members for off-reservation activity, the State maintains that off-reservation tax exemptions must be “clearly expressed” and “unambiguously proved.” The State notes that courts do not grant off-reservation tax exemptions by implication. Therefore, the State contends, the Yakama’s historical understanding cannot provide a basis for an off-reservation tax exemption because “unwritten understandings” cannot serve as the foundation for off-reservation tax exemptions.

Further, the State claims that, even if the Court considers the Yakama Nation’s historical understanding of the right-to-travel provision, there is no evidence that the parties intended the tribe to be forever immune from taxes relating to the purchase, sale, or possession of goods. The State argues that, although the parties agreed that the Yakama would retain the right “to go on the roads to market,” their agreement says nothing about whether transported goods are exempt from taxes. The State agrees that the Treaty was meant to preserve the Yakama way of life, including the freedom to travel and trade, but maintains that this understanding is different from “an understanding that the Yakama would be exempt from future taxes on goods if they transported those goods on interstate highways.”

Cougar Den counters that the Ninth Circuit in Yakama Indian Nation established that courts must consider the parties’ historical understanding when interpreting the right-to-travel provision. Cougar Den noted that in that case, the Ninth Circuit instructed the District Court for the Eastern District of Washington to examine holistically the Treaty language, the parties’ conduct after the Treaty was signed, and the circumstance surrounding signing. Further, Cougar Den contends that the factual findings in that case bind the State because the State never challenged those findings and the Washington Supreme Court in this case determined that the findings were preclusive.

Cougar Den further argues that the parties’ historical understanding determines the scope of the right-to-travel provision. Based on the parties historical understanding, Cougar Den alleges that the right-to-travel provision grants the Yakama nation the right to travel tax-free on all public highways. Cougar Den explains that before the Treaty, travel was ingrained in Yakama culture and was especially important for trade purposes. Cougar Den states that the Yakama were concerned about losing their way of life, evidenced by the fact that they were the only Washington tribe to negotiate with the federal government a right-to-travel provision that unconditionally secured their right to transport their goods to market. Further, Cougar Den maintains that the Treaty preserves the Yakama’s right to travel tax-free because the Yakamas enjoyed this right before the Treaty and the Treaty states that it is “securing the right” to travel.