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Ninth Circuit Decides Important Tax Case in Tribe's Favor

July 30, 2013

In a long-awaited decision, the Ninth Circuit Court of Appeals today decided an important tax case, Confederated Tribes of the Chehalis Reservation v. Thurston County Board of Equalization, (9th Cir. 2013) in favor of the Tribe. The decision creates a strong pro-tribe precedent binding within the Ninth Circuit and likely to carry weight with other courts as well.

The Confederated Tribes (Tribe) had formed CTWG, a limited liability company (LLC), with Great Wolf Resorts, Inc. (GW), a non-Indian company specializing in the development and operation of water parks and hotels, to build and operate Great Wolf Lodge, a water park and lodge. The Tribe's and GW owned 51% and 49% shares of the profits, respectively. GW, the managing member of the LLC, contracted with another non-tribal company to manage the facility.

The lodge was located on the "Grand Mound Property," land outside the Tribe's reservation that the Tribe had purchased in 2002. In 2007, the Department of the Interior took title to the land in trust pursuant to Section 5 of the Indian Reorganization Act, 25 U.S.C. § 465. CTGW obtained a 25-year lease from the Tribe providing that CTGW would own the lodge's physical structures for 25 years, at which time the Tribe would become the owner.

The county sought to impose its property tax on the full value of the improvements, valued at over $20 million, arguing that CTGW, an LLC, was not entitled to any tribal tax immunities and that Washington law classified the improvements as "personal property." The Tribe sued for injunctive relief, but the district court granted summary judgment to the county, holding that, under the balancing test of White Mountain Apache Tribe v. Bracker, the state's interest in collecting the tax outweighed the Tribe's interests in developing the site without state interference.

The Ninth Circuit reversed the district court and held that the county was barred from assessing property taxes on the Grand Mound Property by the Supreme Court's 1983 decision in Mescalero Apache Tribe v. Jones. According to the court, "Mescalero makes it clear that where the United States owns land covered by § 465, and holds it in trust for the use of a tribe regardless of the particular form in which the tribe chooses to conduct its business, § 465 exempts permanent improvements on that land from state and local taxation." The Court rejected the county's arguments that Mescalero was distinguishable based on GW's status as an LLC and 49% minority ownership and that the improvements were "personal" rather than real property under Washington law. Interestingly, the court declined to engage in a balancing of interests under the rule of White Mountain Apache Tribe v. Bracker, a major focus of the parties' briefs:

Unlike the cases requiring us to undertake a Bracker analysis, the case before us involves only property taxes on permanent improvements on non-reservation land owned by the United States and held in trust for Indians. In this context, we are bound by Mescalero's holding that such taxes are preempted under § 465, and need not consider Bracker or any other theory of preemption.

Mescalero sets forth the simple rule that § 465 preempts state and local taxes on permanent improvements built on non-reservation land owned by the United States and held in trust for an Indian tribe. This is true without regard to the ownership of the improvements. Because the Supreme Court has not revisited this holding, we are required to apply it.

State and local taxing jurisdictions have become increasingly aggressive in recent years, attempting to reach into Indian country and extract value from joint ventures involving non-Indians. These efforts constitute a serious threat to Indian country economic development. The Ninth Circuit's decision is a welcome event. An appeal by the county may follow.

Godfrey & Kahn works extensively with tribes and tribal subsidiaries to achieve economic development goals, including entity formation, mergers and acquisitions, joint ventures, etc. For more information, contact Brian L. Pierson at 414.287.9456 or

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