Tribal Lands and Real Property Taxes
An interesting case out of the Ninth Circuit Court o f Appeals, (Confederated Tribes of the Chehalis Reservation v. Thurston County Board of Equalization, 724 F.3d 1153 (9th Cir. 2013)), recently looked at whether state and local governments could tax improvements on non-reservation land held in trust for Indian tribes. This case is interesting because many development deals on tribal lands involve a leasing type structure that benefits from real property tax exemption under 25 U.S.C. § 465.
The facts in the Confederated Tribes of Chehalis Reservation (“Tribe”) case follow the typical deal structure. In this instance, the Tribe and Great Wolf Resorts, Inc. formed a limited liability company (“CTGW”) to build a resort, conference center, and a water park called the Great Wolf Lodge (“Lodge”). The Tribe held a 51% interest and Great Wolf Resorts, Inc. a 49% interest in CTGW. The underlying fee for the Lodge was held in trust for the Tribe by Department of Indian Affairs.
As part of the deal, the Tribe and CTGW entered into a lease agreement where CTGW would own and operate the Lodge for 25 years, after which title to the Lodge would be transferred to the Tribe. The lease was approved by the Bureau of Indian Affairs and the Lodge began operations. In 2007, Thurston County, Washington began assessing real property taxes on the Lodge after concluding that the structures on the property were not tax exempt under federal law.
The Tribe and CTGW believed that federal law barred Thurston County from assessing taxes on the Lodge and brought suit seeking declaratory and injunctive relief. The district court awarded summary judgment to the County “holding that state and local governments are not prohibited from taxing permanent improvements like the Great Wolf Lodge, that are owned by non-Indians.”
The Tribe and CTGW appealed the decision and the Ninth Circuit reversed holding that 25 U.S.C. § 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 case clearly outlines a state or local government’s ability to tax improvements constructed on land held in trust for an Indian tribe. With this decision there should be some level of comfort for those going forward with projects on Indian land and their potential real property tax exposure from local and state governments on such projects.