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This opinion was filed for record
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SU. AN L. CARLSON
SUPREME COURT CLERK
IN THE SUPREME COURT OF THE STATE OF WASHINGTON
COUGAR DEN, INC., a Yakama )
Nation corporation, )
) No. 92289-6
Respondent, )
)
v. ) EnBanc
)
WASHINGTON STATE )
DEPARTMENT OF LICENSING, )
)
Appellant. )
) Filed MAR 1 6 2017
JOHNSON, J.-Article III ofthe Yakama Nation Treaty of 1855 provides in
pertinent part:
[I]f necessary for the public convenience, roads may be run through
the said reservation; and on the other hand, the right of way, with free
access from the same to the nearest public highway, is secured to
them; as also the right; in common with citizens of the United States,
to travel upon all public highways.
Treaty with the Yakamas, 12 Stat. 951, 952-53 (1855).
The issue in this case centers on the interpretation of the "right to travel"
provision in the treaty, in the context of importing fuel into Washington State. The
Washington State Department of Licensing (Department) challenges Cougar Den
Inc.'s importation of fuel without holding an importer's license and without paying
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Cougar Den, Inc. v. Dep 't ofLicensing, No. 92289-6
state fuel taxes under former chapter 82.36 RCW, repealed by LAWS OF 2013, ch.
225, § 501, and former chapter 82.38 RCW (2007).
An administrative law judge (ALJ) ruled in favor of Cougar Den, holding
that the right to travel on highways should be interpreted to preempt the tax. The
Department's director, Pat Kohler, reversed. On appeal, the Yakima County
Superior Court reversed the director's order and ruled in favor of Cougar Den. We
affirm.
FACTS AND PROCEDURAL HISTORY
Cougar Den is a Confederated Tribes and Bands of the Y akama Nation
(Yakama Nation) corporation that transports fuel from Oregon to the Yakama Indian
Reservation, where it is sold. Kip Ramsey, Cougar Den's owner and president, is an
enrolled member of the Yakama Nation.
Cougar Den began transporting fuel in 2013 from Oregon to the Y akama
Indian Reservation. Cougar Den contracted with KAG West, a trucking company, to
transport the fuel into Washington from March 2013 to October 2013.
On December 9, 2013, the Department issued assessment number 756M
against Cougar Den, demanding $3.6 million in unpaid taxes, penalties, and licensing
fees for hauling the fuel across state lines. Cougar Den appealed the assessment to the
Department's ALJ, who held in his initial order that the assessment was an
impermissible restriction under the treaty. The Department sought review of the
2
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
ALJ's initial order. Upon review, the director of the Department reversed the ALJ and
entered findings of fact and conclusions of law.
The director held that the Y akama treaty did not preempt the taxes, license
requirements, and penalties sought against Cougar Den. Cougar Den then petitioned
for review of the final order by the Department. The Yakima County Superior Court,
sitting in an appellate capacity, reversed the director's order and held that the taxation
violated the tribe's right to travel. The Department appealed the superior court's
decision and sought direct review under RAP 4.2(a)(2). We granted direct review.
ANALYSIS
This case began as a challenge to an administrative order; therefore, review is
governed by chapter 34.05 RCW. Under that statute, in relevant part, we review to
determine whether the decision is an erroneous interpretation or application of the
law. 1 Generally, an '"agency decision is presumed correct and the challenger bears the
burden of proof."' King County Pub. Hasp. Dist. No. 2 v. Dep 't ofHealth, 178 Wn.2d
3 63, 372, 3 09 P .3d 416 (20 13) (quoting Providence Hasp. ofEverett v. Dep 't ofSoc.
& Health Servs., 112 Wn.2d 353, 355, 770 P.2d 1040 (1989)). However, this case
involves a treaty interpretation, which is a legal question reviewed de novo. Chi. Title
1
"Review of agency orders in adjudicative proceedings. The court shall grant relief from
an agency order in an adjudicative proceeding only if it determines that:
"
"(d) The agency has erroneously interpreted or applied the law." RCW 34.05.570(3)(d).
3
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Cougar Den, Inc. v. Dep 't ofLicensing, No. 92289-6
Ins. Co. v. Office ofIns. Comm 'r, 178 Wn.2d 120, 133, 309 P.3d 372 (2013) ("The
agency's interpretation of pure questions of law is not accorded deference." (citing
Hunterv. Univ. ofWash., 101 Wn. App. 283,292,2 P.3d 1022 (2000))). This court
sits in the same position as the superior court, reviewing the standards of the
Washington Administrative Procedure Act, chapter 34.05 RCW, directly to the
record established before the agency.
Washington State law imposes a tax on fuels used for the propulsion of motor
vehicles on the highways of the state. In 2013, when Cougar Den transported fuel into
the state, chapter 82.36 RCW governed taxes on motor vehicle fuel, or gasoline, and
former chapter 82.38 RCW governed taxes on "special fuel," which includes diesel
fuel. 2 Fuel taxes are imposed at the wholesale level, when fuel is removed from the
terminal rack or imported into the state. Former RCW 82.36.020(2) (2007); former
RCW 82.38.030(7) (2007).
The Y akama Indian Reservation is a federally recognized Indian tribal
reservation located within the state of Washington. Outside an Indian reservation,
Indian citizens are subject to state tax laws, "[a]bsent express federal law to the
contrary." Mescalero Apache Tribe v. Jones, 411 U.S. 145, 148,93 S. Ct. 1267,36 L.
Ed. 2d 114 (1973). A treaty constitutes an express federal law. There is no dispute that
2
In 2013, Governor Jay Inslee signed House Bill1883, which repealed chapter 82.36
RCW and combined it with chapter 82.38 RCW. H.B. 1883, 63d Leg., Reg. Sess. (Wash. 2013).
4
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
the taxes and licensing requirements would apply if the treaty provision does not
apply here. However, Cougar Den asserts that the right to travel provision in the treaty
precludes the State from demanding unpaid taxes, penalties, and licensing fees for
hauling the fuel across state lines (relying on treaty language that "the right of way ...
is secured to them ... to travel upon all public highways").
The United States Supreme Court has established a rule of treaty interpretation:
Indian treaties must be interpreted as the Indians would have understood them.
The Indian Nations did not seek out the United States and agree upon an
exchange of lands in an arm's-length transaction. Rather, treaties were
imposed upon them and they had no choice but to consent. As a
consequence, this Court has often held that treaties with the Indians must
be interpreted as they would have understood them.
Choctaw Nation v. Oklahoma, 397 U.S. 620, 630-31, 90S. Ct. 1328, 25 L. Ed. 2d 615
(1970).
It is our responsibility to see that the terms of the treaty are carried out,
so far as possible, in accordance with the meaning they were understood
to have by the tribal representatives at the council, and in a spirit which
generously recognizes the full obligation of this nation to protect the
interests of a dependent people.
Tulee v. Washington, 315 U.S. 681, 684-85, 62 S. Ct. 862, 86 L. Ed. 1115 (1942).
The Ninth Circuit has recognized this rule of treaty construction. See United
States v. Smiskin, 487 F.3d 1260, 1264 (9th Cir. 2007); Cree v. Flores, 157 F.3d 762,
769 (9th Cir. 1998) (Cree II). Treaties are broadly interpreted, with doubtful or
ambiguous expressions resolved in the Indians' favor.
5
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
The Department argues that Cougar Den's reading of the right to travel
provision is overly broad. It asserts that the Ninth Circuit cases involving the right to
travel forbid the State from specifically restricting the right to travel on a highway, but
allow the State to restrict or regulate a specific good that is incidentally brought over a
highway. The Department argues that the treaty does not preempt Washington State
fuel taxes in this case. Both parties here support their arguments by citing several
Ninth Circuit cases.
The Department's interpretation of the treaty provision ignores the historical
significance of travel to the Y akama Indians and the rule of treaty interpretation
established by the United States Supreme Court. In ruling in Cougar Den's favor, both
the ALJ and the Yakima County Superior Court based their decisions on the history of
the right to travel provision of the treaty, relying on the findings of fact and
conclusions oflaw from Yakama Indian Nation v. Flores, 955 F. Supp. 1229 (E.D.
Wash. 1997).
The factual record regarding the treaty interpretation of the historical meaning
of the right to travel relied on below was developed in a federal action, Cree II. 3
3
This Cree case began in the federal district court as Cree v. Waterbury, 873 F. Supp.
404 (E.D. Wash. 1994), appealed to the Ninth Circuit, then remanded for factual development in
Yakama Indian Nation. Cree v. Waterbury (Cree I), 78 F.3d 1400 (9th Cir. 1996). In Yakama
Indian Nation, the court undertook "a 'factual investigation into the historical context and
parties' intent at the time the Treaty was signed [in order to] determine the precise scope of the
highway right,'" and '"examine[d] the Treaty language as a whole, the circumstances
surrounding the Treaty, and the conduct of the parties since the Treaty was signed in order to
6
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
Because the rule of treaty interpretation requires that treaties be read as the Indians
would have understood them, the district court conducted an extensive factual inquiry
regarding the treaty and the historical context of the right to travel provision. The
court determined that the treaty and the right to travel provision in particular was of
tremendous importance to the Yakama Nation at the time the treaty was signed.
Travel was woven into the fabric of Y akama life in that it was necessary for hunting,
gathering, fishing, grazing, recreational, political, and kinship purposes. Importantly,
at the time, the Y akamas exercised free and open access to transport goods as a central
part of a trading network running from the western coastal tribes to the eastern plains
tribes. The court found that the record unquestionably depicted a tribal culture whose
manner of existence was dependent on the Yakamas' ability to travel. Yakama Indian
Nation, 955 F. Supp. at 1239.
At the time the treaty was drafted, agents of the United States knew of the
Y akamas' reliance on travel. During negotiations, the Y akamas' right to travel off
reservation had been repeatedly broached, and assurances were made that entering
into the treaty would not infringe on or hinder their tribal practices. Promises were
made to protect the Indians from '"bad white men"' if the tribes agreed to live within
interpret the scope of the highway right."' Yakama Indian Nation, 955 F. Supp. at 1234, 1235
(quoting Cree I, 78 F.3d at 1403, 1405). After completing extensive investigation, it entered
findings offact and conclusions of law.
7
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
designated reservations. Yakama Indian Nation, 955 F. Supp. at 1243. Agents of the
United States thus repeatedly emphasized in negotiations that tribal members would
retain the "'same liberties ... to go on the roads to market."' Yakama Indian Nation,
955 F. Supp. at 1244. The court further determined that "both parties to the treaty
expressly intended that the Y akamas would retain their right to travel outside
reservation boundaries, with no conditions attached." Yakama Indian Nation, 955 F.
Supp. at 1251. The treaty was presented as a means to preserve Yakama customs and
protect against further encroachment by white settlers. There was no mention of any
sort of restriction on hunting, fishing, or travel other than the condition that the
government be permitted to construct wagon roads and a railroad through the
reservation. Finally, the court found that "the Treaty was clearly intended to reserve to
the Yakamas' right to travel on the public highways to engage infuture trading
endeavors." Yakama Indian Nation, 955 F. Supp. at 1253.
In reliance on these vital promises, the Y akamas forever ceded 90 percent of
their land in exchange for these rights. Yakama Nation thus understandably assigned a
special significance to each part of the treaty at the time of the signing and continues
to view the treaty as a sacred document today. It is important to note that although the
United States negotiated with many Northwest tribes, only the treaties with the
Yakamas and Nez Perce contained highway clauses like this one. Cree II, 157 F .3d at
772.
8
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
With the historical importance of the right to travel in mind, on review, the
. Ninth Circuit adopted the findings and treaty interpretation from the district court and
held that the treaty exempted the Y akama Indians from various Washington truck
license and overweight permit fees. In that case, the plaintiff, Yakama Indian Nation,
sold timber and hauled logs from within reservation lands to off-reservation mills.
Defendants were state officers authorized to issue traffic citations for violations of
state vehicle registration, licensing, and permitting statutes. Plaintiff brought suit after
the officers issued citations for violation of these statutes. In determining whether the
treaty exempted Yakama Indian Nation from the fees, the court considered the
historical context of the treaty and recognized the significance of travel to the
Y akamas. The court agreed with the district court's finding that the treaty secured for
the Y akamas' the right to use future roads and to trade their goods. The court held that
the treaty exempted the tribe from truck license and permitting fees. Cree II, 157 F .3d
at 774.
Nine years later, the Ninth Circuit considered the right to travel in another
context in Smiskin. In that case, agents of the federal Bureau of Alcohol, Tobacco,
Firearms and Explosives suspected the Smiskins, members ofYakama Nation, of
transporting unstamped cigarettes from smoke shops on an Idaho Indian reservation to
smoke shops on various Indian reservations in Washington. In June 2004, the agents
seized 4,205 cartons ofunstamped cigarettes from the Smiskins' residence and
9
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
charged them with violating the federal contraband cigarette trafficking act (CCTA),
18 U.S.C. § 2342(a). Under the CCTA, it is "unlawful for any person knowingly to
ship, transport, receive, possess, sell, distribute, or purchase contraband cigarettes." 18
U.S.C. § 2342(a). '"[C]ontraband cigarettes' means a quantity in excess of 10,000
cigarettes, which bear no evidence of the payment of applicable State or local
cigarette taxes in the State or locality where such cigarettes are found." 18 U.S.C. §
2341(2).
Washington State requires wholesalers to affix either a "tax paid" or "tax
exempt" stamp to cigarette packaging prior to sale. See RCW 82.24.030. Individuals
other than licensed wholesalers may transport unstamped cigarettes only if they have
"given notice to the [Washington State Liquor Control Board] in advance of the
commencement of transportation." RCW 82.24.250(1). The Smiskins did not provide
notice to the State prior to transporting unstamped cigarettes; therefore, the cigarettes
were unauthorized under state law. As a result, the Smiskins' possession and
transportation of the contraband cigarettes was alleged to violate the terms of the
CCTA.
Again, to determine whether the treaty precluded the State from prosecuting the
Smiskins' violation of the State's prenotification requirement, the Ninth Circuit
looked to the right to travel provision of the treaty. The court held that the Smiskins
were not required to notifY anyone prior to transporting goods to market because the
10
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
treaty '"expressly intended that the Yakamas would retain their right to travel outside
reservation boundaries, with no conditions attached.'" Smiskin, 487 F.3d at 1266
(quoting Yakama Indian Nation, 955 F. Supp. at 1251). It held that applying a
prenotification requirement was a condition on travel that violated the Y akamas'
treaty right to transport goods to market without restriction.
The court noted the "tremendous importance" of the right to travel provision
and "refuse[d] to draw what would amount to an arbitrary line between travel and
trade." Smiskin, 487 F.3d at 1265-66. "[W]hether the goods at issue are timber or
tobacco products, the right to travel overlaps with the right to trade under the Y akama
Treaty such that excluding commercial exchanges from its purview would effectively
abrogate our decision in Cree II and render the Right to Travel provision truly
impotent." Smiskin, 487 F.3d at 1266-67 (footnote omitted).
Of importance in the decision is the court's discussion ofthe regulatory
exception. In resolving conflicts between state laws and Indian treaties, the United
States Supreme Court has stated that pure regulatory restrictions may be validly
applied to tribal members. The State in Smiskin argued that the State's tax collection
effects had a regulatory purpose. However, the court found that Washington's stated
purpose for requiring cigarette stamps, and hence for requiring notice before
unstamped cigarettes are transported within the State, was to "'enforce collection of
11
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
the tax hereby levied."' Smiskin, 487 F.3d at 1269 (quoting RCW 82.24.030(1)). The
court rejected the State's arguments and held that the treaty protected the activity.
More recently, in 2014, the Ninth Circuit addressed the right to travel provision
again. The Department relies on King Mountain Tobacco Co. v. McKenna, 768 F .3d
989 (9th Cir. 2014), to assert that the trial court interpreted the right to travel provision
too broadly. In King Mountain, the plaintiff was a private tobacco company owned by
Delbert Wheeler, an enrolled member of the Y akama Nation. King Mountain sought
relief from application of Washington's escrow statute, which required King
Mountain to place money into escrow to reimburse the State for health care costs
related tothe use of tobacco products. The court analyzed the treaty again and held
that the plain text reserved to the Yakamas the right "'to travel upon all public
highways,"' not the "right to trade." King Mountain, 768 F.3d 997, 998 (quoting 12
Stat. 953). The court distinguished King Mountain from the Cree cases by noting that
the Cree cases involved "the right to travel (driving trucks on public roads) for the
purpose of transporting goods to market." King Mountain, 768 F.3d 998. The court
affirmed judgment in favor of the State and rejected King Mountain's reliance on the
treaty right to travel.
The Department argues that this case is analogous to King Mountain because
both companies "claim[] a right to engage in trade in addition to or above and beyond
a right to travel upon the highways." Appellant's Opening Br. at 27. The Department
12
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Cougar Den, Inc. v. Dep't of Licensing, No. 92289-6
asserts that Cougar Den is not facing a tax for "'using public highways .... [Rather, it]
is being taxed for importing fuel."' Appellant's Opening Br. at 27 (quoting Clerk's
Papers at 1008). The Department argues that Cougar Den relies "heavily on dicta" in
Smiskin. Appellant's Opening Br. at 29. The Department argues that in Smiskin, the
State restricted the right to travel on the highway, whereas here, the State is regulating
fuel. The Department argues, and the Director agreed, that the taxes are assessed
based on incidents of ownership or possession of fuel, and not incident to use of or
travel on the roads or highways. It distinguishes Smiskin by asserting that Cougar Den
does not need a fuel importer license in order to use public highways. "Rather, Cougar
Den needs a fuel importer license to engage in business as a fuel trader." Appellant's
Opening Br. at 30. The "tax applies without regard to travel on a highway," and
"Cougar Den happens to hire trucks," but "[t]he tax is not a condition or restriction on
Cougar Den's use of highways." Appellant's Opening Br. at 30, 31. It argues that the
tax is imposed at the border and is assessed regardless of whether Cougar Den uses
the highway.
The Department's argument is unpersuasive. Smiskin is nearly identical to this
case. In both cases, the State placed a condition on travel that affected the Y akamas'
treaty right to transport goods to market without restriction. The difference between
Smiskin and King Mountain is that in King Mountain, travel was not at issue. In King
Mountain, the court held under the facts that "there is no right to trade in the Y akama
13
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Cougar Den, Inc. v. Dep 't ofLicensing, No. 92289-6
Treaty." King Mountain, 768 F.3d at 998. Where trade does not involve travel on
public highways, the right to travel provision in the treaty is not implicated. Here,
travel on public highways is directly at issue because the tax was an importation tax.
The fact that the tax is imposed at the border and is assessed regardless of whether
Cougar Den uses the highway is immaterial because, in this case, it was impossible
for Cougar Den to import fuel without using the highway.
In addition, the tax does not, as the State argues, fall under the regulatory
exception. In Smiskin, the purpose of the notice requirement was the collection of
taxes on the transported goods. The prenotification requirement was triggered by the
transportation of cigarettes into the state. Likewise, here, the Department requires that
companies obtain a license prior to hauling goods into the state: the purpose of the
licensing requirement is to collect taxes. We hold that the right to travel provision in
the treaty protects the Tribe's historical practice of using the roads to engage in trade
and commerce.
Finally, the Department argues that applying the Ninth Circuit's reasoning
would lead to "unimagined and unintended preemption of fundamental state powers."
Appellant's Opening Br. at 32. The Department noted that the superior court's
reasoning "could allow Y akama tribal members to avoid state laws that regulate
goods by simply contriving to possess the goods on public highways." Appellant's
Opening Br. at 33. An example the Department gave was that Yakama tribal members
14
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
could avoid the law barring a felon from possessing a firearm simply because by
traveling on a public highway, the treaty preempts state law. This same argument was
made by the Defendants in Smiskin: if affirmed, the court's ruling would "preclude
the State of Washington and the federal government from regulating tribal
transportation of other 'restricted goods,' such as illegal narcotics and 'forbidden
fruits [and] vegetables."' Smiskin, 487 F.3d at 1270-71 (alteration in original). The
Ninth Circuit rejected this argument, observing that the concern was "unfounded, if
not disingenuous." Smiskin, 487 F.3d at 1271. Laws with a purely regulatory purpose
can be validly applied. In addition, the Ninth Circuit quoted the Yakama Nation and
its amicus brief:
"The Yakama Nation is a sovereign nation, with its own government,
laws and courts, not a rogue organization or menace to civil order. The
Yakama Nation does not and never has asserted that its members have a
right under its treaty to traffic in narcotics. For the government of the
United States to be suggesting otherwise is irresponsible.
"The Yakama Nation must and will intercede as litigant or amicus to
protect its members' treaty right to travel when the federal government
overreaches, as it has here. But the Nation has no interest in promoting,
condoning, or protecting activities by its members that pose real dangers
to public health, public safety, natural resources, or public infrastructure.
The Nation has no such interest not only because irresponsible
overreaching on its part would likely prompt Congress to exercise its
constitutional/ political power to abrogate or limit the treaty right to
travel, but also because the Yakama Nation and its members share the
interest all citizens have in public health, public safety, conservation and
equitable exploitation of natural resources, and adequate public
infrastructure."
15
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
Smiskin, 487 F.3d at 1271. We agree.
We also note that this case does not present the "parade ofhorribles" concern
raised by the State. In interpreting the treaty, we are bound to read the provisions as
the Tribe understood them. As noted, the right to travel provision appears to be unique
to the Yakama and Nez Perce tribes. If the State has concerns about this treaty
provision, only Congress can revise or restrict the provisions, not this court.
As determined by the federal courts, any trade, traveling, and importation that
requires the use of public roads fall within the scope of the right to travel provision of
the treaty. The Department taxes the importation of fuel, which is the transportation of
fuel. Here, it was simply not possible for Cougar Den to import fuel without traveling
or transporting that fuel on public highways. Based on the historical interpretation of
the Tribe's essential need to travel extensively for trade purposes, this right is
protected by the treaty. 4
4
Cougar Den also asserts that the director of the Department violated the appearance of
unfairness doctrine. The Department counters by arguing that Cougar Den failed to raise the
issue; therefore, the appellate court cannot entertain disqualification claims. This claim does not
need to be addressed because the merits of the claim are reviewed de novo by this court. And,
under either result here, the director will have no future role.
16
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
We affirm.
WE CONCUR:
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17
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
Fairhurst, C.J. (dissenting)
No. 92289-6
FAIRHURST, C .J. ( dissenting)-W ashington' s fuel exc1se tax burdens
trade-the first instance of wholesale possession of fuel within Washington-not
fuel transport. The Confederated Tribes and Bands of the Yakama Nation's (Yakama
Nation) "right ... to travel," as described in article III of their treaty, Treaty with the
Yakamas, 12 Stat. 951, 953 (1855) (treaty right to travel), is not a right to trade. The
majority's holding, if taken to its logical conclusion, would create a hole, bigger than
that required to drive a tanker truck, in Washington's ability to tax goods consumed
within the state, without legal basis. Therefore, I respectfully dissent.
I. ANALYSIS
"Absent express federal law to the contrary, Indians going beyond reservation
boundaries have generally been held subject to nondiscriminatory state law."
Mescalero Apache Tribes v. Jones, 411 U.S. 145, 148-49, 93 S. Ct. 1267, 36 L. Ed.
2d 1114 (1973). This includes state fuel excise taxes. Wagnon v. Prairie Band
Potawatomi Nation, 546 U.S. 95, 97, 126 S. Ct. 676, 163 L. Ed. 2d 429 (2005) The
1
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
Fairhurst, C.J. (dissenting)
majority holds that the treaty right to travel preempts Washington's motor vehicle
fuel excise tax, former chapter 82.36 RCW (2007), repealed by LAWS OF 2013, ch.
225, § 501, and special fuel excise tax, former chapter 82.38 RCW (2007), amended
by LAWS OF 2013, ch. 225, § 501. 1 As a result, it finds Cougar Den Inc.'s off-
reservation fuel importation activities exempt from Washington's fuel excise tax
regime. I disagree and, therefore, respectfully dissent.
A. Former chapters 82.36 and 82.38 RCW represent a tax on the wholesale
possession, not transportation, of fuel
The majority reaches its holding after finding that Washington's fuel excise
tax regime "taxes the importation of fuel, which is the transportation of fuel."
Majority at 16. But "import," as used here, is a term of art not requiring
transportation of any kind. Former RCW 82.36.010(10); former RCW
82.38.020(12). "Import" is defined as "bring[ing] ... fuel into this state," other than
through a "pipeline or vessel" operated by a "licensee" and bound for a "terminal"
or "refinery," unless located in "the fuel supply tank of a motor vehicle." Former
RCW 82.36.010(3), (4), (10), .020(2)(c); former RCW 82.38.020(4), (5), (12),
1
The distinction between motor vehicle fuel and special fuel, which includes diesel fuel,
was removed effective July 1, 2015. The statute was simplified and recodified into chapter 82.38
RCW. LAWS OF 2013, ch. 225, § 501. Previously, taxes were separately imposed on motor vehicle
fuel, special fuel, and aviation fuel pursuant to separate RCW chapters. S.B. REP. ON SuBSTITUTE
H.B. 1883, at 2, 63d Leg., Reg. Sess. (Wash. 2013). All references to chapters 82.36 and 82.38
RCW in this opinion are to the RCW in effect at the time of the Department of Licensing's tax
assessments against Cougar Den-20 13.
2
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
Fairhurst, C.J. (dissenting)
.030(7)(c). Further, the tax is levied "at the time and place of the first taxable event
and upon the first taxable person within this state." Former RCW 82.36.022; former
RCW 82.38.031. The statutory language alone demonstrates the clear intent of the
legislature-to levy an excise tax on the first instance of wholesale possession of
fuel not distributed through a refinery or importation terminal within the state.
Whether that fuel is then brought to market within Washington is not necessary or
relevant for purposes of assessing tax due. The history of Washington's fuel tax
regime only further reinforces this conclusion.
Washington first levied an excise tax on motor vehicle fuel in 1921. Auto.
United Trades Org. v. State, 183 Wn.2d 842, 845, 357 P.3d 615 (2015) (citing LAWS
OF 1921, ch. 173, § 2). Until1999, retailers were primarily responsible for paying
the tax. Id. at 847. To improve compliance and reduce administrative costs,
Washington shifted the reporting and collection burden to the suppliers at the top of
the fuel supply chain in 1999. S.B. REP. ON SUBSTITUTE H.B. 2659, at 1-2, 55th Leg.,
Reg. Sess. (Wash. 1998). 2
Refiners and terminal operators were now charged with collecting, reporting,
and remitting excise tax when fuel was removed "from a terminal ... at the rack,"
2At the time, there were 740 licensed fuel distributors and 27,000 individuals licensed to
purchase fuel without paying tax at the time of purchase. S.B. REP. ON SUBSTITUTE H.B. 2659, at
1.
3
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Cougar Den, Inc. v. Dep 't ofLicensing, No. 92289-6
Fairhurst, C.J. (dissenting)
LAWS OF 1998, ch. 176, § 7(2)(a) (formatting omitted), or "from a refinery" by "bulk
transfer" or "refinery rack," id. § 7(2)(b)(i), (ii) (formatting omitted). '"Rack"' is
defined as a "mechanism for delivering ... fuel from a refinery or terminal." 3 Id. §§
6(23), 50(20) (formatting omitted). But distributors, and ultimately retailers,
remained burdened with paying the tax. Squaxin Island Tribe v. Stephens, 400 F.
Supp. 2d 1250, 1261 (W.D. Wash. 2005). They were required to reimburse refiners
and terminal operators for tax those suppliers prepaid on their behalf. 4 LAWS OF
1998, ch. 176, § 12(5). Fuel transport within Washington was not mentioned in the
revised scheme, except for certain basic reporting obligations and routine
inspections for those transporting fuel. See id. §§ 32, 33, 66, 80. For refined fuel
bypassing the rack system via direct importation, the fuel importer would be liable
for the tax on any fuel that it imports for purposes of "sale, consumption, use, or
storage." Id. §§ 6(11), 7(2)(c), 50(12), 51(2)(c) (formatting omitted). Cougar Den's
tax assessments arose under a version of this provision, as revised in 2007.
In 2007, the legislature revised the statute to address the opportunity Squaxin
Island Tribe, 400 F. Supp. 2d at 1250, gave tribal retailers operating on Indian lands
3
There were 24 terminal racks within Washington when the statute was last modified in
2013. S.B. REP. ON SUBSTITUTE H.B. 1883, at 1, 63d Leg., Reg. Sess. (Wash. 2013).
4 Further, refiners and terminal operators were entitled to refunds from the State for any
prepaid tax they could not collect on fuel sold to distributors and retailers. LAWS OF 1998, ch. 176,
§ 15.
4
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
Fairhurst, C.J. (dissenting)
to avoid the imposition of Washington's fuel excise tax for their fuel sales to both
tribal and nontribal members. 5 S.B. REP. ON S.B. 5272, at 1-2, 60th Leg., Reg. Sess.
(Wash. 2007). Under the revised 2007 regime, those at the top of the supply chain-
refiners and terminal operators-would now be solely responsible for the payment
of tax when fuel is removed from their rack. 6 !d.; LAWS OF 2007, ch. 515, §§ 2, 6, 9,
18, 21. They would no longer prepay tax on behalf of the distributors and retailers
they sold to. !d. §§ 4, 23. 7 Should there be any question, the legislature also added
the following language: "It is the intent and purpose ... that the tax shall be imposed
at the time and place of the first taxable event and upon the first taxable person
within this state." !d. at§§ 20, 33 (emphasis added); former RCW 82.36.022; former
5
The court held that despite suppliers' collection and reporting obligations under the 1999
statute, the legal incidence of the fuel excise tax regime continued to fall on retailers, rather than
suppliers, distributors, or consumers. Squaxin Island Tribe, 400 F. Supp. 2d at 1261. To the extent
those retailers were tribes or tribal members operating on Indian lands, they were exempt from
Washington's fuel excise tax. Id. In Squaxin, the court applied Oklahoma Tax Commission v.
Chickasaw Nation, 515 U.S. 450, 458-59, 115 S. Ct. 2214, 132 L. Ed. 2d 400 (1995), which
established a legal incidence test, to determine whether Washington's fuel tax regime ran afoul of
tribal sovereignty. Id. Under this test, who ultimately pays the tax does not control. "Although
consumers in Washington State will nearly always find the tax imbedded in the price of fuel, the
Supreme Court explicitly cautioned against using 'economic reality' as a basis for answering the
legal incidence question." Id. (citing Chickasaw, 515 U.S. at 459-60). Instead, the language of the
statute controls. Id. If this language places the legal incidence of the state tax on a sovereign party,
that tax cannot be levied. Id.
6 In response, some tribes threatened to establish their own refineries or terminals on Indian
land in order to avoid the imposition of tax based on sovereign authority. Auto. United Trades, 183
Wn.2d at 848. Instead, most-excluding the Yakama Nation-entered into tax sharing
arrangements in which the tribe receives a refund of tax paid by suppliers on fuel purchased by
tribal members on their reservations. Id. at 850-51.
7 Further, the suppliers' statutory mechanism to recover prepaid tax was removed. LAWS
OF2007, ch. 515, §§ 4, 23.
5
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
Fairhurst, C.J. (dissenting)
RCW 82.38.031. These changes reinforce the notion that possessiOn, not
distribution, is the intended activity subject to tax.
The legislature made another change in 2007 that reinforces this notion. From
1999 through 2007, tax applied to imported motor vehicle fuel only when that fuel
was imported for purposes of "sale, consumption, use, or storage" within
Washington. LAWS OF 1998, ch. 176, § 7(2)(c) (formatting omitted). Beginning in
2007, all imported motor vehicle fuel would be subject to tax, regardless of the
purpose for which it was imported. 8 LAws OF 2007, ch. 515, § 2(2)( c); former RCW
82.36.020(2)(c). This language was operative at the time of the Department of
Licensing's (DOL) assessments against Cougar Den. See Clerk's Papers (CP) at 66-
68, 81-82 (December 2013 and February 2014 DOL tax assessments against Cougar
Den).
This history further demonstrates the legislature's intent-to impose tax at the
highest level possible in the supply chain. For importation activities, this would be
8
A similar "sale, consumption, use, or storage" condition was included in Washington's
special fuel excise tax statute prior to the 2007 change. LAWS OF 1998, ch. 176, § 51(2)(c)
(formatting omitted). In what may have been a scrivener's error, the language was retained for
special fuel while removed for motor vehicle fuel. LAWS OF 2007, ch. 515, § 21(7)(c); former RCW
82.38.030(7)(c). When the statutes were later consolidated into chapter 82.38 RCW, effective July
1, 2015, this conditional language remained. LAWS OF 2013, ch. 225, § 103(7)(c). It is not clear
whether keeping this conditional language was intended, as it had previously been removed in
2007 for imported motor vehicle fuel.
6
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Cougar Den, Inc. v. Dep 't ofLicensing, No. 92289-6
Fairhurst, C.J. (dissenting)
the first instance of wholesale possession of fuel within Washington. I fail to see
how such a scheme directly implicates travel.
B. The Yakama Nation's treaty right to travel applies to trade only when it cannot
be meaningfully separated from travel, not when travel is merely necessary
for trade
Both Smiskin and King Mountain provide that a treaty right to travel applies
to trade only when Washington law imposes a limitation on travel and trade, and the
two cannot be meaningfully separated. United States v. Smiskin, 487 F.3d 1260,
1266 (9th Cir. 2007); King Mountain Tobacco Co. v. McKenna, 768 F.3d 989, 997-
98 (9th Cir. 2014). Such is not the case with Washington's fuel excise tax. The
majority fails to see this distinction and, instead, concludes that Cougar Den's
trading activity is exempt from Washington's fuel excise tax merely because travel
is necessary for trade. But neither Smiskin nor King Mountain held this to be a
relevant consideration.
At issue in Smiskin was the application of the contraband cigarette trafficking
act (CCTA), 18 U.S.C. § 2342(a), to a Yakama Nation member. 487 F.3d at 1263.
The CCTA imposes criminal penalties for dealing in contraband cigarettes. Id.
"Contraband cigarettes," in tum, are defined by state law. Washington law provides
that cigarettes not containing tax stamps that are transported by wholesalers who fail
to first notify Washington's Liquor Control Board of their intent to transport are
7
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
Fairhurst, C.J. (dissenting)
contraband.Jd.; RCW 82.24.250(1 ). Transport, not possession, was the predicate for
the prosecution at issue in Smiskin. 9
In ruling for Smiskin, the United States Court of Appeals for the Ninth Circuit
held that his treaty right to travel preempted Washington's transportation notice
requirement because the right includes the right to "'transport goods to market' for
'trade and other purposes'" and the notice requirement burdened such transport.
Smiskin, 487 F.3d at 1266 (quoting Cree v. Flores, 157 F.3d 762, 769 (9th Cir.
1998)). The court noted that when "the right to travel overlaps with the right to trade
... such that excluding commercial exchanges ... would effectively abrogate our
[prior decisions] and render the Right to Travel provision truly impotent," it should
not "draw what would amount to an arbitrary line between travel and trade." ld. at
1266-67. But Smiskin does not stand for the proposition the majority asserts-the
Yakama Nation's treaty right to travel is a de facto right to trade simply because
travel is necessary for trade. Indeed, a reading of King Mountain confirms the
opposite to be true. 768 F.3d at 989. Travel was necessary for the trade at issue in
King Mountain, yet the Ninth Circuit found the state obligation burdened only trade,
9
In United States v. Fiander, another Yakama Nation member successfully defended a
CCTA charge based on his treaty right to travel. 547 F.3d 1036 (9th Cir. 2008). While the CCTA
defense was upheld, the court held the defendant could still be prosecuted for conspiracy to violate
the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(d), for his activities.
Id. at 1039-42.
8
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
Fairhurst, C.J. (dissenting)
rather than travel and, therefore, was not preempted by the Yakama Nation's treaty
right to travel. Id. at 997-98. Smiskin simply stands for the proposition that when
travel and trade cannot be meaningfully separated within a state scheme, a Yakama
Nation member's treaty right to travel preempts both aspects of that scheme.
The state obligation in King Mountain arose from a Washington statute
requiring tobacco product manufacturers to place into escrow funds to reimburse
Washington for health care costs associated with the tobacco products they sold to
Washington consumers. Id. at 991-92; RCW 70.157.020. King Mountain asserted
that the Yakama Nation's treaty right to travel "'unequivocally prohibit[s]
imposition of economic restrictions ... on the Yakama people's Treaty right to ...
trade,"' which includes bringing goods to market. King Mountain, 768 F.3d at 997.
But the Ninth Circuit held otherwise, limiting the scope of the treaty right to travel
to "'guarantee[ing] the Yakamas the right to transport goods to market over public
highways without payment of fees for that use."' !d. (quoting Cree, 157 F .3d at 769).
It is not a "right to trade." !d.
Cougar Den and amicus make similar arguments as King Mountain attempted
to make-the treaty applies equally to trade and travel. Resp't's Br. at 24-26; Amicus
Curiae Br. ofYakama Nation at 12-13; see King Mountain, 768 F.3d at 992 (King
Mountain asserts treaty right applies to "state economic regulation"). But this is not
9
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
Fairhurst, C.J. (dissenting)
so. The treaty right applies to trade only if inextricably linked to travel. Otherwise,
the argument fails. Smiskin, 487 F.3d at 1266. As a result, it should fail here, as it
failed in King Mountain, 768 F.3d at 997-98.
The escrow payment in King Mountain had nothing to do with travel, other
than to impose a financial burden on the products King Mountain sought to bring to
market in Washington. 10 Id. at 991; see RCW 70.157.020 (requiring an escrow
payment by tobacco manufacturers for products sold to "consumers within the
State"). Similarly, Washington's fuel excise tax on importers, imposed on the first
incidence of wholesale possession of fuel within Washington, has nothing to do with
travel, other than to impose a financial burden on the products fuel importers seek
to bring to market in Washington. Former RCW 82.36.020(2)(c), .022; former RCW
82.38.030(7)(c), .031. In both instances, King Mountain's and Cougar Den's, travel
is necessary for trade.
Without travel, most goods have no market. But as King Mountain
demonstrates, necessity of transport, without an inextricable link between travel and
trade, is not sufficient for preemption. 768 F.3d at 997-98. The necessity to bring its
burdened goods to market did not entitle King Mountain to an exemption on its
escrow obligation. Nor should Cougar Den be entitled to such an exemption.
1
°King Mountain also distributed its products outside of Washington. King Mountain, 768
FJd at 997-98.
10
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
Fairhurst, C.J. (dissenting)
Curiously, the majority claims, "Smiskin is nearly identical to this case."
Majority at 13. I disagree. The specific provision Harry Smiskin was accused of
violating required a wholesaler to '"give[] notice to the [Liquor Control Board] in
advance of the commencement of transportation"' ofunstamped cigarettes. Smiskin,
487 F.3d at 1263 (emphasis added) (second alteration in original) (quoting RCW
82.24.250(1 )). Transportation was at the very essence of the Washington law at issue
in Smiskin. See RCW 82.24.250(1). Trade was peripheral. Washington's fuel excise
tax, on the other hand, accrues "at the time and place of the first taxable event and
upon the first taxable person within this state," i.e., wholesale possession, not
subsequent transportation. Former RCW 82.36.022; former RCW 82.38.031. I fail
to see the similarity between Smiskin and this case.
C. The implications of the majority's holding extend beyond this tax regime
The majority is too quick to dismiss the "'parade of horribles"' the State
claims could arise from the majority's ruling. Majority at 16. True, felons will not
avoid firearm possession charges as a result of this holding, even if they are Yakama
Nation members traveling on public highways. Nor would Washington be precluded
from regulating the transportation of restricted goods by tribal members. The
regulatory exception covers such instances. Smiskin, 487 F.3d at 1271.
11
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Cougar Den, Inc. v. Dep 't ofLicensing, No. 92289-6
Fairhurst, C.J. (dissenting)
But what this ruling puts at risk is Washington's, and potentially other states',
ability to tax goods consumed within its borders. A simple extension of the
majority's logic would allow nontribal members to avoid the imposition of state use,
excise, or sales tax on goods they consume through a contrived transport by Y akama
Nation or Nez Perce tribal members. 11 The majority provides no clear limits.
Transport is necessary to bring many goods to market. See Appellant's Opening Br.
at 33 (discussing the potential impact on Washington's use tax regime from such a
ruling). Does this mean all goods transported to market by Yakama Nation members,
regardless of the identity of the buyer and the purpose of transport, are exempt from
state tax? Nothing indicates any of the parties understood the Treaty of 1855 to
provide for such a right. See Cree, 157 F.3d at 766-68 (describing the historical
context of treaty negotiations). Yet the majority's ruling seems to create just such a
right.
Ours is a case in point. Cougar Den delivers almost all of its fuel to retail gas
stations in Washington. Those gas stations, in turn, sell not just to tribal members,
but the general public. 12 Cougar Den seeks an exemption from Washington's fuel
11
Both the Nez Perce and Yakama Nation tribes have similar treaty rights to travel. Cree,
157 F.3d at 772. The majority's mling could apply with equal force to transport activities by
members of either tribe.
12
Cougar Den asserts that it provides "fuel [only] to members of the Yakama Nation."
Resp't's Br. at 4. But it fails to note that "more than 90 percent of the fuel it imported" during the
12
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
Fairhurst, C .J. (dissenting)
excise tax on all of the fuel it distributes. Indeed, another Yakama Nation member
has made similar claims in California, with detrimental impacts not just to the state's
ability to tax, but its competitive business environment. See Salton Sea Venture, Inc.
v. Ramsey, No. 11CV1968-IEG, 2011 WL 4945072, at *7 (S.D. Cal. Oct. 18, 2011)
(court order) (competitor asserts a Yakama Nation member's claimed exemption
from the imposition of California's fuel excise tax due based on the treaty right to
travel was an unfair business advantage). The majority's ruling would, undoubtedly,
provide a basis for further examples.
For the reasons stated above, I dissent. The Yakama Nation's treaty right to
travel on public highways does not preclude taxation of Cougar Den's off-
reservation fuel distribution activities pursuant to former chapters 82.36 and 82.38
RCW. I would reverse the superior court and affirm the ruling of DOL's director.
Like the majority, I would not reach Cougar Den's appearance of unfairness
argument because of the de novo review engaged in by this court.
period at issue was to tribal members who are "retail gas stations [permitted to] ... sell to 'any
person."' CP at 1004.
13
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Cougar Den, Inc. v. Dep 't of Licensing, No. 92289-6
Fairhurst, C.J. (dissenting)
W~J~
v
14