Why doesn’t Washington tax tribal casinos?

An idea I’ve heard thrown around a few times when folks talk about government reform is that the state should tax tribes that operate casinos. So why doesn’t Washington do this? Well, there are two main reasons: tribal sovereignty/federal law and Washington’s past opposition to the expansion of gambling.

As Catherine mentioned in her post on tribal fuel tax agreements, there are 29 federally recognized tribes that are independent nations within Washington State. The federal government has a trust relationship with the tribes, usually established by treaties, that falls outside of the federal framework that connects the 50 states. This has been an emotional issue since our nation’s founding, and to say that this creates a complex system would be an understatement.  However, it does mean that the states cannot tax tribes since it’s not allowed under federal law.

However, in certain instances, tribal gaming money can be given to states. This is called revenue sharing. Here’s a quick description from Marty Brown, the Director of the Office of Financial Management:

The federal government closely scrutinizes any compact that provides for revenue sharing to ensure a tribe receives something of equal benefit in return. In most states, no other entities are allowed to offer gaming in exchange for revenue sharing. In our state, non-tribal card rooms do offer gaming.

The compact that Marty references is a gaming agreement that the Washington State Gambling Commission negotiates with individual tribes that is then sent to the Secretary of the Interior for approval.  These compacts outline types of gambling, number of slot machines, gaming facilities, etc. that a tribe can operate.

Since the state has some non-tribal gaming, tribes couldn’t be given a monopoly on gambling establishments in Washington.  The only other way to make revenue sharing a reality in Washington would be to allow tribes to greatly expand their gambling operations, an idea that voters and elected officials aren’t thrilled about.  Looking at past initiatives related to gambling, five out of seven have failed. The most recent example is Initiative 892, which would have authorized additional "electronic scratch ticket machines" in non-tribal gaming establishments. Gambling revenues collected from this expansion would have been used to help offset property taxes.  Voters didn’t like this idea and the measure was defeated by a margin of 2 to 1.

Based on all of this, it’s highly unlikely that revenue sharing will occur in Washington anytime soon. While the money from gambling would be a boost to state and local coffers, it’s better if Washington doesn’t go down that road. As previously mentioned, Washington’s tax structure is very regressive and paying for services has been challenging during economic downturns.  Gambling is a recreational activity that people do less of when times are tough. Depending on this revenue source would only contribute to the shortfalls that Washington experiences when the economy takes a turn for the worst. 

WA tribal fuel tax agreements creates a 75/25 split in taxes.

Washington has 29 federally recognized tribes in the state and an additional 7 non-federally recognized tribes. As sovereign nations, it has always been difficult reaching an agreement on how 
the state and the tribes interact when it comes to public service and taxing. Washington State has tried to mitigate some of this confusion over fuel taxes by working with the tribes so that both the needs of Washington’s roadways and the rights of the tribes can be met.

State law allows the Governor to:

 “Enter into an agreement with any federally recognized Indian tribe located on a reservation within this state regarding motor vehicle fuel taxes included in the price of fuel delivered to a retail station wholly owned and operated by a tribe, tribal enterprise, or tribal member licensed by the tribe to operate a retail station located on reservation or trust property. The agreement may provide mutually agreeable means to address any tribal immunities or any preemption of the state motor vehicle fuel tax”

This agreement which started in 2006, credits 75% of the state fuel tax back to the tribes. The agreement makes it easier for the tribes to charge less for fuel than most non-tribal fuel stations. The tribes are required to pay 100% of the state fuel tax upfront, but afterward they are given a reimbursement for 75% of the fuel tax. The state keeps 25% of the revenue. You might remember our previous post on state fuel tax, if not; check it out to see how the taxes collected from your fuel are spent in the state.

As part of the law, the tribes must abide by laws regulating the quality of gasoline and only purchase gasoline from lawful distributors. The tribes are required to spend the proceeds they received from the fuel tax on highway purposes which includes construction, maintenance, transit, planning, and policing of the roadways. This agreement also stipulates that the fuel tax transactions can be audited and therefore must be auditable. The pricing of fuel at tribal gas stations is supposed to be comparable with the rest of the state. The Department of Licensing (DOL) oversees this agreement and is required to publish an annual report to the legislature on updates to the fuel tax agreement between the state and the tribes. DOL publishes a listing of which tribes and distributors are participating in the agreement.

The fuel tax agreement is controversial to some people. Of course the state has agreed to opt out of a large percentage of revenue.  In 2010, almost $32 million was refunded to the 22 tribes that opted into the agreement. While this may sound like a lot of money, the 25% of the tax that’s collected from the gasoline sold by the tribes, generated $7.7 million that went back into the state’s roadways.

As I mentioned earlier, the taxes refunded to the tribes must still be spent on highway purposes. Many transportation projects have benefitted from this agreement such as:  

The state is currently involved in a lawsuit with the Automotive United Trades Organization (AUTO), which is claiming that the fuel tax agreement violates the state constitution, because, the 18th Amendment of the state constitution requires that:

 All fees collected by the State of Washington as license fees for motor vehicles and all excise taxes collected by the State of Washington on the sale, distribution or use of motor vehicle fuel and all other state revenue intended to be used for highway purposes, shall be paid into the state treasury and placed in a special fund to be used exclusively for highway purposes

The claim is that because the audited information is not available to the public and is only provided to DOL, no one really knows if all the money is being spent on highway purposes. The Seattle Times reported on this issue during the 2012 legislative session, and the article touches on some legislation that was introduced regarding this issue.