Colville tribal members file lawsuit disputing 'illegal' taxation on fuel sales

RaeLynn Ricarte

Two Colville tribal members have filed a lawsuit alleging “illegal” taxation on fuel sales by the council, as well as a refund of back taxes collected by the Tribe.

Zachary Love, an attorney from the Spokane Valley firm of ZEL & Associates, is representing Michael Finley, owner of Inchelium Short-Stop, and Gene Nicholson, owner of Gene's Native Smokes in Oroville. Both plaintiffs are enrolled members of the Confederated Tribes of the Colville Reservation. They are seeking nearly $900,000 in damages, plus court costs and attorney fees.

“I think this case is important because it will set a precedent for all tribes that are federally recognized,” said Love.

He filed the case Jan. 4 against the Bureau of Indian Affairs, United States Department of the Interior, the Confederated Tribes of the Colville Reservation and the Colville Business Council, which is the local governing body. The case will be adjudicated in Colville Tribal Court, which is located in Nespelem.

Love said the basis of the case is that tribes have immunity from payment of state and federal taxes, so his clients should not have been required to sign the “Fuel Tax Incentive Agreement” and collect sales tax from customers. He said there are state and federal Supreme Court decisions to back up the sovereign immunity of tribes from taxation. He contends that the higher court rulings have precedent over the business council's code.

The Colville tribes’ website states that members are not required by federal law to pay state taxes on goods and services purchased within the boundaries of the reservation and/or delivered to them on tribal land, said Love.

“My client’s goods are delivered to them by a non-tribal distributor because they can get a better price,” he said. “They should be allowed by the council's own policy to invoke tribal immunity and not be subject to paying taxes on those goods.”

The business council and other defendants have until Jan. 25 to file a response to the allegations made by Love. The council was unable to be reached for comment.

Love said the council has revoked the Indian Trader's Licenses of his clients because they refused to comply with the directive that they only do business with tribal-approved fuel distributors, and that they collect sales tax from customers. Nicholson and Finley have chosen to purchase fuel for a lower price from Cougar Den, a company based in White Swan that does not charge sales tax to tribal customers.

Love said he has instructed his clients to continue operating their businesses as usual while the case is underway. He is seeking injunctive relief by the court to protect his clients assets.

“The purpose of the license is to promote economic development on reservations for individual tribal members, not destroy or fight them,” stated Nicholson in a letter to Debra Wulff, superintendent of the Bureau of Indian Affairs.

“The tribe is losing thousands of dollars daily by not using their sovereign right to the fullest extent in the fuel business. Instead, they are wasting their time chasing individually-owned businesses for less than $80,000 a year per business instead of a minimum gain of $1.4 million on their own businesses by sourcing from Cougar Den.”

Nicholson has been removed from three of the tribal boards he served on as retaliation, said Love. He said Nicholson and Finley, who is the former chair of the business council, have been tribal members in good standing, yet have still been subjected to harassment and abuse for not complying with business council edicts.

“I took this case because of the injustice between my clients and the government” Love said. “Mr. Finley and Mr. Nicholson have been put in the position of having to fight back against their government to protect their right to choose the licensed fuel distributor they want to work with, and to get the best price for the product.”

Although the state cannot tax a retailer on tribal lands, the agreement enforced by the council for the sale of fuel on the reservation requires taxes to be collected. In addition, a business must select work only with distributors that are tribally-approved. The way the system works, said Love, is that a gas station owner charges the tax and gets to keep 25% of whatever is collected on a fuel sale. The tribe then gets the other 75%.

Love said the state of Washington may only tax the distributor not the retailer. “My clients businesses operate on tribal jurisdiction, the distributor in this case is non-tribal, but distributes the products directly to tribal jurisdiction, thus Finley and Nicholson are compliant within the tribes’ laws.” Love said.

The dispute with the business council began on Aug. 20, 2020, when Nicholson received a letter from Marty Raap, tribal attorney, demanding that he cease and desist buying fuel from Cougar Den. On Sept. 9, Nicholson responded with a letter to Raap, who works out of Nespelem, stating that he was withdrawing from the tribe's fuel tax agreement. About six weeks later, Raap sent Nicholson another cease and desist letter, this time demanding that he pay taxes for fuel sold during the year and provide documentation about his transactions.

Nicholson responded several days later with a letter asserting that he was not in violation of the fuel tax agreement. He urged tribal leaders to make Cougar Den an official fuel distributor. Wulff also contacted Nicholson via letter with her concerns about the situation. He, in turn, provided her with state Supreme Court decisions that he felt backed up his right to withdraw from the agreement and work with Cougar Den.

Finley went through the same experience in an attempt to resolve the issue, said Love.

Finley is also contesting the legality of his “Fuel Tax Agreement” because it has conflicting dates — three years apart — about when it was “entered” into, and it was never signed by the chair of the business council.

“If the agreement was never signed by the chairman, there was never a meeting of the minds, which is an essential element to any valid contract,” contends Love.

He learned about the situation facing Nicholson and Finley from Jesse Templeton, owner of Hunters Bar & Grill and decided it was a case that would set a precedent for tribal members regarding their immunity from taxation.

Love, who is part Native American, said he became interested in practicing tribal law after relocating to Washington from Illinois a couple years ago and buying land within the Spokane reservation.

Love is a member of the American Bar Association, Northwest Indian Bar Association and been admitted to the Spokane, Colville, Kalispel, and Tulalip tribal bars, as well as the Tribal Court of Appeals.

Love said that he is now investigating other practices of the Colville Business Council that he believes are “questionable.” Love said that he intends on amending the lawsuit to recover monies due to his clients from the tobacco rebate tax the tribe is unlawfully withholding.