Prices fuel debate behind tribal gas tax exemption

YAKIMA, Wash. -- Receipts from tribal-owned gas stations on the Yakama reservation aren't adding up, say some tribal customers, state tax collectors and non-Indian competitors.

As a result, tribal members say they aren't getting their full exemption from state taxes while the state says it has missed out on as much as $11 million over a three-year period.

And non-Indian station owners say they have a hard time competing and their losses are mounting.

Gas-pump accounting on the reservation has at least one legislator calling for a new negotiations of all agreements the state has with the Yakama Nation over state tax issues, ranging from gasoline to cigarettes.

For their part, the owners of the tribal stations aren't talking, referring all questions to tribal chairman Harry Smiskin, who didn't return several phone calls seeking comment.

"That's between the tribe and the state," said Faron Young, owner of both Topp Stop and Topp Mart fuel station and convenience stores in Toppenish. "You'll have to talk to the chairman."

Rep. David Taylor, R-Moxee, has grown concerned about agreements between the state and tribes and whether the state is losing tax revenue.

He tried to get a bill (House Bill 2045) passed in the just-completed legislative session that would have required the state to re-examine all agreements with the tribe over fuel and cigarette taxes and gambling. The measure never got a committee hearing.

"We need to figure out a mechanism that will bring accountability to all the agreements," Taylor said. "And the gas tax is just the tip of the iceberg."

Where's the full exemption?

On the Yakama reservation, tribal members can buy gas from tribally owned stations without paying the state's fuel tax of 37.5 cents per gallon. A sovereign government, the Yakama Nation and its members are exempt from many state taxes on the reservation.

But their tax exemption isn't reflected in the price they pay at the pump. At some of the eight tribal stations on the 1.2 million-acre reservation, tribal members pay only 6 cents less a gallon than non-Indians, according to station prices. At other tribal stations, they pay the same price.

Under an agreement reached after the tribe sued the state over fuel taxes in the '90s, tribal stations pay the state fuel tax on 25 percent of all bulk fuel they buy wholesale to sell on the reservation, where non-Indians outnumber tribal members.

Separately, tribal government assesses its own 5.5-cent fuel tax on its members.

The tribal tax and average tribal exemption equals 11.5 cents, raising a question in many tribal members' minds: Where's the remaining 26 cents per gallon of the tribal tax exemption?

Some tribal members and state lawmakers speculate that a portion of it is being used to lower the overall price for everyone -- Indian and non-Indian alike. The rest, they believe, goes into the pockets of tribal station owners.

Tribal stations have not submitted to the state audits covering 2007 through 2009 -- as required under the 1994 decree -- and now the state Department of Licensing says the tribe owes more than $11 million in fuel taxes on sales to non-Indians.

Under the decree, the tribe is supposed to shut down stations that are not complying with audit requirements.

State officials and tribal leaders are expected to meet today <FEFF>to discuss the issue.

The state relies on the audits to determine the actual percentage of tribal and nontribal sales, said Department of Licensing spokesman Brad Benfield in Olympia. Audits determine whether the tribe owes additional state fuel taxes or is in line for a refund.

"So the purpose of the audits is to come up with a percent to determine what the split should be," Benfield said.

Tribal member Rudy Maldonado, a longtime skeptic of tribal government, accuses station owners of misusing the consent decree for their own business purposes instead of giving tribal members their full tax exemption.

"And they should be getting (the tax break), and our leadership should be doing something about it," he said. "They've been taking from the young, the old and the deceased. Blood money -- how can they do that?"

While tribal members miss out on the full amount of their tax break, non-Indians on average are buying gas at tribal stations at nearly 20 cents per gallon below the average price at non-tribal stations.

On Tuesday, the average price of regular unleaded at tribal fuel stations was $3.74 a gallon. The average price on that day at non-tribal stations in Yakima and surrounding areas was $3.94 a gallon, according to AAA Gas Gauge.

Meanwhile non-Indian stations are struggling to compete.

Mike Chandler, who owns and operates two fuel stations in Toppenish, guesses that tribal stations are taking about 80 percent of the business on the reservation.

"My financial statements are not pretty -- we've sustained about $800,000 in losses over the past five years," he said. "We don't know if we're going to survive long term if something doesn't change."

Modifying the decree

Taylor would like to see an increase in the percentage of wholesale gas -- now at 25 percent -- taxed at tribal stations, and for the state to have enforcement authority.

He said it's obvious that non-Indian customers account for more than 25 percent of fuel sales at tribal stations. The formula is based on previous estimates that 25 percent of the gas purchased by tribal stations is sold to non-tribal customers.

"At best, it would be 50-50," he said. "I know guys that will drive down to the reservation just to fill up their tanks."

In 2008, the Department of Licensing estimated that of the 14.5 million gallons of wholesale gas bought by tribal stations, 8.5 million -- or 58 percent -- were sold to non-Indians, according to a DOL letter sent to the tribe.

The state has fuel-tax agreements with several other tribes in the state. But those agreements are different.

Tribal stations elsewhere in the state pay the full state tax on wholesale fuel, and track sales to tribal members. That information is sent to the tribal government and state, and determines any tax refunds that the tribal government may receive.

But on the Yakama reservation, the tribal government is billed only on that 25 percent of all wholesale fuel bought by tribal stations. In turn, stations are supposed to reimburse the tribal government for that 25 percent and submit an audit of sales to the state.

Stations keep track of tribal sales by having tribal members sign a tax-exempt sheet at the cash register.

Some tribal members began refusing to sign those sheets at some stations after learning that they were paying the same price as non-Indians, Maldonado said.

"Why should he give the station owner an exemption that he's not benefiting from?" he said.

In the end, the tribal government, not the stations, is on the hook for any state fuel taxes when the accounting fails to reconcile under the audits.

Pointing to the $11 million the state alleges the tribe owes, Maldonado said the consent-decree agreement is flawed because the burden ultimately falls on the tribal government while station owners are making money.

"The tribe shouldn't have to pay that," he said. "It should be the (station owners)."

Other tribes agree to spend revenue from tax refunds on road improvements in their areas, and to report those expenditures to the state.

For example, using revenue from state fuel-tax refunds, the Puyallup tribe near Tacoma in 2009 rebuilt a washed-out road in Orting, put 29 street lights in the city of Puyallup and is paying for part of a project to add an additional lane on a stretch of Interstate 5 through its reservation.

So far, the Puyallups have spent more than $17.8 million -- more than double what the tribe has received in fuel tax refunds -- on road improvements since entering an agreement with the state four years ago, said Kelly Chroman-Neeldans, attorney for Marine View Ventures, the tribe's economic development arm.

"We've got a lot of projects that are still going on," she said.

The Yakamas' agreement doesn't require them to disclose their road-improvement spending to the state, Benfield said.

The state's overall decline in fuel-tax revenue is part of the reason legislators in the last session raised some fees associated with commercial drivers licenses and instruction permits fees to $35, up from $20, Taylor said.

"If we can't enforce the consent decree we currently have, ultimately it translates to additional fees and taxes," he said.

* Phil Ferolito can be reached at 509-577-7749, or pferolito@yakimaherald.com.