Chehalis Tribes v. Thurston Cnty.

Permanent improvements built on non-reservation land owned by the United States and held in trust for an Indian tribe pursuant to 25 U.S.C. § 465 are exempted from state and local government taxation.

The Confederated Tribes of the Chehalis Reservation (“the Tribe”) bought the Grand Mound Property (“the Property”) in Thurston County, Washington. The Tribe asked the Department of the Interior (“Department”) to purchase the Property and hold it in trust, pursuant to 25 U.S.C. § 465. The statute also provides that “such lands or rights shall be exempt from State and local taxation.” Before the Department granted the Tribe’s request, the Tribe entered into an agreement to form a limited liability company in order to build the Great Wolf Lodge (“the Lodge”) on the Property. The following year, the Department purchased the Property and agreed to hold it in trust for the Tribe. When Thurston County assessed property taxes on the Lodge, it realized that § 465 exempted the Property from state and local taxation, but the structures on the land were not tax exempt. The district court held that state and local governments were not “prohibited from taxing permanent improvements” owned by non-Indians. Following the Supreme Court’s holding in Mescalero Apache Tribe v. Jones, the Ninth Circuit held that permanent improvements on land covered by § 465 held in trust for the use of a tribe are exempted from state and local taxation. Therefore, Thurston County could not tax the Lodge or any other permanent improvements on the Property. Any of Thurston County’s property taxes on the Property were invalid under both Mescalero and § 465. The panel noted that it was irrelevant that the improvements were owned by a limited liability company rather than the Tribe. REVERSED and REMANDED.