Washington Court Rules Property Tax Incentive Benefitting Indian Tribes Is Unconstitutional

Agreements for payments in lieu of taxes (PILOTs or PILTs) are used frequently by local governments to incentivize private investment in facilities or infrastructure that will provide a public benefit. A recent case in the State of Washington highlights the risk of reliance on PILTs when a project will be developed on fee land owned by an Indian tribe.

Legislation at Issue:

Washington House Bill 1287, enacted in 2014, expanded a tax preference to Indian tribes for the purpose of creating jobs and improving the economic health of tribal communities. The legislation exempts from the State’s property tax property belonging exclusively to any federally recognized Indian tribe if (a) the tribe is located in the State and (b) the property is used exclusively for essential government services. Essential government services include not just tribal administration and other public services, such as fire and police services, but also activities that facilitate the creation or retention of businesses or jobs or that improve the standard of living or economic health of tribal communities. The legislation requires a tribe wishing to claim the property tax exemption to pay a payment in lieu of tax (PILT) to the municipal government, to be negotiated in good faith by the tribe and the applicable county, or, in the absence of agreement between the tribe and county, to be determined by the Washington State Department of Revenue.

Legislation Ruled Unconstitutional:

In City of Snoqualmie v. King County,1 the City of Snoqualmie took issue with the property tax benefits of HB 1287 afforded the Muckleshoot Indian Tribe and its Salish Lodge at Snoqualmie Falls. The City also raised concerns about the Muckleshoot Tribe’s planned development of approximately 60 acres into a hotel and conference center and residential community. The City argued that HB 1287 provides a substantial economic windfall to Indian tribes that is not available to non-Indian governments or private entities because the State and its municipal governments are generally not authorized to engage in general economic development or commercial activities and other non-tribal entities that are authorized to engage in economic development and commercial activities are not entitled to the benefit of the property tax exemption.

Judge Mary E. Roberts agreed with the City and concluded that the PILT is a property tax under Washington law and is subject to the uniformity requirements of Article VII of the Washington Constitution, which requires that all taxes be uniform upon the same class of property within the territorial limits of the authority levying the tax. The court held that the PILT violates the uniformity requirements because it is not imposed at an equal tax rate and does not produce equality in valuing the property taxed. Furthermore, because determination of the amount of the PILT is delegated to the tribe and county, or to the Department of Revenue, the court reasoned that HB 1287 violates Article VII Section 1 of the Washington Constitution mandating that the power to tax not be surrendered, suspended or contracted away.

The case is currently on appeal to the Washington Supreme Court.


When seeking to engage in economic development activities with a promise of favorable tax treatment from local governments for activities benefitting Indian communities, developers and their lawyers should analyze applicable statutes and regulations to determine whether the tax incentives will withstand a constitutional challenge.


  1. 1.  No. 14-2-29269-4 (Wash. Superior Ct. Mar. 4, 2015)

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