Documents show agency insiders questioned Great Wolf Lodge tax exemption

May 16, 2012

GRAND MOUND, Wash. - Great Wolf Resorts is a Wisconsin-based chain of indoor water parks and hotels. Four years ago, the company expanded what it calls its “paw print” to the Northwest.

It opened its first west coast property at Grand Mound, Washington south of Olympia. The state of Washington declared the resort tax exempt because Great Wolf partnered with the Chehalis Indian Tribe.

Now, Correspondent Austin Jenkins has obtained internal state documents that question that tax-free status – potentially worth tens of millions of dollars.

Great Wolf Lodge is the kind of place that will soak your kids and your pocketbook.

To play here, you have to stay here. Two nights in the hotel can easily top $600. But families come here from all over the region.

I’m standing with Marketing Director Chad Pearson on a balcony overlooking the massive enclosed water park. The indoor air is warm and humid.

“One of the great features of the Great Wolf Lodge is that’s always 84-degrees whether it’s 40-degrees outside or 90-degrees outside, it’s always the same temperature in here,” he says.

Great Wolf Lodge sits just off Interstate 5 near Centralia, Washington. Pearson points out the two biggest water slides: the six-story Howlin Tornado and River Canyon Run.

“Those slides are the ones that you see from the freeway when you’re driving by.”

The resort also features restaurants and retail shops. Plus, a separate conference center. Jeff Warnke is a spokesman for the Chehalis Tribe. He describes the partnership between the tribe and Great Wolf Resorts as a bit of serendipity.

"We had the land, they had expansion plans and I think it just all kind of fell into place for everybody."

The resort was not cheap to build: $170 million. But Warnke says the investment is paying off.

Back in 2007, Patricia Costello remembers driving south on I-5 one day and seeing the massive structure going up. She had reason to take note. At the time Costello was Thurston County’s elected tax assessor. She says at first she assumed it was a tribal casino.

“I thought okay it’s no big deal because we have casinos on Indian property all over the state and it’s all exempt.”

As in tax exempt because of the federal Indian Gaming Regulatory Act.

“But then I thought, ‘why the water tower?’”

Costello says once she learned it was going to be a water park, not a casino, and that an out-of-state non-tribal resort company was involved, she started wondering about the tax status of the project. That’s when she discovered Washington’s Department of Revenue had already declared the project tax exempt.

“And I thought, you know, that just doesn’t sound right."

Little did Costello know, she wasn’t the only one questioning the decision to grant Great Wolf Lodge tax-free status. So was –- of all people -- the lawyer at the Department of Revenue who wrote the ruling that exempted the resort.

Mark Bohe is his name. Bohe is still with the agency and wouldn’t speak for this story. But lawyer Jim Winterstein -- now retired from the Department of Revenue -- says Bohe was uneasy about his ruling on Great Wolf Lodge.

“Basically he told me that the conclusion that he reached he didn’t really agree with, but he did it because he knew Leslie wanted that conclusion,” Winterstein says.

Leslie is Leslie Cushman. At the time -– remember this is 2007 -- she was a Deputy Director and tribal liaison at the Washington Department of Revenue. That year, Cushman appeared before a panel of state lawmakers on the House State Government and Tribal Affairs Committee. And this is how she described the role of the Department of Revenue.

“We collect taxes and state law requires that we tax to the full extent of the law. That means full enforcement and fair enforcement of the law and we construe exemptions narrowly.”

But retired Revenue attorney Jim Winterstein says -– in his observation -- when tribes were involved Cushman’s bark didn’t have much bite.

“There was never any doubt in my mind that she was pro-tribe,” he says.

Pro-tribe. It’s a bias Cushman denies. She has since gone to work for the Puyallup Tribe near Tacoma. In an email Cushman told me if she had a bias back then it was to “follow the law.”

Washington state law does clearly state the Department of Revenue should construe “liberally in favor of ... Indians.” But Washington law also says that non-Indians doing business in Indian country are “generally” subject to tax.

In March of 2008, Great Wolf Lodge opened to the public. Soon after, Thurston County Assessor Patricia Costello sent the resort a property tax bill.

“That just got them so upset it was unbelievable,” she recalls.

A few months later the Chehalis Tribe filed a lawsuit against Thurston County. Suddenly the tax status of Great Wolf Lodge was a matter for the courts to decide. Turns out, “This is a very murky area of the law,” says Robert Anderson, who runs the Native American Law Center at the University of Washington.

He says in general, state and local governments have no jurisdiction in Indian country. But when it comes to taxes the courts have set up what’s called a balancing test to weigh state, federal and tribal interests. That test looks specifically at whether the tribe plays a significant role in the business. Anderson says sometimes that’s not an easy call.

“It’s sort of a new day in Indian country in terms of a lot of economic development that originally may be have been gaming-related but now is diversifying into other sorts of entertainment facilities and commercial developments that are just unheard of in the case law up until the last 15 or 20 years.”

The Chehalis Tribe’s case against Thurston County went to federal court in 2010. Former Thurston County Assessor Patricia Costello won round one. Using the balancing test, the judge ruled she did have the authority to impose property taxes on Great Wolf Lodge.

“All I could think of was ‘yes’ I didn’t misjudge it. I did the right thing," she says. "Whether or not the taxpayers ever get their fair share or anything, I did everything that I could possibly do as the assessor.”

Here’s what the judge found: a Limited Liability Company, not the tribe, owned the resort. The tribe had no day-to-day control of the water park. In fact, very few tribal members actually worked at the Lodge. It turns out, tribal employment, tribal control and tribal ownership were three of the key factors that led the Washington Department of Revenue to declare the project tax exempt in the first place.

So would the state now reverse course? We’ll have that answer in the conclusion of our story.

On the Web:

Washington Law On Tribal Taxation