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Great Wolf Lodge Tax Exemption Stands Despite Internal Doubts, Court Ruling

Austin Jenkins


Since the 1970s, U.S. policy toward American Indian tribes has been to encourage economic independence. Tribal casinos are probably the most visible symbol of that policy. These days, tribes are diversifying into other businesses. In 2005, the Chehalis Indian tribe in southwest Washington partnered with a Wisconsin-based water park chain to build a destination resort. The state of Washington, in turn, granted the project tax exempt status. But now, internal state documents question whether Great Wolf Lodge really is a tribal entity and eligible for favorable tax treatment.

In late 2006, there was a meeting at the Washington Department of Revenue in the office of then-Deputy Director Leslie Cushman. It was a meeting that would come to haunt an agency lawyer named Mark Bohe.

Last year, Bohe wrote an internal memo about that meeting. I’ve obtained a copy. He writes that when he arrived for the meeting, an attorney for the Chehalis tribe -– Harry Chesnin –- was already there. Bohe says his boss assured Chesnin her agency would find Great Wolf Lodge exempt from state taxes.

Bohe writes Cushman instructed him to work with the tribal attorney to “develop the best possible fact pattern” to do that. In February of 2007, Bohe issued an official ruling that exempted the indoor water park from state excise taxes.

Bohe still works for the agency and would not agree to an interview. But Revenue spokesman Mike Gowrylow defends the ruling.

“It was our best first impression based on the facts available to us,” he says.

Internal emails show Bohe and Chesnin did indeed work closely to establish a set of facts about the partnership between the tribe and the Wisconsin-based non-tribal resort company.

In one email, Bohe even advised Chesnin on how to structure the business deal to strengthen the tribe’s position that the project was not taxable. Chesnin –- who no longer works for the tribe -- turned down my request for his version of events.

In an email, former Deputy Director Leslie Cushman denies she ordered Bohe to find in favor of the tribe. She calls the charge “ridiculous” and “untrue.”

Whatever happened behind the scenes, the decision to exempt Great Wolf Lodge could set a big precedent, says Patricia Costello. She’s the former elected tax assessor in Thurston County where the resort is located. She says this isn’t about the Chehalis tribe, but about the out-of-state resort company.

“It would mean that any corporation could come to the state of Washington, talk to one of the tribes, go in business with them and be tax exempt," Costello says. "And that’s what would have happened if they get away with this.”

In court filings, the Chehalis tribe makes the opposite case. It argues that taxing partnerships between tribes and non-tribal companies would chill future joint ventures designed to give tribes self-sufficiency.

When the Chehalis Indian Tribe and Great Wolf Resorts teamed up they formed a Delaware-based Limited Liability Corporation or LLC. The Department of Revenue’s tax ruling notes that typically joint ventures between a tribe and a non-tribal entity do not enjoy the favorable tax treatment reserved for tribes.

Former Thurston County Tax Assessor Patricia Costello is more blunt. “It is a for-profit corporation that does not qualify for an exemption," she says. "Period."

And in 2010 a federal court judge in Tacoma agreed. Judge Benjamin Settle ruled that Great Wolf Lodge is mostly a non-tribal business. And that’s why he said Costello did have the authority to levy property taxes.

Inside the Washington Department of Revenue the case was closely watched. Remember Mark Bohe the attorney who authored the original tax exemption? I’ve obtained internal agency emails that show after the ruling he lobbied to reverse course. In one email exchange, he called his tax exemption “so flawed that I believe it needs to be withdrawn.”

He wasn’t the only one. Around the same time another attorney over in the property tax division named Jim Winterstein wrote a memo to his boss Brad Flaherty who is now Director of the Department of Revenue. It essentially said: if I had known what the judge was privy to I would not have concluded that the resort was also exempt from property taxes.

Winterstein has since retired from the agency and is now unequivocal about Great Wolf Lodge. “I don’t have any doubt at this point that it is taxable,” he says.

There was pressure from outside the agency too. Thurston County’s prosecutor at the time formally asked the agency to change the Lodge’s tax status. But the Department of Revenue held firm. Spokesman Mike Gowrylow explains the decision this way.

“The Department’s policy whether it’s dealing with tribes or corporations or the smallest little drycleaners, if there’s litigation involved the department’s policy is to wait until we get a final outcome of that litigation.”

I said, “The agency clearly states in its letter ruling that if the facts change, essentially this ruling doesn’t stand.”

“If in fact the facts are different than presented to us we can assess back taxes," he replied. "We have not lost that ability.”

That said, this case has dragged on longer than Revenue expected. As a result, the agency’s ability to collect back taxes is running up against a four year statute of limitations. Documents show the state Attorney General’s office has advised the agency to obtain waivers to extend that window.

A note: the Washington Department of Revenue would not make its current director available for an interview for this story. Wisconsin-based Great Wolf Resorts wouldn’t comment on the Lodge’s tax exempt status nor would anyone affiliated with the water park.

As for Patricia Costello, she’s now retired in Arizona. A Democrat, she says she left Washington disenchanted. “I don’t think I’ve ever been so disappointed in government as a whole,” she says.

A coda to this story: The Chehalis Tribe is currently appealing the federal court ruling that Thurston County can levy property taxes on the resort. The tribe argues it’s the 51-percent majority owner of the Limited Liability Corporation that owns the resort. The Chehalis also say the county’s property tax infringes on the tribe’s sovereign authority. The two sides are currently in mediation.

On the Web:

Court Filings: