A group representing nontribal station owners says the tribes get an unfair tax break that lets them beat the competition on price while state law lacks teeth to ensure that tribes spend their gains on road improvements.

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OLYMPIA — When you drive past a tribal gas station, the price may well be a few cents a gallon cheaper than what’s charged just outside the reservation.

A group representing nontribal station owners says the tribes get an unfair tax break that lets them beat the competition on price while state law lacks teeth to ensure the tribes spend their gains on road improvements.

Under compacts with 16 tribes, Washington state gives them a 75 percent discount from state gas taxes. If tribes were to pay the full amount, the state would reap an additional $30 million a year to fix highways.

This week, opponents of the fuel-tax compacts are turning up the heat, saying the state is letting money slip away at the same time Gov. Chris Gregoire seeks $3.6 billion to preserve aging ferries and highways, by raising gasoline and vehicle fees.

The Puyallup Tribe, owners of the Emerald Queen Casino, replies it has spent more than $25 million on transportation and police since 2007, including joint projects with Tacoma. Across from its roomy new Tahoma Market, with 24 gas pumps, there are barricades and signs marking a $2.3 million road project, and the tribe says it has paid for a lane widening along Pacific Highway.

Tribal governments have sovereign powers that throw into question the state’s power to charge them a fuel tax. So in 2007, the Legislature passed a law allowing Gregoire to make fuel-tax compacts with the tribes.

When they buy fuel, the tribes pay the full wholesale price, including 38 cents a gallon tax upfront. The state sends them a rebate check for 75 percent of the tax.

The Automotive United Trades Organization (AUTO), which represents nontribal service stations, is suing the state. AUTO attorney Phil Talmadge, a former justice on the state Supreme Court, argued Thursday before the court that the existing compacts violate the state constitution, because the 18th Amendment requires gas taxes be used only for highway purposes.

The state counters that, based on court rulings, it would collect no fuel tax at all from tribes if it weren’t for the compacts. Tribes are required to use the tax rebates for transportation, and often do, but details of how the money is spent are exempt from public disclosure.

“No one but the tribes know, and they will not let anyone look at their books,” said Tim Hamilton, a former Grays Harbor-area station owner and executive director of AUTO.

The Puyallup Tribe voluntarily posts a description of its road projects and some cost information on its website. Audit reports by the tribes are typically provided to the Department of Licensing, but those cannot be reviewed by the public or lawmakers.

Besides the lawsuit, a bill was filed this week to require Gregoire to renegotiate the compacts by May 15.

House Bill 2013, sponsored by Rep. Mike Armstrong, R-Wenatchee, would mandate the tribes’ refunds be spent only on “highway purposes,” excluding boat ramps and transit that are legal now. Records would have to be public, the bill says.

Of course, there are economic issues at play. Nontribal service-station owners fear their customers are siphoned away over a few pennies a gallon.

The conservative Washington Policy Center in October estimated there are 51 tribal gas stations, where fuel prices are consistently 7 to 12 cents a gallon less than at other stations. What the center calls the “subsidy” to tribes grew from $5 million in 2005 to $28 million in 2010.

“You can undercut the competition,” says Sen. Doug Ericksen, R-Ferndale. But he thinks the bill has no chance, saying majority Democrats don’t support it.

The 24 pumps at Tahoma Market were mostly busy at noon Thursday, dispensing Shell gasoline at $3.41 a gallon. That’s less than the $3.49 at a 76 station down the road, as well as the $3.47 average reported at gasbuddy.com for the Tacoma area. On the other hand, several Arco, Safeway and Fred Meyer stations were in the $3.30s.

“We’ve never sold fuel below the wholesale cost including taxes,” said Kelly Croman, counsel for Marine View Ventures, the tribe’s development arm.

Around the state, AUTO says tribes have used their tax savings for nonhighway projects, including an Olympic Peninsula hiking trail, a cemetery and offices.

A 2010 state report, using examples offered by tribes, lists a parking lot, as well as access roads to a clinic, a day-care center and a sewage plant; and logging roads outside Spokane.

The Tulalip Tribes said it spent $1.6 million to design an overpass widening to its shopping complex along Interstate 5 near Marysville.

Gambling dollars are causing another political tug of war. Republican leaders want to let nontribal casinos offer the same slot machines as tribal casinos, with the state receiving a cut of the revenue.

Advocates say that would bring in nearly $160 million next fiscal year and $380 million in the subsequent two years, though Gregoire’s office questions those numbers.

Material from Seattle Times archives was included. Mike Lindblom: 206-515-5631 or mlindblom@seattletimes.com. Twitter @mikelindblom.