On December 15, 1978, the Smoke Shop on the Tulalip Reservation west of Marysville in Snohomish County makes its first liquor sales. The store's entry into the liquor business comes later than planned because the Washington State Liquor Control Board confiscated the first shipment of 645 cases of liquor headed for the store in late November. Sales begin after federal district judge Donald S. Voorhees (1916-1989) makes a preliminary ruling in favor of the Tulalip Tribes, ordering that the liquor be returned. More than five years of legal feuding between the state and the tribe over the right to tax and regulate liquor sales on the reservation will follow before an agreement is reached in 1984.
Sovereignty or Monopoly
The seizure of the Tulalip-bound liquor and the subsequent legal sparring were part of an ongoing dispute between Washington state and federally-recognized Indian tribes located within state boundaries. As sovereign governments recognized by treaties and federal law, the Tulalips and other tribes asserted that the state had no jurisdiction to regulate sales of alcohol -- or tobacco -- on Indian reservations. The state, on the other hand, insisted that alcohol and tobacco sales, at least those to non-Indians, were subject to state taxes, and tried to prevent Indian-run stores from selling untaxed products.
The state was particularly upset by reservation liquor sales because Washington law gave the state a monopoly on the sale of liquor by the bottle, so that both the liquor tax (which was among the nation's highest) and the retail markup went into the state coffers. Reservation stores selling liquor untaxed by the state could pay tribal tax and still significantly undercut the state liquor stores, potentially costing the state hundreds of thousands of dollars in revenue.
Seized and Returned
In late 1978, the Tulalip Tribes opened a tribe-run Smoke Shop on the reservation, planning to sell tobacco and eventually liquor. The tribe obtained federal permission and asserted that their sovereign status meant the operation was not subject to state taxation or regulation. The store ordered 645 cases of liquor, with a wholesale price of more than $300,000, from a federally licensed liquor distributor in Oklahoma. However, state liquor-control agents temporarily frustrated the tribe's plans when they seized the liquor shipment in Everett on November 28, 1978. The driver, who was unaware of the legal controversy in Washington, mentioned the Tulalip shipment while at the state liquor store, and Everett police detained the truck until Liquor Control Board agents and state police arrived to seize the 645 cases.
One day later, the Tulalip Tribes sued the state in federal district court, seeking the return of its liquor and an injunction prohibiting the state from interfering with the tribe's liquor sales. Within two weeks District Judge Donald Voorhees issued a preliminary ruling requiring the state to return the liquor. The state complied and on Friday, December 15, 1978, the Smoke Shop made its first liquor sales even as employees worked to stock the shelves with the 645 cases of previously confiscated liquor.
The return of the liquor shipment did not end the controversy. State liquor control agents began monitoring the Smoke Shop and citing customers who took their untaxed liquor purchases off the reservation. Despite the state's enforcement efforts, the Tulalip store's much lower prices drew business from the state liquor store in Marysville, where sales fell by 50,000 bottles in 1979 and continued to drop.
Appeals and Agreement
Meanwhile, the legal battles continued. In May 1979, Judge Voorhees made a final ruling in favor of the Tulalips, concluding that federal law gave the tribe exclusive control over liquor sales on the reservation, but the state appealed that ruling. At the same time, other cases involving the extent to which states could regulate reservation liquor sales were also moving through the court system. Eventually, in the summer of 1983, the United States Supreme Court decided (in a case that did not involve the Tulalips) that states did have significant authority to license and tax reservation liquor sales.
By the time the Supreme Court ruled, the Tulalip Tribes and the state were in the midst of negotiating an agreement, which they finally signed on January 31, 1984. The tribe committed to buy its liquor from the state, thus paying the state tax, and to sell at state prices. In return, the Liquor Control Board agreed that it would close its Marysville store and not open one in the area for 10 years, giving the Tulalips a temporary monopoly on liquor sales near the reservation.
