A federal judge has delivered the Yakama Nation a second blow in its fight against the state over fuel taxes on the reservation.

U.S. District Court Judge Lonny Suko has denied the tribe’s motion to block the state from scrapping a tax agreement that allowed tribal fuel station owners to buy bulk fuel mostly free of state taxes and to force both parties back into mediation.

At issue is a dispute between the state and the tribe over a fuel tax agreement established by a federal consent decree. The state claims the tribe has not submitted required audits of sales on the reservation for several years and owes some $20 million in unpaid fuel taxes.

Both parties were in mediation over the issue, but the state moved to terminate the agreement after discussions failed.

In its motion, the tribe made a point of a provision in the agreement that states both parties must negotiate any disagreements in good faith and that failed mediations must be formally determined by a mediator. But the agreement also says either party could scrap the agreement if mediation fails after 180 days.

In his ruling, Suko wrote, “Per the plain language of the consent decree, a formal declaration of an impasse by a mediator is not a prerequisite to termination. The consent decree can be terminated so long as a dispute has been unresolved for a period of more than 180 days.”

Phone calls to the Tribal Council Chairman Harry Smiskin were not immediately returned Wednesday.

While the state seeks full payment of the unpaid fuel taxes, the tribe wants mediation to continue to devise an agreement both parties can live with.

The tribe’s motion was in response to Suko’s ruling last month that established federal jurisdiction over the case, trumping a previous ruling in Yakama Nation Tribal Court that blocked the state from canceling the agreement and enforcing state fuel tax laws on tribal land. Without an agreement, tribal stations could face the full state tax of 37.5 cents per gallon on bulk fuel purchased, state Department of Licensing officials said.

Under the agreement, tribal fuel station owners only pay state fuel taxes on 25 percent of bulk fuel purchased. Tribal members are exempt from state fuel taxes on the 1.2-million-acre reservation. But the reservation is a checkerboard of tribal and nontribal land, and tribal stations get their share of non-Indian customers. State officials have long argued the tax exemption gives tribal stations an unfair price advantage. The agreement was an attempt to level the playing field by requiring non-Indians buyers to pay the state fuel tax.

Station owners are required to submit audits of sales to the state to determine whether additional fuel taxes are owed.

Next, Suko will hear the tribe’s motion to dismiss the case altogether.

Phil Ferolito can be reached at 509-577-7749 or pferolito@yakimaherald.com.