Yakama Nation leaders are suing the state for scrapping an agreement that allowed tribal gas station owners to buy bulk fuel mostly free of state fuel taxes.

The tribe filed the lawsuit against the state Department of Licensing and Gov. Chris Gregoire on Dec. 6 in Yakama Tribal Court, according to a Yakama news release.

At issue is a federal consent decree between the tribe and state that allows tribal fuel station owners on the reservation to buy bulk fuel mostly free from state taxes to sell to tribal members, who are exempt from state fuel taxes. On Dec. 5, the state terminated the agreement, saying the tribe was not abiding by its audit requirements.

Both the state and the tribe were in mediation over terms of the agreement. Department of Licensing spokesman Brad Benfield in Olympia said Wednesday that the state terminated the agreement because mediation failed after more than 180 days. Both parties entered mediation after the state said the tribe failed to submit required audits of fuel sales spanning from 2007 to present.

But Tribal Council Chairman Harry Smiskin accused the state of negotiating in bad faith. Negotiations are required by the federal consent decree. He said the Yakamas have stronger treaty rights than most other tribes in the state, and the state shouldn’t use a cookie-cutter approach to a fuel-tax agreement.

“We just don’t feel that was good faith mediation,” Smiskin said Wednesday. “They’re the ones that pulled the plug on it, not us. So it left us with no other alternative but to file in court.”

The state’s move to scrap the agreement now requires fuel distributors to assess the state tax of 37.5 cents per gallon on all fuel delivered to tribal stations on the reservation. The tribe’s lawsuit attempts to block the state from assessing those state fuel taxes.

Benfield said the state is holding off on ordering distributors to collect the tax while the litigation is pending.

In the past, state officials estimated that the tribe owes the state some $11 million in fuel taxes.

Although tribal members are exempt from state fuel taxes on the reservation, non-Indians buying at tribal stations are still required to pay it. Under the decree, tribal fuel stations pay the state fuel tax on only 25 percent of bulk fuel delivered. Under the agreement, tribal station owners are required to provide audits of tribal and nontribal sales to determine whether the tribe owes additional state fuel taxes on sales to non-Indians.

The Yakama reservation is a checkerboard of tribal and nontribal land, and non-Indians outnumber tribal members in two reservation towns: Toppenish and Wapato.

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