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On October 26, 2011, the Delaware Bankruptcy Court issued an order finding that the slot machine wagering tax did not apply to funds in the 15% set-aside:
"This contested matter presents a dispute between Indianapolis Downs, a corporate debtor in the gaming industry, and the Indiana Department of Revenue (the “Department”), a state taxing authority. The parties disagree over whether an Indiana tax reaches all, or only part, of the Debtor’s revenue from slot-machine wagering. The Debtor claims the latter, arguing that the tax does not extend to slot-machine revenue that it must, by statute, transfer to third parties. The Department insists, however, that the tax extends to all slot-machine receipts, without exception.
The Racino Statute imposes a graduated tax (the “Graduated Tax”) on the adjusted gross receipts (“AGR”) that the Debtor receives from slot-machines wagering.7Id. § 4-35-8-1(a) (the “Graduated Tax Provision”). AGR includes “all cash and property … received by a” racino from slot-machine wagering, minus what is “paid out to patrons as winnings” and certain “uncollectible” amounts. Id. § 4-35-2-2. Depending on how much AGR the Debtor takes in each year, the Graduated Tax rate ranges from 25% (on the first $100 million of AGR) to 35% (on AGR above $200 million). Id. § 4-35-8-1(a)(1)-(3). After applying the proper rate, the Debtor remits what it owes to the Department “before the close of … business” the next day. Id. § 4-35-8-1(b).
The Set-Aside Funds: In addition to paying the Graduated Tax, the Debtor must, each month, “distribute” 15% of its slot-machine AGR (the “Set-Aside Funds”) to various third parties, as detailed in the Racino Statute and its implementing regulations. Id. § 4-35-7-12(b) (the “Set-Aside Funds Provision”); 71 Ind. Admin. Code 1-1-1 et seq (2011).…
The Court finds that Indianapolis Downs has satisfied its burden to show that the Graduated Tax does not extend to the Set-Aside Funds. Again, in Indiana, “taxation follow[s] the beneficial interest in income, [and] a person who is a mere conduit for another is generally not taxable on the income.” U-Haul, 784 N.E.2d at 1083-84. Here, the Set-Aside Funds belong to third parties, not the Debtor. The Debtor merely collects the funds and passes them along, and thus they are not included in the Debtor’s income. Because the Graduated Tax is measured by the Debtor’s income, the Set-Aside Funds cannot be subject to that tax."
http://www.deb.uscourts.gov/Opinions/2011/BLS20111026_11-11046.pdf
This order is currently on appeal to the Third Circuit.
On November 23, 2011, Indianapolis Downs filed an appeal in the Indiana Tax Court contesting the Department’s denial of a prior-filed refund of taxes paid between June 2008 and September 2010 on the Set-Aside Funds and a Motion to Stay.
On December 19, 2011, the Indiana Tax Court granted the Debtor’s Motion to Stay.
IT IS THEREFORE ORDERED, ADJUDGED, AND DECREED THAT ALL PROCEEDINGS IN THIS COURT RELATED TO THIS MATTER ARE STAYED UNTIL SUCH TIME AS THE MOTION OF DEBTOR INDIANAPOLIS, DOWNS, LLC FOR A DETERMINATION OF THE ESTATE'S RIGHT TO A REFUND OF CERTAIN TAXES FILED IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ON NOVEMBER 22, 2011 HAS BEEN FULLY ADJUDICATED, INCLUDING ANY APPEALS. MARTHA BLOOD WENTWORTH, JUDGE (ORDER REC'D 12/20/11 AT 12:00 P.M.) ENTERED ON 12/20/11 ED
The Tax Court affirmed its order on January 31, 2012.
http://hats2.courts.state.in.us/ISC3RUS/ISC2detail.jsp?row=7
On March 1, 2012, the Department filed a Petition for Review, seeking to appeal to the Indiana Supreme Court both the propriety of the Indiana Tax Court’s Order on the Motion to Stay and to address the merits of the case.
On June 21, 2012, the Indiana Supreme Court voted to deny transfer:
THE COURT GRANTS THE PARTIES' REQUESTS FOR PERMISSION TO FILE VARIOUS DOCUMENTS THAT THEY HAVE TENDERED TO THE COURT. ACCORDINGLY, THE CLERK IS DIRECTED TO SHOW FILED, AS OF THEIR RESPECTIVE DATES OF TENDER, THE FOLLOWING DOCUMENTS: (1) "REPLY BRIEF IN SUPPORT OF MOTION TO STRIKE" (TENDERED MARCH 30, 2012); (2) "INDIANA DEPARTMENT OF STATE REVENUE'S REPLY IN SUPPORT OF ITS VERIFIED MOTION TO TAKE JURISDICTION OF INDIANAPOLIS DOWNS, LLC'S ORIGINAL TAX APPEAL PURSUANT TO INDIANA APPELLATE RULE 56.A" (TENDERED JUNE 4, 2012); (3) "INDIANAPOLIS DOWNS, LLC'S SURREPLY IN OPPOSITION TO PETITIONER'S VERIFIED MOTION TO TAKE JURISDICTION OF INDIANAPOLIS DOWNS, LLC'S ORIGINAL TAX APPEAL PURSUANT TO INDIANA APPELLATE RULE 56(A)" (TENDERED JUNE 8, 2012); AND (4), "INDIANA DEPARTMENT OF STATE REVENUE'S SUR- SURREPLY IN SUPPORT OF ITS VERIFIED MOTION TO TAKE JURISDICTION OF INDIANAPOLIS DOWNS, LLC'S ORIGINAL TAX APPEAL PURSUANT TO INDIANA APPELLATE RULE 56.A" (TENDERED JUNE 14, 2012). THE COURT HAS REVIEWED THE MATERIALS DESCRIBED ABOVE. THE COURT HAS MET IN CONFERENCE, AND EACH MEMBER OF THE COURT HAS HAD AN OPPORTUNITY TO VOICE THAT JUSTICE'S VIEWS ON THESE MATERIALS WITH THE OTHER JUSTICES. BEING DULY ADVISED, THE COURT DENIES THE DEPARTMENT'S PETITION SEEKING REVIEW UNDER APP. R. 63 AND ITS MOTION FOR TRANSFER UNDER APP. R. 56(A). BECAUSE REVIEW AND TRANSFER ARE DENIED, THE COURT DENIES, AS MOOT, THE DEPARTMENT'S MOTION TO EXPEDITE AND DOWNS'S MOTION TO STRIKE. BRENT E. DICKSON, CHIEF JUSTICE ALL JUSTICES CONCUR, EXCEPT SULLIVAN, J., WHO VOTES TO GRANT THE DEPARTMENT'S PETITION FOR REVIEW UNDER APP. R. 63. (ORDER REC'D. 6/21/12 AT 10:45 AM) ENTERED 6/21/12 KM
http://hats2.courts.state.in.us/ISC3RUS/ISC2detail.jsp?row=7
To bring you up to date on this litigation, in their “Second Amended Disclosure Statement” filed with the Delaware Bankruptcy Court, the casino parties describe the tax litigation as follows: …
“On June 29, 2011, Indianapolis Downs Filed the Motion of Debtor Indianapolis Downs, LLC to Determine the Legality of Certain Taxes and a memorandum of law in support of the relief requested therein (the “Tax Litigation”) [Docket Nos. 313-314]. In the Tax Litigation, Indianapolis Downs requested, pursuant to sections 105 and 505 of the Bankruptcy Code, that the Bankruptcy Court declare that under Indiana’s racino statute, it is not required to pay to the Indiana Department of Revenue (the “Department”) a graduated wagering tax on those funds required by Indiana law to be set aside by Indianapolis Downs for various third-party entities (“Set-Aside Funds”), predominantly in the horse racing industry.
Hoosier Park, L.P. (“Hoosier Park”), the only other racino in the state of Indiana, sought to intervene in the Tax Litigation to ensure that it would receive the benefit of a determination on the legality of the taxes that were the subject of the Tax Litigation… The Bankruptcy Court permitted Hoosier Park to intervene by order dated August 26, 2011 [Docket No. 405].
On September 6, 2011, the Department filed its Objection and Memorandum in Support Filed by Indiana Department of Revenue [Docket No. 428], which was amended on September 7, 2011 by the Amended Objection and Memorandum in Support Filed by Indiana Department of Revenue [Docket No. 433]. On September 13, 2011, Indianapolis Downs submitted a reply brief in further support of the Tax Litigation [Docket No. 452], and on September 14, 2011, Hoosier Park Filed a joinder in Indianapolis Downs’ reply [Docket No. 455].
Following a hearing held on September 19, 2011, the Bankruptcy Court entered its opinion [Docket No. 526] (the “Tax Opinion”) and order [Docket No. 527] (the “Tax Order”) on October 26, 2011, which resolved the Tax Litigation in favor of Indianapolis Downs. The Bankruptcy Court concluded as a matter of law “that the Set-Aside Funds need not be included in Indianapolis Downs’ calculation and payment of the Graduated Tax.” (Tax Opinion at 14; see also id. at 27.) The Bankruptcy Court’s Tax Opinion and Tax Order held that Indianapolis Downs is not required, going forward, to pay the graduated wagering tax as applied to the Set-Aside Funds.
The Department filed a timely notice of appeal on November 30, 2011 from the decision in the Tax Opinion and Tax Order. Although an appeal from a Bankruptcy Court’s final order in a proceeding would ordinarily be heard in the first instance by the United States District Court for the District of Delaware (“District Court”), federal law 28 U.S.C. § 158(d)(2), provides that in certain circumstances an appeal from a bankruptcy court order may be heard directly in the United States Court of Appeals. On December 22, 2012, Indianapolis Downs timely filed Debtor-Appellee’s Request for Certification of Direct Appeal to the United States Court of Appeals for the Third Circuit [Docket No. 680] (“Certification Request”) requesting that the Bankruptcy Court certify that circumstances exist that warrant the Department’s appeal in the Tax Litigation to be heard directly by the United States Court of Appeals for the Third Circuit (“Third Circuit”). On December 28, 2011, the Department filed an Objection to Debtor-Appellee’s Request for Certification of Direct Appeal to the United States Court of Appeals for the Third Circuit [Docket. No. 686] (“Certification Objection”). At a hearing conducted on January 5, 2012, the Bankruptcy Court announced its decision to grant the Certification Request.
On January 10, 2012, the Bankruptcy Court issued an order certifying the Department’s appeal to be heard directly by the Third Circuit [Docket No. 720] (the “Certification Order”). On January 30, 2012, Indianapolis Downs timely filed a petition in the Third Circuit, pursuant to Federal Rule of Appellate Procedure 5, requesting that the Third Circuit exercise its discretion to hear the Department’s appeal, which the Bankruptcy Court had certified pursuant to 28 U.S.C. § 158(d)(2). On February 22, 2012, the Third Circuit granted Indianapolis Downs’ petition. On March 6, 2012, the Department filed a motion in the Third Circuit entitled Appellant's Motion to Reconsider Order Granting Appellee's Petition for Leave to Appeal (“Motion to Reconsider”), asking that court to reconsider its decision to hear the Department's appeal directly. On May 7, 2012, the Third Circuit denied the Department's Motion to Reconsider. The Department’s appeal is currently pending in the Third Circuit as appeal number 12-1582. On June 15, 2012, the Department filed its opening brief in the Third Circuit. The brief of Indianapolis Downs will be due in the Third Circuit on or around July 16, 2012.
On November 22, 2011, Indianapolis Downs Filed the Motion of Debtor Indianapolis Downs, LLC for a Determination of the Estate’s Right to a Refund of Certain Taxes [Docket No. 607] (“Refund Motion”), which, for the reasons set forth in the Tax Litigation and the Bankruptcy Court’s Tax Opinion and Tax Order, requested entry of an order determining that its bankruptcy estate is entitled to a refund of certain graduated wagering taxes paid to the Department prior to Indianapolis Downs’ Petition Date. The Department objected to the Refund Motion [Docket No. 628] and also filed an Emergency Motion for Stay Pending Appeal [Docket No. No. 623]. At a hearing conducted before the Bankruptcy Court on January 5, 2012, the Bankruptcy Court announced its decision to hold the Refund Motion in abeyance during the pendency of the Department’s appeal in the Tax Litigation.
On November 23, 2011, the Debtors filed a protective appeal in the Indiana Tax Court contesting the Department’s denial of a prior-filed refund of taxes paid between June 2008 and September 2010 on the Set-Aside Funds. On the same day, Debtor filed a Motion to Stay in which the Debtor requested that the Indiana Tax Court stay the case before it pending final resolution of the appeal of the Bankruptcy Court’s Tax Order and Tax Opinion (“Motion to Stay”). On December 19, 2011, the Indiana Tax Court granted the Debtor’s Motion to Stay. The Department filed a Petition for Review, seeking to appeal to the Indiana Supreme Court both the propriety of the Indiana Tax Court’s Order on the Motion to Stay and to address the merits of the case. The Debtors have responded and objected to the Department’s Petition for Review on jurisdictional grounds, but no ruling has yet been rendered. The Department has also filed a motion with the Indiana Supreme Court requesting it assert jurisdiction and determine directly the substantive tax issues pending at the Indiana Tax Court based on the claim that an emergency exists requiring a speedy determination. The Debtors have responded and objected to the motion on the grounds that the rule invoked does not apply under the circumstances and that no emergency exists to justify a direct appeal. The Indiana Supreme Court has not ruled on the Department’s motion seeking direct appeal.”…
See Document Number 1180 found here:
http://dm.epiq11.com/INL/Docket/#Debtors=4175&RelatedDocketId=&ds=true&maxPerPage=25&page=1
Earlier this year, the Indiana Attorney General weighed in on this matter:
http://indianapropertytaxreporter.blogspot.com/2012/03/attorney-general-finds-that-funds-in.html
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