The General Assembly amended Ind. Code § 4-35-8-1(a) in 2011 to provide that the "graduated slot machine wagering tax is imposed. . .on one hundred percent (100%) of the adjusted gross receipts received before July 1, 2012, and on ninety-nine percent (99%) of the adjusted gross receipts received after June 30, 2012, from wagering on gambling games[.]" See Pub. L. 172-2011, § 10, effective July 1, 2011. Unless the legislature expressly excluded the set aside amounts, then the legislature's intent to subject such amounts to the adjusted gross wagering tax under Ind. Code § 4-35-8-1 is clear and unambiguous. Although there are exclusions from the adjusted gross wagering tax enumerated under Ind. Code § 4-35-8-1(2), none of those exclusions includes the set aside amounts under Ind. Code § 4-35-7-12. The phrase "all cash and property. . .received by a licensee from gambling games" in Ind. Code § 4-35-2-2 (definition of adjusted gross receipts) means exactly what it states: one hundred percent (100%) of cash and property received by the licensee before July 1, 2011, from the applicable gambling games, and ninety-nine percent (99%) of cash and property received by the licensee after June 30, 2011, from the applicable gambling games. Thus, the set aside amounts are subject to the adjusted gross wagering tax under the applicable rate.
The Indiana General
Assembly's creation of a study committee to review, among other things, slot
machine wagering tax issues, serves to indicate legislative intent to subject
the set aside amounts to the slot machine wagering tax. In 2009, the General
Assembly established the Gaming Study Committee. Pub. L. 182-2009(ss) §490(b)
(H.E.A. 1001-2009). The Gaming Study Committee was instructed to review, among
other things, "Issues related to [racinos]... including... double
taxation, amounts paid to horsemen's associations, bonds, slot machines,
and satellite locations." Pub. L. 182-2009(ss) §490(d)(14). Additionally,
a study prepared on behalf of the Gaming Study Committee by LSA in September 2009
states that the racinos' effective tax rate is "[b]ased on... the state
and local slot machine wagering taxes for racinos;... required payments by
racinos into the state Gaming Integrity Fund and state Breed Development Funds;
required payments by racinos to horsemen's associations; and required purse
supplements by racinos." See LSA, Gaming Taxes Follow-up:
Effective Gaming Tax Rates, 10 (Sept. 14, 2009). The "required
payments" are the set aside amounts. This acknowledgment indicates that
the General Assembly intended to subject the set aside amounts to the slot
machine wagering tax.
The 2009 Annual
Report of the Gaming Study Committee also provides evidence that the General
Assembly intended the set aside amounts to be subject to the slot machine wagering
tax. The Committee observed that the effective tax rate on racinos was higher
than the effective tax rate on casinos within the Midwest in general because
the tax rate included the "required payments" or set aside amounts
generated by racinos. See LSA, "Annual Report of the Gaming
Study Comm." 7 (Dec. 2009). The Committee observed that
"inclusion of slot machine revenue set aside for the horse racing industry
and included in the calculation of the racino's adjusted gross receipts for
purposes of the wagering tax" made it more difficult for Indiana's racinos
to compete with neighboring states' casinos. Id. at 11. The Gaming Study
Committee's observations demonstrate that the General Assembly believed the set
aside amounts were subject to the slot machine wagering tax.2
The racinos, like the
General Assembly, believed that the set aside amounts were subject to the slot
machine wagering tax. On August 24, 2009, the Gaming Study Committee heard
testimony on racino finances, and on September 14, 2009, the Committee heard
testimony on effective gaming tax rates and local distributions of gaming
revenue. See LSA, Annual Report of the Gaming Study Comm., 2
(Dec. 2009). The Gaming Study Committee's summary of testimony shows that the
racinos presented the Committee with a request for legislation that would
"[d]educt[] from the calculation of adjusted gross receipts for the
required payments for horse racing purposes.... Id. at 5. This testimony
demonstrates that the racinos believed that their adjusted gross receipts included
the set aside amounts.
As explained above,
the plain language of the slot machine wagering tax indicates that the
legislature intended for the tax to be applied to set aside amounts. In my view
no ambiguity exists.
http://www.in.gov/legislative/iac/20120314-IR-010120116AOA.xml.pdf
This was the subject of a bankrupcy decision in In re Indianapolis Downs, LLC., Case No. 11-11046(BLS) (Del. B.R. Ct.) dated October 26, 2011. In that case, the Delaware Bankruptcy Court found to the contrary:
"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 Raci-no 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."
