The following question of law was certified to the Indiana Supreme Court for disposition:
Are the funds that racinos must distribute pursuant to Ind. Code § 4-35-7-12 included in “adjusted gross receipts received” for purposes of the Graduated Wagering Tax, Ind. Code § 4-35-8-1?
Excerpts of the Third Circuit Order follow:
The facts relevant to the question certified are as follows:
(a) Indianapolis Downs, LLC
(“Indianapolis Downs”) is the operator of an Indiana racino and a debtor in the
process of Chapter 11 bankruptcy. Hoosier Park, LLP is also an operator of an
Indiana racino and is present in this case as an intervenor-appellee. These two
entities represent the entirety of the Indiana racino industry.
(b) In November 2010,
Indianapolis Downs filed a tax refund claim with the Indiana Department of
Revenue (“IDOR”) seeking a refund for the taxes it had paid on the set-aside
funds in fiscal years 2008, 2009, 2010 and part of 2011. IDOR denied the claim.
(c) Subsequently, while in
Chapter 11 proceedings, Indianapolis Downs filed a Motion for a Determination
of the Legality of Certain Taxes, which challenged the application of the
Graduated Wagering Tax to the set-aside funds. The motion did not seek a refund
for taxes already paid. Rather, it sought a determination of whether the
Graduated Wagering Tax must be paid on set-aside funds in the future. After
hearing argument, the Bankruptcy Court entered its opinion on October 26, 2011,
holding that the Graduated Wagering Tax did not apply to the set-aside funds.
IDOR appealed the opinion to the District Court, and Indianapolis Downs
initiated a direct appeal to this court pursuant to 28 U.S.C. § 158 (d)(2). We
agreed to hear the direct appeal.
(d) Meanwhile,
Indianapolis Downs filed both an action in the Indiana Tax Court and a refund
proceeding in the Bankruptcy Court to pursue a refund. Indianapolis Downs
immediately informed the Indiana Tax Court of the related proceedings and
requested a stay, which was granted. IDOR requested that the Tax Court vacate
the stay, but it declined to do so. IDOR then challenged the stay in the
Indiana Supreme Court. IDOR also petitioned for direct review of the merits of
the tax dispute by the Indiana Supreme Court. On June 20, 2012 the Indiana
Supreme Court voted to affirm the stay and to deny IDOR’s petition for direct
review.
(e) In fiscal
year 2012, Indianapolis Downs paid approximately $70 million in Graduated
Wagering Tax and distributed approximately $37 million as required by Ind. Code
§ 4-35-7-12. In accordance with the Bankruptcy Court’s opinion, it did not pay
tax on the $37 million in set-aside funds. Indianapolis Downs paid $10.6
million less in Graduated Wagering Tax than it would have if it were required
to include the set-aside funds in its taxable adjusted gross receipts.
IDOR argues to
this court that the Graduated Wagering Tax is unambiguous and “adjusted gross
receipts received” includes the set-aside funds. IDOR asserts that the term
“received” is non-technical and, given its ordinary meaning, applies to any
funds of which Indianapolis Downs takes possession. IDOR further contends that,
in the context of the highly regulated racino industry, the state may tax the
set-aside funds even if Indianapolis Downs has no beneficial interest in them.
Lastly, IDOR argues that it is immaterial whether the Graduated Wagering Tax
imposes double taxation because double taxation does not per se invalidate a
taxation statute.
Indianapolis Downs argues that it never “receives” the
set-aside funds for purposes of the Graduated Wagering Tax because it never receives
the beneficial use of the funds. Rather, it is a mere conduit through which the
funds flow to the entities designated by Ind. Code § 4-35-7-12. Indianapolis
Downs contends that, under Indiana law, it may not be taxed on funds that
simply pass through it to others. Indianapolis Downs also argues that, by
IDOR’s reading, the Racino Statute results in double taxation, which Indiana
law disfavors.
The Bankruptcy Court found the Racino Statute to be
ambiguous. Turning to broader principles of Indiana law, the Court agreed with
Indianapolis Downs that Indiana common law generally prohibits taxing funds for
which a party is a mere conduit, and also disfavors double taxation. The
Bankruptcy Court reasoned that, in the absence of a clear statutory directive
to the contrary, set-aside funds should not be deemed “received” for purposes
of the Graduated Wagering Tax.
This court has consistently refrained from certifying cases
to state courts when we can confidently predict how the state court would
decide the issue presented. See, e.g., Travelers Indem. Co. v.
DiBartolo, 171 F.3d 168, 169 n.1 (3d Cir. 1999) (declining to certify a
question to the Pennsylvania Supreme Court in part because the issue was not
sufficiently difficult). In this case, however, we cannot predict with
confidence how the Indiana Supreme Court would decide this issue. There are no
decisions that we are aware of applying Ind. Code §§ 4-35-7-12 and 4-35-8-1.
Furthermore, we believe that the question of law certified is
of such substantial public importance in Indiana as to require prompt and
definitive resolution by your Honorable Court. The issue is significant both in
terms of the amount in controversy and for future policy in the state. We have
found certification to be “a useful vehicle . . . to give the state supreme
courts an opportunity to elucidate an important issue of state law, thereby
avoiding erroneous predictions that will confuse rather than clarify the
issue.” Kendrick v. Dist. Attorney of Phila., 488 F.3d 217, 219 n.1 (3d
Cir. 2007). While we are strangers to Indiana tax law and Indiana’s racino
industry, the Indiana Supreme Court is the entity that can interpret the Racino
Statute in the manner most consistent with Indiana’s law and policy. Because
the Supreme Court of Indiana is uniquely qualified to decide this novel
question of Indiana law, and because certification may “in the long run save
time, energy, and resources and help[] build a cooperative judicial
federalism,” Lehman Bros. v. Schein, 416 U.S. 386, 391 (1974), we think
that certification is warranted.
NOW,
THEREFORE, the following question of law is certified to the Indiana Supreme
Court for disposition according to the rules of that Court:
Are the funds
that racinos must distribute pursuant to Ind. Code § 4-35-7-12 included in
“adjusted gross receipts received” for purposes of the Graduated Wagering Tax,
Ind. Code § 4-35-8-1?
