Downs Racing, L.P. v. Commonwealth

288 A.3d 542

DOWNS RACING, L.P., Petitioner

v.COMMONWEALTH of Pennsylvania, Respondent

No. 802 F.R. 2016

Commonwealth Court of Pennsylvania.

Argued May 12, 2021

Decided December 19, 2022

Mark S. Stewart, Harrisburg, for Petitioner.

R. Todd Faciana, Senior Deputy Attorney General, Harrisburg, for Respondent.

BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge,¹ HONORABLE MARY HANNAH LEAVITT, Judge,² HONORABLE PATRICIA A. McCULLOUGH, Judge, HONORABLE MICHAEL H. WOJCIK, Judge, HONORABLE CHRISTINE FIZZANO CANNON, Judge,³ HONORABLE ELLEN CEISLER, Judge, HONORABLE STACY WALLACE, Judge⁴

OPINION BY JUDGE FIZZANO CANNON

At issue in this case is whether and to what extent Momentum Dollars, also known as Players’ Club Points (PC Points), may be excluded from a casino's gross income under the Pennsylvania Race Horse Development and Gaming Act (Gaming Act).⁵ Because we agree with the Board of Finance and Revenue (Board) that only the casino's actual costs are excludable, we affirm the Board's decision in part, vacate in part, and remand for recalculation of the excludable amounts in accordance with this opinion.

I. Background

Petitioner, Downs Racing, L.P. (Downs Racing), operates Mohegan Sun, a casino and resort in Wilkes-Barre, Luzerne County. Board Decision, September 9, 2016 (Bd. Dec.) at 1. Downs Racing seeks a refund of state taxes paid for the period from June 1, 2012, through December 31, 2013 (Tax Period). Id. Downs Racing contends that it was entitled to deductions from its gross revenue for PC Points it distributed to players as credits entered on member cards at slot machines and game tables. Id. at 1-2. PC Points are not redeemable for cash, but they can be used in lieu of cash with various vendors at the resort. Id. at 2 & 6. Downs Racing reimburses the vendors at a discounted rate. Id. at 3. PC Points can also be redeemed directly with Downs Racing for certain items such as gas cards, gift cards, and iPads. See id. at 7.

Rather than attempting to calculate its cost for each individual item, Downs Racing made an overall calculation based on the total value of PC Points distributed during the Tax Period. Stipulations of Fact, December 20, 2019 (Stips.) at 8-9, ¶ 32; see also id. at 10-12, ¶ 33. Downs Racing applied what it asserted to be a "historical redemption rate" that assumed 93.569% of distributed PC Points would be redeemed by players. Id. at 8-9, ¶ 32. It then further reduced that figure by applying a "cost factor" of 67.3% based on the discounts it received in reimbursing vendors for PC Points redeemed in their shops. Id. However, during its appeal to the Board, Downs Racing submitted spread sheets that documented the actual cost to Downs Racing for each item purchased with PC Points. Bd. Dec. at 3

Notably, Downs Racing also did not track whether PC Points were awarded for slot machine play or table game play, but simply calculated the percentage amounts of revenue attributable to each category of play. Stips. at 12, ¶ 35. Thus, Downs Racing was not in a position to determine whether specific PC Points being redeemed were awarded for table game play or slot machine play.

Downs Racing filed a petition with the Department of Revenue's Board of Appeals (BOA) seeking a total refund of $6,640,891.29 plus interest for the Tax Period. Bd. Dec. at 1. Downs Racing asserted that PC Points are "cash equivalents" and therefore deductible under Section 1103 of the Gaming Act, which defines them as follows:

"Cash equivalent." An asset that is readily convertible to cash, including, but not limited to, any of the following:

(1) Chips or tokens.

(2) Travelers checks.

(3) Foreign currency and coin.

(4) Certified checks, cashier's checks and money orders.

(5) Personal checks or drafts.

(6) A negotiable instrument applied against credit extended by a certificate holder, an interactive gaming certificate holder, an interactive gaming operator or a financial institution.

(6.1) A prepaid access instrument.^[6]

(7) Any other instrument or representation of value that the Pennsylvania Gaming Control Board deems a cash equivalent.

4 Pa. C.S. § 1103.

During its review of the refund petition, the BOA requested that Downs Racing provide additional documentation concerning the redemption of PC Points and purchases made with the PC Points. BOA Decision, January 4, 2016 (BOA Dec.) at 3. The BOA subsequently denied the refund petition in its entirety, finding that Downs Racing did not provide enough information to allow a determination of whether PC Points were deductible from either gross table gaming revenue (GTGR) or gross terminal revenue (GTR). Id.

Downs Racing appealed the BOA's determination to the Board. The Board reasoned that Downs Racing was entitled to deductions for the PC Points, but only for its actual costs, i.e. , the amounts it actually paid to vendors as reimbursement for players’ redemptions of the PC Points. Bd. Dec. at 6-7. Further, no deductions could be taken for reimbursement of PC Points spent on "travel expenses, food, refreshments, lodging or services," all of which are non-deductible under Section 1103. Id. at 7. The documentation submitted by Downs Racing did not break down the reimbursements by category for each item. See id. at 2 & 6. The Board found the evidence showed that most of the PC Points were redeemed for excluded categories of items. Id. at 6. Thus, the Board's finding essentially reflected that Downs Racing failed to sustain its burden of proof regarding specific items purchased with PC Points from most of the vendors, which sell both deductible and non-deductible items.

Nonetheless, the Board allowed Downs Racing to deduct its costs for items it provided to players by directly redeeming their PC Points, as well as its costs for reimbursements to specific listed vendors from whom it would have been impossible to purchase non-deductible items. The Board awarded a total of $185,856.93 (GTR of $177,840.91 and GTGR of $8,016.02), plus interest.⁷

Downs Racing then sought review in this Court.

II. Issues

Downs Racing raises two arguments on review to this Court:⁸

A. Whether the personal property^{[9 ]} that is actually distributed to patrons as a result of gaming play should be excluded from the calculation of GTR and GTGR under [Section] 1103 of the Gaming Act.

B. Alternatively, even if [the Board] properly applied the Gaming Act's definitions of GTR and GTGR, does [the Board's] Order fail to provide relief for all eligible, non-excepted redemption locations and redeemed items[?]

Pet'r Br. at 4.

III. Discussion

The overarching issue in this case is when and how PC Points are to be valued for purposes of their subtraction from gross revenue. This determination requires examination of the Gaming Act's definitions of GTGR and GTR.

The Gaming Act defines GTGR as "[t]he total of":

(1) Cash or cash equivalents received in the playing of a table game minus the total of:

(i) Cash or cash equivalents paid to players as a result of playing a table game.

(ii) Cash or cash equivalents paid to purchase annuities to fund prizes payable to players over a period of time as a result of playing a table game.

(iii) The actual cost paid by the certificate holder for any personal property distributed to a player as a result of playing a table game. This does not include travel expenses, food, refreshments, lodging or services.

....

4 Pa.C.S. § 1103 (emphasis added).

By contrast, regarding slot machines, the Gaming Act defines GTR slightly differently as "the total of":

(1) cash or cash equivalent wagers received by a slot machine minus the total of:

(i) Cash or cash equivalents paid out to players as a result of playing a slot machine, whether paid manually or paid out by the slot machine.

(ii) Cash or cash equivalents paid to purchase annuities to fund prizes payable to players over a period of time as a result of playing a slot machine.

(iii) Any personal property distributed to a player as a result of playing a slot machine. This does not include travel expenses, food, refreshments, lodging or services.

....

Id.¹⁰ (emphasis added).

Notably, both definitions provide separately for the deduction of cash or cash equivalents and other kinds of personal property. This distinction makes sense because, unlike PC Points, cash and cash equivalents (such as checks, for example) have both a known and present cost and a known and present value at the time of their distribution.

By using different language regarding GTGR and GTR in paragraph (iii) of each definition, the legislature apparently contemplated some further distinction for certain kinds of personal property. See Fonner v. Shandon, Inc. , 555 Pa. 370, 724 A.2d 903, 907 (1999) ("[W]here the legislature includes specific language in one section of the statute and excludes it from another, the language should not be implied where excluded."). Under principles of statutory construction, "[p]rovisos shall be construed to limit rather than to extend the operation of the clauses to which they refer." 1 Pa.C.S. § 1924. "The purpose of a proviso is to ‘qualify, restrain or otherwise modify the general language of the enabling provision.’ " Commonwealth v. Bigelow , 484 Pa. 476, 399 A.2d 392, 395 (1979) (quoting Commonwealth ex rel. Margiotti v. Lawrence , 326 Pa. 526, 193 A. 46, 48 (1937) ).¹¹ A proviso need not be expressly labeled as such. See Donnelly v. York Cnty. Bd. of Assessment Appeals , 976 A.2d 1226, 1229 n.5 (Pa. Cmwlth. 2009). Here, therefore, the limitation of deductions from GTGR to the "actual cost paid" by the taxpayer, 4 Pa.C.S. § 1103, operates as a proviso in the definition of GTGR that is not present in the definition of GTR. Thus, the deduction from GTR must be construed as not necessarily limited to the actual cost paid.

However, although the legislature made clear that the only way to value points as a reduction of GTGR is to use the "actual cost paid" for the personal property distributed to the player, it does not follow that the absence of that limiting language from the statute's GTR...