ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
BARTON T. SPRUNGER STEVE CARTER
MARK J. RICHARDS ATTORNEY GENERAL OF INDIANA
KATRINA M. CLINGERMAN Indianapolis, IN
Indianapolis, IN KAREN HSU
DEPUTY ATTORNEY GENERAL
IN THE INDIANA TAX COURT _____________________________________________________________________
AZTAR INDIANA GAMING ) CORPORATION, ) ) Petitioner, ) ) v. ) Cause No. 49T10-0007-TA-89 ) INDIANA DEPARTMENT OF ) STATE REVENUE, ))
(2) the total of:
all cash paid out as winnings to patrons; and
(B) uncollectible gaming receivables, not to exceed the lesser of:
a reasonable provision for uncollectible patron checks received from gaming operations; or
two percent (2%) of the total of all sums, including checks, whether collected or not, less the amount paid out as winnings to patrons.
For purposes of this section, a counter or personal check that is invalid
or unenforceable under this article is considered cash received by the licensee from
Ind. Code Ann. § 4-33-2-2 (West 1993) (amended 2003).
The sole issue in this case is whether the RWT is a tax that is based on or measured by income. Aztar contends that in order for a tax to be based on or measured by income, it must be a state income tax. (See Petr Br. In Support of [Its] Mot. for Summ. J. at 10.) Aztar explains, however, that the RWT is not a state income tax, but rather a tax upon the exercise of the state-granted privilege of conducting authorized gaming. (Petr Br. In Support of [Its] Mot. for Summ. J. at 11, 15.) In other words, Aztar maintains that the RWT is a traditional excise tax on wagering which is not even remotely similar to [an] . . . income tax. (Petr Br. In Support of [Its] Mot. for Summ. J. at 14.)
To support its argument, Aztar refers the Court to several statutory provisions which it believes clearly evidence the legislatures intent that the RWT be an excise tax as opposed to an income tax. First, Aztar explains, the Departments administrative authority extends, generally, to the administration, collection and enforcement of all listed taxes as set forth in Indiana Code § 6-8.1-1-1. Prior to 1993 (i.e., the enactment of the RWT), listed taxes included, inter alia, Indianas gross income tax, adjusted gross income tax, supplemental net income tax, county adjusted gross income tax, and county option tax. See Ind. Code Ann. § 6-8.1-1-1 (West 1992) (amended 2002). At that same time, income tax was defined to include the gross income tax, the adjusted gross income tax, the supplemental net income tax, the county adjusted gross income tax, and the county option income tax. See Ind. Code Ann. § 6-8.1-1-5 (West 1992) (repealed 2003) (internal citations omitted). Aztar asserts that when the legislature updated Indiana Code § 6-8.1-1-1 to include the RWT in 1993 (see App. to Br. In Supp. of Petr Mot. for Summ. J. at Ex. G; see also A.I.C. § 6-8.1-1-1 (West 2000) (amended 2002)), it did not amend the definition of income tax in Indiana Code § 6-8.1-1-5 to include the RWT. This, Aztar argues, is an important indication that the RWT is not an income tax. (Petr Br. In Supp. of [Its] Mot. for Summ. J. at 13.)
Aztar offers a similar argument with respect to the statutory provisions contained in Title 4, Chapter 13 of the Indiana Code. More specifically, Aztar explains that the RWTs imposition statutes are clearly and unambiguously titled Wagering Taxes. See Ind. Code Ann. §§ 4-33-13-1 through 6 (West 1993 & Supp. 2003). Aztar asserts that had the legislature intended the RWT to be an income tax, it would have titled Chapter 13 Income Taxes. (See Petr Br. In Supp. of [Its] Mot. for Summ. J. at 13-14.) These arguments, however, miss the point.
In 1935, the Indiana Supreme Court recognized that there were two distinct classes of taxes: direct and indirect. See Lutz v. Arnold, 193 N.E. 840, 844 (Ind. 1935). The distinction, the Court explained, rested upon whether the tax was imposed directly, or indirectly, on property. See id. Indeed, [a]n excise tax [is] . . . imposed upon the performance of an act, the engaging in an occupation, or the enjoyment of a privilege, and that every form of tax not imposed directly upon property must constitute an excise if it is a valid tax of any description. Id. at 843-44 (citation omitted). In essence then, the Supreme Court announced that taxes were either property taxes (direct taxes) or non-property taxes (indirect taxes).
Later that same year, the Indiana Supreme Court examined the nature of the income tax created under the Gross Income Tax Act of 1933. Miles v. Dept of Treasury, 199 N.E. 372 (Ind. 1935). In so doing, the Court focused on whether the tax constituted a property tax or a non-property tax, stating:
While there may be a theoretical distinction or a very slight difference between a net income tax and an excise [tax] measured by income, it is difficult to find any practical distinction to be made between a gross income tax and an ordinary excise tax. It is a tax on the recipient of the income, the tax being upon the right or ability to produce, create, receive, and enjoy, and not upon specific property.
Miles, 199 N.E. at 377, 379.
Given these early holdings, it is clear that an excise . . . tax may be measured by a taxpayers income without being construed as an income tax. Indiana Dept of State Revenue v. Fort Wayne Natl Corp., 649 N.E.2d 109, 111 (Ind. 1995), cert. denied, 516 U.S. 913 (1995). Indeed, in 1991, the Indiana Supreme Court examined whether or not a Delaware corporation was required to add-back to its federal taxable income (for purposes of calculating its Indiana adjusted gross income tax liability) the taxes it had paid to West Virginia under that states Business and Occupation Tax. In so doing, the Supreme Court explained that to determine whether a tax was based on or measured by income required a broader inquiry than merely asking whether a taxpayer was required to add-back taxes on income. See Consolidation Coal Co. v. Indiana Dept of State Revenue, 583 N.E.2d 1199, 1201 (Ind. 1991). Rather, the relevant inquiry was, as set forth in Miles, whether the tax to be added-back was measured by income as opposed to the value of property held. See id. at 1202.
In making that inquiry, the Supreme Court held that the West Virginia Business and Occupation Tax was an excise tax measured by income. Id. More specifically, it explained:
West Virginias Business and Occupation Tax law places a tax on the privilege of doing business in that state. [T]here is hereby levied and shall be collected annual privilege taxes against the persons, on account of the business and other activities, and in the amounts to be determined by the application of rates against values or gross income. . . . During the years pertinent to this case, businesses extracting coal from West Virginia soil paid a tax of 3.5% on the gross proceeds derived from the sale of the coal, and an additional tax of .35% on the gross proceeds[.]. . . Under the B&O Tax law, the term gross proceeds of sales is defined as the value . . . actually proceeding from the sale of tangible property without any deduction on account of the cost of property sold or expenses of any kind. We take this to be a tax measured by income[.]
Id. (quotations in original, internal citations omitted). Thus, the Supreme Court determined
that West Virginias Business & Occupation Tax was subject to the add-back provision
of Indiana Code § 6-3-1-3.5(b)(3). Id.
Eight years later, this Court analyzed whether the Michigan Single Business Tax (MSBT) was a tax based on or measured by income. See First Chicago NBD Corp. v. Indiana Dept of State Revenue, 708 N.E.2d 631 (Ind. Tax Ct. 1999). In its analysis, the Court explained that the MSBT was a type of value added tax; in other words, it was a tax imposed, not on the price of a good sold, but rather on the sum of the value of the raw materials, intermediate goods, labor, capital, and the profits which were combined to produce that final good. Id. at 633 (citation omitted). Consequently, while the first step in calculating a taxpayers MSBT liability was to determine its federal taxable income, numerous adjustments were then made to that figure. Indeed, corporate outlays such as wages, capital costs, and interest paid were added to federal taxable income. See footnote See id. at 634.
The MSBT formula, the Court determined, was therefore not designed to measure income but rather the value added through the production process. Id. Although income is certainly one element of the MSBT, the transformation that occurs through the adjustments so radically alter the income element so as to make it impossible to conclude that the MSBT is based on or measured by income. Id. at 635 (footnote omitted). Accordingly, it concluded
[t]he MSBT may start out with income, but after the extensive adjustments incorporated into the calculation of the MSBT, the MSBT becomes an entirely different tax, one that cannot be fairly read to fit under the based on or measured by income language chosen by the Indiana General Assembly.
Id. (footnote omitted).
In this case, it is clear that the RWT is an excise tax: it is not payable unless the privilege of conducting riverboat gambling is exercised and the exercising of those privileges is the occasion for the imposition of the tax. See Fort Wayne Natl Corp., 649 N.E.2d at 111 (citing Lutz, 193 N.E. at 844). Nevertheless, it is an excise tax that is measured by income. Indeed, Aztars RWT liability calculation is measured by the adjusted gross receipts it receives from its gaming operations: all cash and property received by Aztar from its gaming operations (minus certain adjustments) certainly constitute income to Aztar. See A.I.C. § 4-33-2-2. See also Blacks Law Dictionary 766 (7th ed.) (defining income as [t]he money or other form of payment that one receives . . . from employment, business, investments, royalties, gifts, and the like). Accordingly, Aztars RWT liability is subject to the add-back provision of Indiana Code § 6-3-1-3.5(b)(3). The Departments final determination is therefore AFFIRMED.
Barton T. Sprunger
Mark J. Richards
Katrina M. Clingerman
One America Square
Indianapolis, Indiana 46282
Attorney General of Indiana
By: Karen Hsu
Deputy Attorney General
Indiana Government Center South, Fifth Floor
402 West Washington Street
Indianapolis, IN 46204-2770