Argued October 15, 2013
Appeal from the Order of the Commonwealth Court dated May 16, 2012 at No. 617 FR 2009, which Overruled the Exceptions and Entered Judgment in favor of the Commonwealth of PA, affirming the decision of the Board of Finance and Review dated October 21, 2009 at No. 0904037. Intermediate Ct. Dan Pellegrini, President Judge, Bernard L. McGinley, Judge, Bonnie Brigance Leadbetter, Judge, Renee Cohn Jubelirer, Judge, Mary Hannah Leavitt, Judge, P. Kevin Brobson, Judge, Patricia A. McCullough, Judge.
For Greenwood Gaming and Entertainment, Inc., Appellant: Alan C. Kohler, Esq., Mark Scott Stewart, Esq., Eckert Seamans Cherin & Mellott, LLC; Kevin James McKeon, Esq., Hawke McKeon & Sniscak, LLP; Kyle Jarrett Meyer, Esq.
For Commonwealth of Pennsylvania Department of Revenue, Appellee: Howard Greeley Hopkirk, Esq., Kathleen Granahan Kane, Esq., John G. Knorr III, Esq., PA Office of Attorney General.
JUDGES: MR. JUSTICE BAER. CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, STEVENS, JJ. Messrs. Justice Saylor and Eakin, Madame Justice Todd and Messrs. Justice McCaffery and Stevens join the opinion. Mr. Chief Justice Castille files a dissenting opinion.
MR. BAER, JUSTICE
In this case involving calculation of slot machine tax, Greenwood Gaming and Entertainment (" Greenwood" ) appeals as of right from the Commonwealth Court's en banc decision overruling exceptions and affirming a panel decision of that court, which likewise affirmed the order of the Board of Finance and Review. 42 Pa.C.S. § 723 (b). Greenwood asks this Court to reverse the decision below and hold that the relevant section of the Gaming Act, 4 Pa.C.S. § § 1101-1904, allows for the cost of promotional awards given away by the gaming facility to be subtracted prior to calculation of the " gross terminal revenue" for purposes of slot machine taxes. 4 Pa.C.S. § 1103 (Gross Terminal Revenue). After review, we reverse the order of the Commonwealth Court and remand for further proceedings.
Greenwood operates slot machines at the Parx Casino (formerly Philadelphia Park Casino and Racetrack) in Bensalem, Pennsylvania. It is seeking a tax credit against the slot machine tax due and paid for years 2007 and 2008 for approximately $1.1 million in cash and non-cash awards given away as promotions. The promotional giveaways included vehicles, concert tickets, sporting event tickets, and gift cards, and thus were not a result of " winning" a slot machine game, as could be dramatized by coins spilling out when the spinning reels stop on three of a kind. The slot machine tax is based upon the gross terminal revenue (" GTR" ). During
the relevant time period of 2007 and 2008, GTR was defined as the total of the " wagers received by a slot machine" minus specified reductions:
" Gross terminal revenue." The total of cash or cash equivalent wagers received by a slot machine minus the total of:
(1) Cash or cash equivalents paid out to patrons as a result of playing a slot machine which are paid to patrons either manually or paid out by the slot machine.
(2) Cash paid to purchase annuities to fund prizes payable to patrons over a period of time as a result of playing a slot machine.
(3) Any personal property distributed to a patron as the result of playing a slot machine. This does not include travel expenses, food, refreshments, lodging or services.
The term does not include counterfeit money or tokens, coins or currency of other countries which are received in slot machines, except to the extent that they are readily convertible to United States currency, cash taken in fraudulent acts perpetrated against a slot machine licensee for which the licensee is not reimbursed or cash received as entry fees for contests or tournaments in which the patrons compete for prizes.
4 Pa.C.S. § 1103 (GTR) (effective prior to Jan. 7, 2010).
The Department of Revenue utilizes the " central control computer system" (" CCS" ), to calculate the daily slot machine tax. The Board of Finance and Review
described the process as follows: " Each day, the Department determines Petitioner's gross terminal revenue, taxes and other assessments based on actual calculations by the central control computer system. The Department notifies Petitioner of the amounts due and transfers such amounts from Petitioner's revenues to various Gaming Act funds." Board of Finance and Review Opinion, Oct. 23, 2009, at 1-2. While the CCS tracks various financial events on each slot machine including wagers and payouts, it is not technologically capable of accounting for the promotional giveaways at issue in this case.
In February 2009, Greenwood filed an appeal with the Department of Revenue's Board of Appeals, seeking a tax credit of approximately $600,000. The crux of Greenwood's argument was that these awards were distributed " as a result of playing a slot machine" such that they could be subtracted from the total wagers received in determining GTR for purposes of calculating the slot machine tax. 4 Pa.C.S. § 1103 (GTR)(1)-(3). The Board of Appeals rejected Greenwood's claim, finding that the promotional awards " were distributed to winners drawn from a pool of players, and not the direct result of a metered win of playing a slot machine." Decision of Bd. of Appeals, July 13, 2009, at 4. Therefore, the Board of Appeals concluded that the promotional giveaways could not be subtracted from the total wagers pursuant to the GTR calculation. Greenwood appealed to the Board of Finance and Review, asserting that the Board of Appeals erroneously interpreted the GTR statute to require that the payouts be " a direct result of a metered win of playing a slot machine." Id.
The Board of Finance and Review similarly denied Greenwood relief. While Greenwood's interpretation essentially allowed credit for awards paid as a result of playing " any" slot machine, the Board concluded that that interpretation was flawed because the " Legislature did not intend to allow gross terminal revenue deductions untied to a specific machine." Decision of Bd. of Fin. and Rev., Oct. 21, 2009, at 6. The Board further concluded that awards could not be subtracted from total wagers unless they were trackable by the CCS: " Providing trackable and verifiable receipt and payout data tied to a specific machine is consistent with the Legislative intent to protect the public, police gaming activities and maintain the integrity of regulatory control over the operation of slot machines in Pennsylvania." Id. (citing 4 Pa.C.S. § 1102(1) which provides that a primary objective of the Gaming Act is " to protect the public through the regulation and policing of all activities involving gaming" ). Because the promotional awards could not be tracked by the CCS through the individual slot machines, the Board denied Greenwood relief.
Greenwood appealed to the Commonwealth Court, and the parties submitted a stipulation of facts which detailed all the 2007 and 2008 promotional awards (" Stipulation" ). Initially, a three-judge panel of the Commonwealth Court affirmed the decisions below.
Greenwood Gaming and Entertainment, Inc. v. Commonwealth, 29 A.3d 1215 (Pa. Cmwlth. 2011). After Greenwood filed exceptions, the Commonwealth Court, en banc, adopted the panel decision without additional analysis.
Greenwood Gaming and Entertainment, Inc. v. Commonwealth, 45 A.3d 455 (Pa. Cmwlth. 2012). Accordingly, our review is of the reasoning of the original panel decision.
The Commonwealth Court stated that the Gaming Act provides for the subtraction of the three categories of awards set forth in the GTR definition, specifically " cash or cash equivalents paid out to patrons, cash paid to purchase annuities to fund prizes, and any personal property," but the court controversially found that all three categories of awards were measured by the CCS. Greenwood Gaming, 29 A.3d at 1217. In regard to the CCS, the court observed that the Gaming Act requires " that each slot machine directly provides or communicates all required activities and financial details to the central control computer." 4 Pa.C.S. § 1322(b)(3). The court also noted that Section 1322(b)(6) requires that a gaming facility " [e]nsure that any financial event that occurs in the operation of a slot machine is recorded adequately to permit proper and timely reporting of gross revenue and the calculation thereof and of fees and taxes and to maintain accountability for assets."
Greenwood Gaming, 29 A.3d at 1219 (quoting 4 Pa.C.S. § 1322(b)(6)).
The court emphasized that the awards Greenwood sought to subtract were not measured by the CCS, finding that the CCS only recorded payments " made within the algorithm of the slot machine, which results from a patron's physical operation of the slot machine." Id. at 1217. It further defined the phrase " within the algorithm of the slot machine" as referring to " a computer-established payout formula and methodology which provides awards to players as a result of physically operating a slot machine." Id. at 1217 n.3.
To determine whether the promotional giveaways could be subtracted from total wagers under the GTR definition, the Commonwealth Court considered the phrase " as a result of playing a slot machine" and concluded that it was ambiguous, a determination which both parties now contest on appeal. To resolve the ambiguity, the court looked to the definition of a " slot machine," which it viewed as tied to the physical operation of the apparatus. Id. at 1219. It concluded that the
phrase, " as a result of playing a slot machine," should therefore be interpreted to mean " as a direct and immediate result of physically operating a slot machine." Id. at 1220.
It further opined that " [t]he actual winning of a prize from the physical operation of a slot machine would be recorded by the CCS regardless of how the prize was actually distributed," which would encompass the " personal property" provision in subsection (3) of the GTR definition. Id. at 1219. In contrast to winnings directly resulting from the physical operation of a slot machine, the majority concluded that the promotional awards in this case were awarded to patrons who merely had Players Cards, and thus, were not tracked by the CCS, nor necessarily awarded " as a result of playing a slot machine." Id. at 1220. Rather than being tied directly to the physical operation of a slot machine, the promotions were awarded, for example, to patrons who had their Players Card inserted into a slot machine at a designated time or who presented a postcard at a specific time, where the postcard was sent as a result of their past slot machine usage. Concluding that Greenwood's promotional awards resulted not from " playing a slot machine" but from having a Players Card and that the awards were not measurable with the CCS, the court held that the awards could not be subtracted from total wagers in determining GTR.
Judge Simpson dissented. Like the majority, he concluded that the language " as a result of playing a slot machine" is ambiguous. However, the dissent noted that when construing an ambiguity in a taxing statute, the conflict must be resolved in favor of the taxpayer, pursuant to Pennsylvania's Rules of Statutory Construction, 1 Pa.C.S. § 1928(b)(3). The dissent emphasized that the panel majority did not address Section 1928(b)(3), even though Greenwood had proffered this argument.
Additionally, the dissent noted that the definition of GTR contemplated the subtraction of values not accounted for by the CCS, specifically cash or cash equivalents " paid manually" and for non-cash personal property awards. 4 Pa.C.S. § 1103 (GTR)(1). The dissent concluded, " The existence of express deductions for these distributions renders the statute ambiguous. Their existence also supports the reasonable interpretation urged by the Taxpayer." Greenwood Gaming, 29 A.3d at 1220-1221 (Simpson, J., dissenting).
Greenwood appeals raising the following issue:
Are cash and non-cash awards paid out and distributed to casino patrons as promotions based on a patron's slot machine activity, but paid outside the payout algorithms of a slot ...