Casino Tax Redistribution – Uniformity – Special Law- Due Process – Equal Protection

Sands Bethworks Gaming v. PA Dept. of Revenue, 216 MM 2017 (original jurisdiction challenge in the Supreme Court to Constitutionality of 2017 amendments to Gaming Act)

This is a challenge to the constitutionality of certain 2017 amendments to the Pennsylvania Race Horse Development and Gaming Act, 4 Pa. C.S. § 1101 et. seq.  It was filed, as required by the Act, in the original jurisdiction of the Pennsylvania Supreme Court.  Sands filed a petition for review addressed to the Court’s original jurisdiction in late December 2017. It later filed an application for a preliminary injunction. The Department of Revenue filed an answer to the petition for review and opposed the grant of a preliminary injunction. Greenwood Gaming and Entertainment, Inc., d/b/a Parx Casino filed for and was granted intervention as a petitioner.  The Court denied Sands’ application for preliminary injunction but directed the parties to brief the legal issues and expedited argument to the May 2018 argument list.

The 2017 amendments establish a new variable tax rate on slot machine daily revenues. Under the Act as amended, casinos pay a supplemental assessment into a newly-formed and restricted fund called the “Casino Marketing and Capital Development Account” (“CMCD Account”). The Pennsylvania Gaming Control Board (“Board”) is directed to then redistribute the supplemental assessment proceeds back out of the CMCD Account to a limited subset of the casinos that paid the supplemental assessment. The amount refunded—and the casinos to which the funds are returned—varies based on the casinos’ revenues in the prior year. The recipients are to use the returned funds for marketing and capital development to support their own private casino operations.

Petitioners contend that the 2017 CMCD tax redistribution scheme is an unconstitutional special law that violates due process and equal protection and imposes a non-uniform tax rate on slot machine revenues that varies significantly among casinos based on the revenues that those casinos generate. Casinos with slot revenues over $200 million, such as Sands and Greenwood, are not eligible for the CMCD mandatory distributions.

The Commonwealth maintains that 2017 CMCD tax redistribution scheme does not contravene the uniformity clause, the special law clause, or the Fourteenth Amendment. The uniformity clause, the Commonwealth argues, governs only the manner in which taxes are “levied and collected.”  It does not require the equal distribution of tax revenue that has already been collected. As for the special law clause, the Commonwealth argues that there is no violation because the Gaming Act’s mandatory distribution scheme could potentially benefit any Category 1, Category 2 or Category 3 slot machine licensee operating in Pennsylvania, and thus does not single out a particular casino or casinos for special treatment, but rather distinguishes among them based on gross terminal revenue in a given year, which could vary from casino to casino from year to year. The Commonwealth argues that, in deciding whether the challenged statutory provisions violate the uniformity clause, the special law clause or the Fourteenth Amendment, the court must be mindful that the General Assembly has broad authority and wide discretion in matters pertaining to taxation, that the Court’s inquiry is limited to determining whether there is any rational basis for the challenged statutory scheme, and that the distribution scheme satisfies all relevant constitutional requirements because it is rationally related to the General Assembly’s objective of ensuring and preserving the economic vitality of all communities hosting gaming facilities, including those communities in which less profitable facilities are located.

For more information, contact Kevin McKeon or Dennis Whitaker.