432 P.3d 411 (Wash.App. Div. 2 2018), 50791-9-II, Everi Payments, Inc. v. Washington State Department of Revenue

Docket Nº50791-9-II
Citation432 P.3d 411
Opinion JudgeWorswick, J.
Party NameEVERI PAYMENTS, INC., Successor in Interest to, and Formerly Known as, Global Cash Access, Inc., Appellant, v. WASHINGTON STATE DEPARTMENT OF REVENUE, Respondent.
AttorneyHoward Mark Goodfriend, Catherine Wright Smith, Smith Goodfriend PS, Blaine Green, Pillsbury Winthrop Show Pittman LLP, for Appellant. David M. Hankins, Andrew J. Krawczyk, Attorney Generals Office/Revenue Division, Fronda Colleen Woods, Attorney at Law, for Respondent.
Judge PanelWe concur: Maxa, C.J., Melnick, J.
Case DateDecember 11, 2018
CourtCourt of Appeals of Washington

Page 411

432 P.3d 411 (Wash.App. Div. 2 2018)

EVERI PAYMENTS, INC., Successor in Interest to, and Formerly Known as, Global Cash Access, Inc., Appellant,

v.

WASHINGTON STATE DEPARTMENT OF REVENUE, Respondent.

No. 50791-9-II

Court of Appeals of Washington, Division 2

December 11, 2018

Page 412

[Copyrighted Material Omitted]

Page 413

[Copyrighted Material Omitted]

Page 414

Appeal from Thurston Superior Court, Docket No: 15-2-03048-2, Honorable James J. Dixon, Judge

Howard Mark Goodfriend, Catherine Wright Smith, Smith Goodfriend PS, Blaine Green, Pillsbury Winthrop Show Pittman LLP, for Appellant.

David M. Hankins, Andrew J. Krawczyk, Attorney Generals Office/Revenue Division, Fronda Colleen Woods, Attorney at Law, for Respondent.

OPINION

Worswick, J.

Page 415

[¶ 1] Everi Payments Inc., (Everi), a corporation that provides cash access services at tribal casinos, appeals a superior court summary judgment order dismissing Everi’s complaint for a business and occupational (B&O) tax refund. Everi argues that the B&O tax at issue is improper because the tax is preempted by federal law through the Indian Gaming Regulatory Act (IGRA), the Indian Trader Statutes, and the Bracker 1 balancing test, and that the tax is inconsistent with Department of Revenue Rule 192(7). Alternatively, Everi argues that if the B&O tax is not completely preempted, there is a question of material fact as to the amount of B&O tax Everi is obligated to pay because it was acting as the tribes’ agent when it received some of its revenue.

[¶ 2] We hold that the B&O tax assessed against Everi is neither preempted by federal law nor inconsistent with Department Rule 192(7). Additionally, we hold that, as a matter of law, Everi was not acting as the tribes’ agent when it collected revenue. Accordingly, we affirm the order granting summary judgment to the Department of Revenue.

FACTS

[¶ 3] Everi, formerly known as Global Cash Access Inc., is a Delaware for-profit corporation headquartered in Las Vegas, Nevada. It is not a federally recognized Indian tribe or member of a tribe. For its operations in the state, Everi employs Washington residents and also employs nonresident employees who visit Washington and use Seattle-Tacoma airport and Washington roads.

[¶ 4] Everi provides cash access services to tribal casinos in the form of self-service kiosks located on the casino floor.2 Cash access services include ATM (automatic teller machine) withdrawals, credit card cash advances, debit card points-of-sale, and check cashing. Cash access services allow patrons to obtain cash without leaving the casino floor. A casino patron using cash access services pays a surcharge or transaction fee for the service. Everi acknowledges that its cash access services and the kiosks are not games of chance or class I, II, or III gaming. Everi also acknowledges that for the relevant time periods here, it did not track whether kiosk patrons were Indian or non-Indian.

[¶ 5] To use one of Everi’s kiosks to access cash, a casino patron swipes or inserts his or her debit or credit card. After validating the card, the machine requests the patron enter an amount of cash to withdraw. Once the amount is entered, Everi’s kiosk notifies the patron that a fee will be charged for the transaction and asks the patron if he or she agrees to pay the fee. If the patron does not agree, the transaction is cancelled. No fee is collected if the transaction is cancelled. If, however, the patron agrees to the fee, Everi then sends a request for approval for the cash and fee to be withdrawn. The Everi kiosk sends the request for approval for the cash and fee to be withdrawn to its third-party processor located in California.

[¶ 6] The third-party processor obtains approval from the patron’s issuing financial institution through the appropriate network (Visa, MasterCard, etc.). Once an approval message is received, the patron’s financial

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institution sends the amount requested by the patron, plus the fee, to Everi’s bank account, and the kiosk dispenses the requested cash to the patron. Everi earns additional revenue from reverse interchange fees paid by the patron’s issuing bank to Everi.

[¶ 7] Everi maintains contracts with a number of Indian tribes in Washington.3 These contracts govern the types of services Everi provides and the amount of the fees Everi charges the casino patrons for the cash access services. The contracts also determine what portion of the fees are kept by Everi and what portion Everi distributes to the tribes as commissions. Depending on the contract, the commissions taken by the tribes were between 65 and 67 percent of the revenue generated by all cash access transactions. The contracts stated that Everi was not exempt from federal and state taxes based on its "net income, capital or gross receipts." Clerk’s Papers (CP) at 1240. The contracts did not expressly establish an agent/principal relationship between the tribes and Everi.

[¶ 8] The Department of Revenue audited Everi for the period of January 1, 2009 through June 30, 2012 and assessed $375,222 in B&O tax. Everi filed an appeal to the Department’s Appeals Division, disputing the Department’s authority to tax the transaction. Everi’s appeal was denied. Everi continued to pay B&O tax. From January 1, 2012 to December 31, 2015 Everi paid a total of over $1,400,000 in B&O tax to the Department. The Department did not tax the tribes on their gross revenue from commissions.

[¶ 9] Everi then filed a Notice of Appeal and Complaint for Refund of Taxes in superior court, seeking a refund of over $1,400,000 for the B&O tax assessed toward its on-reservation cash access transactions. Everi contended that the tax was preempted by federal law and contrary to the Department’s Rule 192. Everi filed a motion for summary judgment, and the Department filed a cross motion for summary judgment. In its response brief to the Department’s cross motion for summary judgment, Everi alleged that there was an issue of material fact regarding the amount of gross income because it was acting as the tribes’ agent.

[¶ 10] The trial court ruled that the B&O tax was not preempted by federal law because the transactions at issue were between Everi and casino patrons, denied Everi’s motion for summary judgment, and granted the Department’s cross motion for summary judgment. Everi appeals the trial court’s summary judgment order.

ANALYSIS

I. LEGAL PRINCIPLES

[¶ 11] We review the grant of a motion for summary judgment de novo and perform the same inquiry as the trial court. Wash. Imaging Servs., LLC v. Dep’t of Revenue, 171 Wn.2d 548, 555, 252 P.3d 885 (2011). When reviewing a grant of summary judgment, we consider all facts and make all reasonable, factual inferences in the light most favorable to the nonmoving party. Wash. Imaging Servs., 171 Wn.2d at 555, 252 P.3d 885. Summary judgment is appropriate when there is no genuine issue of material fact and the nonmoving party is entitled to judgment as a matter of law. CR 56(c).

[¶ 12] A B&O tax is an excise tax on gross income imposed for the " ‘privilege of doing business.’ " Ford Motor Co. v. City of Seattle, 160 Wn.2d 32, 39, 156 P.3d 185 (2007) (quoting 1B KELLY KUNSCH ET AL., WASH. PRACTICE: METHODS OF PRACTICE § 72.7, at 452 (1997) ). The taxable event for a B&O tax is the act of engaging in a business activity. Ford Motor, 160 Wn.2d at 40, 156 P.3d 185. A business engaging in business activities within the State bears the burden of a B&O tax on the gross income from its activities. RCW 82.04.220(1). " ‘Business’

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includes all activities engaged in with the object of gain, benefit, or advantage to the taxpayer or to another person or class, directly or indirectly." RCW 82.04.140. " ‘Engaging in business’ means commencing, conducting, or continuing in business and also the exercise of corporate or franchise powers ...." RCW 82.04.150. "Gross income of the business" is "the value proceeding or accruing by reason of the transaction of the business engaged in" without deductions of business services. RCW 82.04.080. Gross income includes "compensation for the rendition of services." RCW 82.04.080.

[¶ 13] The B&O tax "shall be levied upon, and collectable from, the person engaging in the business activities ... [and] shall constitute a part of the operating overhead of such persons." RCW 82.04.500; see

Nelson v. Appleway Chevrolet, Inc., 160 Wn.2d 173, 180, 157 P.3d 847 (2007). The taxpayer bears the burden of proving it qualifies for a tax exemption. Simpson Inv. Co. v. Dep’t of Revenue, 141 Wn.2d 139, 149-50, 3 P.3d 741 (2000).

II. FEDERAL PREEMPTION

[¶ 14] Everi argues that for its business activities on tribal lands, federal law preempts B&O taxation by the State. Specifically, it argues that the tax is preempted by IGRA,4 the Indian Trader Statutes,5 and the Bracker balancing test. We disagree.

[¶ 15] States have no regulatory authority in areas preempted by federal law. New Mexico v. Mescalero Apache Tribe, 462 U.S. 324, 333, 103 S.Ct. 2378, 76 L.Ed.2d 611 (1983). In the area of tribal law, courts apply unique standards to determine whether federal law preempts the state’s authority. Confederated Tribes of Siletz Indians v. Oregon, 143 F.3d 481, 486 (9th Cir. 1998). Without an express grant of authority from Congress, federal preemption regarding Indian affairs prevents a state from applying state law to tribal members on tribal land. Confederated Tribes of Chehalis Reservation v. Johnson, 135 Wn.2d 734, 754, 958 P.2d 260 (1998).

[¶ 16] But, the application of nondiscriminatory state laws to third parties on tribal lands are not automatically preempted by federal law. Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163, 175, 109...

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