Carbond, Inc. v. Comptroller of the Treasury

• Decision Date: 29 July 2020
• Docket Number: No. 2767 September Term, 2018,2767 September Term, 2018
• Citation: 247 Md.App. 79,233 A.3d 221
• Parties: CARBOND, INC., et al. v. COMPTROLLER OF the TREASURY
• Court: Court of Special Appeals of Maryland

247 Md.App. 79

233 A.3d 221

CARBOND, INC., et al.

v.COMPTROLLER OF the TREASURY

No. 2767 September Term, 2018

Court of Special Appeals of Maryland.

July 29, 2020

Argued by: David J. Polashuk (Bruce L. Mann, Levy, Mann, Caplan, Hermann & Polashuk, LLP, Owings Mills, MD) William Murphy, Jr. (The Murphy Firm, Baltimore, MD), on the brief for Appellant

Argued by: Benjamin M. Grossman (Brian E. Frosh, Atty. Gen., on the brief) Baltimore, MD for Appellee

Friedman, Shaw Geter, Robert A. Zarnoch (Senior Judge, Specially Assigned), JJ.

Zarnoch, J. Appellants Carbond, Inc.; Carroll Bond, III; and August Papa (collectively, "Carbond")¹ were assessed by the Comptroller of the Treasury (the "Comptroller") for millions of dollars that Carbond failed to pay in Admissions and Amusement Taxes (the "A & A Tax" or "A & A Taxes") relating to amusement devices placed by Carbond in other businesses in Baltimore City and Baltimore County. Carbond challenges the assessment, maintaining that the video machines at issue are not the sort of "games of entertainment" that are subject to the A & A Tax under the Tax-General Article. See Md. Code (1988, 2010 Repl. Vol.), Tax-General Article ("TG"), §§ 4-101 – 4-102.

The Maryland Tax Court and the Circuit Court for Baltimore City were not persuaded by Carbond's claim. Nor are we. Therefore, we affirm.

BACKGROUND & PROCEDURAL HISTORY

This appeal concerns electronic gaming devices placed by Carbond in various bars, restaurants, and convenience stores throughout Baltimore City and Baltimore County. A 2010 audit showed that business owners who operated the machines in question (and which Carbond had licensed as "coin-operated amusement devices") were making illegal payouts to customers who "won" while using the machines. That is to say, Carbond's devices were effectively being operated as illegal slot machines. Of more direct relevance to this appeal: the audit showed that Carbond had not paid A & A Taxes² on the amounts that were illegally paid out to customers as winnings from the machines.

Based on the audit, the Comptroller assessed Carbond for the additional millions in A & A Taxes that should have been paid on the machines’ total gross receipts from April 1, 2000 through March 31, 2010, plus interest, and a fraud penalty.³

Carbond, which prior to the audit had otherwise paid A & A Taxes on the machines’ net receipts (i.e. , excluding the amounts that had been paid out as illegal winnings), subsequently responded by filing for a tax refund, claiming that its machines should not have been subject to the A & A Tax at all, because they were not "games of entertainment" within the meaning of § 4-101(b) of the Tax-General Article. ( TG § 4-101(b) defines an "[a]dmissions and amusement charge" as meaning, among other taxable charges, a charge for the "use of a game of entertainment" and/or the "use or rental of recreational or sports equipment[.]"). As we will discuss further, Carbond has relied upon the reasoning of a 1993 published opinion of the Maryland Attorney General to support its claim that its machines are not "games of entertainment" that are subject to the tax. Specifically, Carbond likens its video machines to the game of Instant Bingo, given that the Attorney General's 1993 opinion concluded that pre-printed pull-tab Instant Bingo tickets should not be considered "games of entertainment" for the purposes of the A & A Tax. 78 Md. Att'y Gen. Op. 347 (1993). According to Carbond, because its machines offer "the purchase of random chances to win prizes or money," they are materially indistinguishable from Instant Bingo, and thus, are excluded from the A & A Tax outside of Anne Arundel County or Calvert Count⁴

In May 2012, the Comptroller's Office of Hearings and Appeals (1) denied Carbond's refund claim; (2) reduced the A & A Tax assessment against Carbond; and (3) upheld the fraud penalty, in Notices of Final Determination. (Not including interest or the fraud penalty, Carbond, Inc. was assessed $2,907,081.71, Mr. Bond $2,471,019.36, and Mr. Papa $436,062.24).

Carbond appealed to the Maryland Tax Court; after a three-day trial, the Tax Court denied the refund claim and affirmed the Comptroller's assessments, but reduced the fraud penalty from 100% to 75% of the tax liability. In an oral decision rendered from the bench, on September 26, 2017, the Tax Court determined that Carbond's machines were "both a game of chance and a game of entertainment," and that "[g]ames of entertainment are subject to [the A & A] tax." The Tax Court also noted that Carbond's machines seemed "identical" to electronic Instant Bingo machines that are currently available for play in Calvert County, as well as to other casino machines, which entertain customers with "spinning wheels, bells, flashing lights, et cetera[.]"

Carbond noted appeals that were consolidated in the Circuit Court for Baltimore City. The circuit court originally remanded the case back to the Tax Court to enter factual findings in support of the conclusion that Carbond's machines were "games of entertainment" subject to the A & A Tax. In an order dated February 23, 2018, the Tax Court reaffirmed its earlier oral decision that Carbond's "refrigerator-sized"⁵ machines were electronic "games of entertainment" subject to the A & A Tax. Notably, the Tax Court found that while the phrase "game of entertainment" was added to the A & A Tax statute in 1979, before 1979 coin-operated amusement devices would have been equally subject to the A & A Tax as "the use of recreational equipment."

After the Circuit Court for Baltimore City affirmed the Tax Court's decision, this appeal followed.

DISCUSSION

"As the Tax Court is an adjudicative administrative body of the executive branch, its decisions are subject to the same standards of judicial review as adjudicatory decisions of other administrative agencies." NIHC, Inc. v. Comptroller of Treasury , 439 Md. 668, 682, 97 A.3d 1092 (2014). Thus, on appellate review "[w]e review the decision of the Tax Court, not the ruling of the circuit court ...." Comptroller of Treasury v. Johns Hopkins Univ ., 186 Md. App. 169, 181, 973 A.2d 256 (2009). Our review "is limited to determining if there is substantial evidence in the record as a whole to support the [Tax Court's] findings and conclusions, and to determine if the administrative decision is premised upon an erroneous conclusion of law. We cannot uphold the Tax Court's decision on grounds other than the findings and reasons set forth by the Tax Court." Comptroller of Treasury v. Taylor , 465 Md. 76, 86, 213 A.3d 629 (2019) (Citation omitted). We give "great weight to the Tax Court's interpretation of the tax laws, but review[ ] its application of case law without special deference." NIHC , 439 Md. at 683, 97 A.3d 1092. Additionally, published opinions of the Attorney General are generally entitled to "careful consideration" by the courts. Brown v. County Comm'rs of Carroll County , 338 Md. 286, 296, 658 A.2d 255 (1995) (Internal quotation marks omitted); cf. State ex rel. Attorney General v. Burning Tree Club, Inc. , 301 Md. 9, 34, 481 A.2d 785 (1984) ("[M]embers of the General Assembly rely upon the advice of the Attorney General as to whether a proposed enactment is valid.").

The issue before us on appeal is whether Carbond's electronic gaming devices are subject to the A & A Tax under § 4-101(b) of the Tax-General Article. Relying on the strength of the published 1993 Attorney General opinion, 78 Md. Att'y Gen. Op. 347, Carbond makes the following multi-step argument: (1) because its machines are indistinguishable from the game of Instant Bingo (in that they require no skill to play, and offer purchasers the chance to win prizes or money), (2) they fall outside the ambit of the A & A Tax, given that (3) the Attorney General concluded in the 1993 opinion that pull-tab Instant Bingo tickets are not the sort of "games of entertainment" that are generally subject to the A & A Tax, and (4) the General Assembly responded to this 1993 Attorney General opinion by only specifying that licensed Instant Bingo games in Anne Arundel County or Calvert County are to be considered "games of entertainment" for the purposes of the tax. See TG § 4-101(c) (" ‘Game of entertainment’ includes, in Anne Arundel County or Calvert County, the game of instant bingo permitted under a commercial bingo license."). In other words: Carbond argues that its machines are not covered by the A & A Tax, being indistinguishable from Instant Bingo machines (yet located in Baltimore City and Baltimore County), and not otherwise "games of entertainment" that are generally subject to the tax. Like the Tax Court, we disagree.

As a starting point, a central premise of Carbond's argument is misplaced. The Attorney General opinion that Carbond relies upon for the foundation of its entire appeal inescapably points to the conclusion that Carbond's machines—being refrigerator-sized machines that entertain customers with the proverbial bells and whistles—are not only the sort of "recreational equipment" that have long been subject to the A & A Tax (as "equipment"), but are the sort of recreational equipment to which the statutory phrase "game of entertainment" was intended to refer. Thus, as the Tax Court recognized, Carbond's machines are properly subject to the A & A Tax generally as "games of entertainment." Carbond's attempt to avoid the tax implications of this conclusion by conflating its machines with Instant Bingo, and thus, potentially bring the machines outside the ambit of the tax, is unavailing.

As is relevant for our purposes here, the 1993 Attorney General opinion began by examining the General Assembly's addition, in 1979, of the phrase "games of entertainment" to the A & A Tax statute's list of taxable charges. The phrase was added at that time to the category of taxable charges that had (since the 1940's) been basically described as "the use of sporting or recreation facilities or equipment." As a...