HARRAH'S BOSSIER City Inv. Co. v. BRIDGES

• Decision Date: 25 June 2010
• Docket Number: No. 2009-C-1916.,2009-C-1916.
• Citation: 41 So.3d 438
• Parties: HARRAH'S BOSSIER CITY INVESTMENT COMPANY, LLC v. Cynthia BRIDGES, In Her Capacity as Secretary of the Department of Revenue, and The Louisiana Department of Revenue. Cynthia Bridges, Secretary of The Department of Revenue for The State of Louisiana v. Wilhite Electric Company, Inc.
• Court: Louisiana Supreme Court

41 So.3d 438

HARRAH'S BOSSIER CITY INVESTMENT COMPANY, LLC v. Cynthia BRIDGES, In Her Capacity as Secretary of the Department of Revenue, and The Louisiana Department of Revenue.

Cynthia Bridges, Secretary of The Department of Revenue for The State of Louisiana v. Wilhite Electric Company, Inc.

No. 2009-C-1916.

Supreme Court of Louisiana.

May 11, 2010.

Rehearing Denied June 25, 2010.

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Rainer, Anding & McLindon, Drew Michael Talbot, Robert R. Rainer, Baton Rouge, for Applicant.

Kean, Miller, Hawthorne, D'Armond, McCowan & Jarman, Christopher J. Dicharry, Jenny Norton Phillips, Linda Sarradet Akchin, Baton Rouge, for Respondent.

KNOLL, J.^*

This writ concerns whether the sales and use tax relief provisions aimed at horse racing facilities constitute "exemptions" or "exclusions" for the purposes of applying a tax suspension provision. Specifically, whether plaintiff, Harrah's Bossier City Investment Company, LLC ("Harrah's"), is excused from payment of sales and use taxes on purchases made for its racetrack and slot machine facility in Bossier City. La.Rev.Stat. §§ 4:168 and 4:227 provide general sales and use tax immunity for purchases made by racetracks and off-track betting parlors ("OTB"). The principal dispute is whether La.Rev.Stat. §§ 4:168 and 4:227 have been legislatively suspended by La.Rev.Stat. § 47:302(Q)-(R), which is dependent upon whether the tax relief provisions qualify as exemptions or exclusions.

Simply put, we are called on to resolve two issues. First, whether La.Rev.Stat. §§ 4:168 and 4:227 are tax "exemptions" suspended by La.Rev.Stat. § 47:302(Q)(R), or tax "exclusions," and therefore unaffected by § 47:302(Q)-(R). Second, if we find the statutes are exclusions, we must determine what purchases are included in that exclusion, i.e., whether they apply only to purchases related to the racetrack and OTB parlors, and/or whether they extend to purchases of goods for the attached slot gaming facility.

For the foregoing reasons, we find §§ 4:168 and 4:227 are exclusions, not exemptions, and therefore remained in full effect during the entire time period at issue. However, we find the tax exclusions do not extend to purchases made solely for Harrah's slot gaming facility. We therefore remand to the district court for further proceedings to determine what percentage of Harrah's expenditures was solely related to the racetrack operation and therefore untaxable; what percentage was solely related to the slot gaming facility and therefore taxable; and what percentage was related to "common areas" of the facility used by both the race track and the slot facility, and therefore requires some apportionment between the two.

FACTS AND RELEVANT PROCEDURAL HISTORY

In late 2002 Harrah's purchased Louisiana Downs, a racetrack in Bossier City. Harrah's immediately opened a temporary slot machine facility and hired a contractor to build a permanent facility. It drafted a document naming the contractor an "Agent of Tax Exempt Entity" and authorizing the general contractor to pass the designation on to subcontractors. The contractors made purchases totaling several million dollars without paying any sales or use tax.¹

The Department of Revenue conducted an audit of Harrah's operations and determined the slot-related purchases were not tax exempt. The State presented Harrah's with a bill for approximately $2.3 million in back taxes from January 2003 through December 31, 2005. Harrah's paid the amount under protest, and has continued to pay monthly sales and use tax remittances under protest. Harrah's then filed suit to recover the monies it paid under protest.² The State filed a reconventional demand seeking judgment against Harrah's in the amount of all taxes paid under protest, plus attorneys' fees pursuant to La.Rev.Stat. § 47:1512.

The parties filed cross-motions for partial summary judgment. The State's motion for partial summary judgment urges "during the entire Audit Period [defined as January 1, 2003 to December 31, 2005] La. R.S. 4:168 was suspended, ineffectual, and null and void." Harrah's cross-motion for summary judgment poses the following issue: "Do the provisions of La. R.S. 4:168 and La. R.S. 4:227 apply to purchases made by [Harrah's] for the improvement and operation of its Racetrack, including purchases related to the slot parlor and to the `common areas' of the Racetrack?" Harrah's also filed a peremptory exception of prescription.

The trial court granted the State's motion for partial summary judgment, finding La.Rev.Stat. §§ 4:168 and 4:227 to be "sales tax exemptions that were suspended during the audit period by the Legislature pursuant to La. R.S. 47:302 Q and La. R.S. 47:302 R." The court pretermitted consideration of Harrah's cross-motion for summary judgment, and overruled Harrah's exception of prescription. The partial judgment was certified as final and immediately appealable under La.Code Civ. Proc. art. 1915(B).

The First Circuit reversed in a split decision. Harrah's Bossier City Investment Company, LLC v. Bridges, 2008-1727 (La.App. 1 Cir. 7/27/09), 22 So.3d 921. Judge Hughes, writing for the majority, held for Harrah's in finding "no ambiguity in the language of LSA-R.S. 4:168 and LSA-R.S. 4:227.... These provisions effectively remove the horse racing and offtrack wagering industry from the application of the general sales tax law." Id. at 931. The majority opinion held §§ 4:168 and 4:227 are neither exemptions nor exclusions; instead, they create a unique taxing scheme solely directed at racetrack operators. Id. at 931-32. Footnote 11 of the court's decision extended this unique taxing scheme to Harrah's slot machine operations: "This holding also applies to Harrah's slot machine casino, opened pursuant to LSA-R.S. 27:351 et seq."

Judge Guidry concurred in part and dissented in part. Although he agreed La. Rev.Stat. §§ 4:168 and 4:227 were not "exemptions" suspended by La.Rev.Stat. § 47:302(Q)-(R), he would not apply the racetrack's tax immunity to purchases related to the slot gaming facility. Id. at 933-34.

Judge McDonald dissented: "I believe La. R.S. 4:168 and La. R.S. 4:227 provide for an exemption from the taxes. Once these exemptions were suspended by the Legislature pursuant to La. R.S. 47:302(Q) and (R) the taxes became due." Id. at 934. Judge McDonald noted the "race track operators would be subject to sales, excise, and occupational taxes just like everyone else were it not for the action of the legislature." Id. This, he reasoned, created an exemption, which is "a provision which exempts from tax a transaction which would, in the absence of exemption, otherwise be subject to tax." Tarver v. World Ship Supply, Inc., 615 So.2d 423, 426 (La.App. 4 Cir.1993), writ denied, 616 So.2d 672 (La. 1993).

Finding the lower courts' analysis of the tax relief provisions troubling, we granted the State's writ application at 2009-1916 (La. 11/25/09), 22 So.3d 166.

HISTORICAL DEVELOPMENT OF THE LAW

The primary issue before the Court is whether La.Rev.Stat. §§ 4:168 and 4:227 create tax "exemptions" which have been suspended by La.Rev.Stat. § 47:302(Q)(R). To put this question in its proper context, we must review the complex historical development of the statutory schemes governing both horse racing and sales and use taxation.

Louisiana law has taken a special interest in horse racing since the Digest of 1808. Although the Digest generally forbade a cause of action for monies won through wagering, a specific exception was carved out for horse racing and other supposedly martial pursuits which the State saw fit to promote:

The law grants no action for the payment of what has been won at gaming or by a bet, except for games tending to promote skill in the use of arms, such as the exercise of the gun, foot, horse and chariot racing.

And as to such games, the judge may reject the demand when the sum appears to him excessive.

This statute, now codified as Civil Code art. 2983, has remained substantively unaltered since 1808.

The legislature occasionally enacted statutes regulating horse races and betting thereon, see, e.g., Acts 1908, no. 57; Acts 1920, no. 127, but it was not until 1940 that an attempt was made to comprehensively regulate the industry as a whole. Act 276 of 1940 created the Louisiana Racing Commission and set forth a statutory framework for the operation of race tracks, gambling parlors, and horse breeding facilities. It also imposed a schedule of licensing fees and other charges to be paid by the racetracks, and stated:

305.51, and R.S. 51:1787, shall be inapplicable, inoperable, and of no effect.

Notably, La.Rev.Stat. § 47:302(Q)-(R) only suspends "exemptions," not "exclusions."

In 1987, the legislature granted racetracks permission to operate OTB facilities. Acts 1987, No. 203. In 1990, the racetrack's sales tax immunity was extended to purchases related to the OTB operations:

The license fees, commissions, and taxes imposed upon an offtrack wagering facility in this Part are in lieu of all other such licenses, sales, excise, and occupational taxes to the state or to any parish, city, town, municipality, or other political subdivision thereof.

La.Rev.Stat. § 4:227.

Despite the added income from the OTB parlors, racetracks continued to face increased competition from other newly legalized forms of gaming including lotteries, riverboat gaming, and land-based casinos. In response, the Legislature passed the Louisiana Pari-Mutuel Live Racing Facility Economic Redevelopment and Gaming Control Act of 1997 in order to "revitalize and rehabilitate" the State's live horse racing tracks. La.Rev.Stat. § 27:351 et seq. This Act permits racetrack facilities to open a "designated slot machine gaming area" with a set percentage of the slot proceeds earmarked to supporting horse racing and breeding. La.Rev.Stat. § 27:361.⁵ Unlike the...