Mount Airy # 1, LLC v. Pa. Dep't of Revenue

• Citation: 154 A.3d 268
• Decision Date: 28 September 2016
• Docket Number: No. 34 EM 2015,34 EM 2015
• Parties: MOUNT AIRY # 1, LLC, Petitioner v. PENNSYLVANIA DEPARTMENT OF REVENUE AND EILEEN MCNULTY, in Her Official Capacity as Acting Secretary of the Pennsylvania Department of Revenue, Respondents
• Court: Pennsylvania Supreme Court

154 A.3d 268

MOUNT AIRY # 1, LLC, Petitioner

v.PENNSYLVANIA DEPARTMENT OF REVENUE AND EILEEN MCNULTY, in Her Official Capacity as Acting Secretary of the Pennsylvania Department of Revenue, Respondents

No. 34 EM 2015

Supreme Court of Pennsylvania.

ARGUED: March 8, 2016

FILED: September 28, 2016

Michael F. Eichert, Esq., Rigel Caitlin Farr, Esq., Thomas A. Leonard, Esq., Obermayer, Rebmann, Maxwell & Hippel LLP, Michael David Sklar, Esq., Levine, Staller, Sklar, Chan & Brown, P.A., for Mount Airy # 1, LLC, Petitioner.

John Bartley Delone, Esq., Keli Marie Neary, Esq., Gretchen Sprigg Wisehart, Esq., Pennsylvania Office of Attorney General, for Pennsylvania Department of Revenue and Eileen McNulty, in her official capacity as Acting Secretary of the Pennsylvania Dep't. of Revenue, Respondents.

SAYLOR, C.J., EAKIN, BAER, TODD, DONOHUE, DOUGHERTY, WECHT, JJ.

OPINION

JUSTICE WECHT

Mount Airy # 1, LLC operates a hotel and casino located in Mount Pocono, Pennsylvania. Mount Airy challenges the constitutionality of Section 1403(c) of the Pennsylvania Race Horse Development and Gaming Act ("Gaming Act"). See 4 Pa.C.S. §§ 1101, et seq. That section levies a "local share assessment" against all licensed casinos' gross slot machine revenue. According to Mount Airy, the statutory provision violates the Uniformity Clause of the Pennsylvania Constitution because it imposes grossly unequal local share assessments upon similarly situated slot machine licensees. See PA. CONST. art. VIII, § 1.

Pursuant to Section 1403(b) of the Gaming Act, slot machine licensees are subject to a 34% tax on all Gross Terminal Revenue ("GTR"). The Act defines GTR as the sum of all "cash or cash equivalent wagers received by a slot machine," less any amounts paid out to players in various forms. 4 Pa.C.S. § 1103. Slot machine licensees also must pay a local share assessment, which the Commonwealth collects and distributes to the casino's host municipality and/or county. For most casinos, the local share assessment consists of two distinct parts: the county local share assessment and the municipal local share assessment. A casino located outside of Philadelphia County must pay both(a) an annual county local share assessment of 2% of its GTR and(b) a municipal local share assessment of either 2% of its GTR or a lump sum of $10 million, whichever is greater. Therefore, a non-Philadelphia casino with GTR at or below $500 million will always pay a $10 million municipal local share assessment, and a non-Philadelphia casino with GTR above $500 million will always pay more than $10 million. Because, uniquely, Philadelphia County is coterminous with the City of Philadelphia, casinos located there pay only a county local share assessment, which is fixed by the Gaming Act at a rate of 4% of the casino's GTR.

Mount Airy has filed a complaint with this Court challenging the constitutionality of the municipal portion of the local share assessment. Pursuant to Section 1904 of the Gaming Act, we have exclusive jurisdiction over Mount Airy's constitutional claim. 4 Pa.C.S. § 1904 ("The Pennsylvania Supreme Court shall have exclusive jurisdiction to hear any challenge to or to render a declaratory judgment concerning the constitutionality of [the Gaming Act]."). Specifically, Mount Airy seeks a declaratory judgment that the municipal portion of the local share assessment violates the Uniformity Clause of the Pennsylvania Constitution, both facially and as applied to Mount Airy.¹ Mount Airy avers that the municipal local share assessment violates the Uniformity Clause in three ways. First, Mount Airy takes issue with the fact that casinos outside of Philadelphia are subject to a $10 million minimum assessment, whereas similarly situated Philadelphia casinos are not. Second, Mount Airy complains that the General Assembly further subdivided non-Philadelphia casinos into two categories (i.e. , those with GTR above $500 million and those with GTR below $500 million) and taxed them differently.² Finally, Mount Airy broadly alleges a Uniformity Clause violation based upon the fact that the municipal local share assessment's $10 million floor leads to disparate effective tax rates among casinos.³ Because we find merit in Mount Airy's second Uniformity Clause argument, we need not address its two alternative arguments.

The Pennsylvania Department of Revenue has filed preliminary objections in the nature of a demurrer to Mount Airy's complaint. According to the Department of Revenue, Mount Airy's Uniformity Clause challenge fails because Mount Airy has not demonstrated that the municipal local share assessment "is not rationally related to any legitimate state purpose." Department of Revenue's Preliminary Objections, 7/17/2015, at 5 (quoting Wilson Partners v. Bd. of Fin. & Revenue, 558 Pa. 462, 737 A.2d 1215, 1220 (1999) ). The Department of Revenue argues that the Uniformity Clause is not violated when the General Assembly rationally subdivides Pennsylvania's casinos into separate classes, and then assigns those classes dissimilar tax burdens. Id. at 7.

Our standard for reviewing preliminary objections in the nature of a demurrer generally is limited to determining whether, based upon the facts averred, the law says with certainty that no recovery is possible. McMahon v. Shea, 547 Pa. 124, 688 A.2d 1179, 1181 (1997). Nonetheless, the General Assembly has assigned this Court broad authority expeditiously to adjudicate constitutional challenges to the Gaming Act. 4 Pa.C.S. § 1904 ("The Supreme Court is authorized to take such action as it deems appropriate ... to find facts or to expedite a final judgment in connection with [a constitutional] challenge or request for declaratory relief."). Because the absence of a developed factual record will not impede our resolution of the purely legal challenges presented here, we may and will decide this case on its merits.

The Uniformity Clause of the Pennsylvania Constitution provides that "[a]ll taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws." PA. CONST. art. VIII, § 1. As we have interpreted it, the Uniformity Clause requires that every tax "operate alike on the classes of things or property subject to it." Commonwealth v. Overholt & Co., 331 Pa. 182, 200 A. 849, 853 (1938). "While reasonable and practical classifications in tax legislation are justifiable and often permissible, when a method or formula for computing a tax will, in its operation or effect, produce arbitrary, unjust, or unreasonably discriminatory results, the uniformity requirement is violated." Clifton v. Allegheny Cnty., 600 Pa. 662, 969 A.2d 1197, 1211 (2009). Nevertheless, the General Assembly possesses wide discretion in matters of taxation, Aldine Apartments v. Commonwealth, 493 Pa. 480, 426 A.2d 1118, 1121 (1981), and we must resolve any doubts as to the constitutionality of a particular statute in favor of upholding it. Leonard v. Thornburgh, 507 Pa. 317, 489 A.2d 1349, 1352 (1985).

The Uniformity Clause is a product of the Gilded Age, drafted in the late nineteenth century, an era of "robber barons" and rapid economic growth. This Court long has recognized that the Constitution of 1874 sought "to correct the evil of unwise, improvident and corrupt legislation which had become rampant at the time of its passage." Consumer Party of Penna. v. Commonwealth, 510 Pa. 158, 507 A.2d 323, 333 (1986), abrogated on other grounds by Pennsylvanians Against Gambling Expansion Fund, Inc. v. Commonwealth, 583 Pa. 275, 877 A.2d 383 (2005) ; see Perkins v. City of Phila., 156 Pa. 539, 27 A. 356, 360 (1893) ("It is certainly not forgotten that the well-nigh unanimous demand which brought the convention of 1873 into existence was prompted by the evils springing from local and special legislation."). With regard to taxation, "[t]he burden of maintaining the state had been, in repeated instances, lifted from the shoulders of favored classes, and thrown upon the remainder of the community." Fox's Appeal, 112 Pa. 337, 4 A. 149, 153 (1886). The Uniformity Clause sought to eradicate inequitable fiscal policies that had resulted from parliamentary favoritism and class legislation. Id. One commentator offered the following account of the circumstances that precipitated the 1873 constitutional convention:

The Pennsylvania Constitution of 1874 ... was drafted in an atmosphere of extreme distrust of the legislative body and of fear of the growing power of corporations, especially the great railroad corporations. It was the product of a convention whose prevailing mood was one of reform ... and, overshadowing all else, reform of legislation to eliminate the evil practices that had crept into the legislative process. Legislative reform was truly the dominant motif of the convention and that purpose is woven into the very fabric of the constitution.

ROSALIND L. BRANNING, PENNSYLVANIA CONSTITUTIONAL DEVELOPMENT 37 (1960).

Despite the well-understood text and impetus of the Uniformity Clause, this Court occasionally has struggled to articulate the precise limits that the provision imposes upon the General Assembly's authority to enact tax legislation. Indeed, we have conjectured that "[n]o provision in our constitution has been so much litigated yet so little understood." In re Lower Merion Twp., 427 Pa. 138, 233 A.2d 273, 276 (1967) (likening our Uniformity Clause jurisprudence to Alice's unpredictable and winding road through Wonderland); see Amidon v. Kane, 444 Pa. 38, 279 A.2d 53, 64 (1971) (Bell, C.J., concurring) ("Some of this Court's decisions on the subject of taxes are confusing, and others irreconcilable."); Note, The Pennsylvania Constitutional Requirement of Uniformity in Taxation , 87 U. PA. L. REV. 219, 225 (1938) ("[R]econciliation of the various interpretations of the Pennsylvania uniformity clause would appear futile."). The Department of Revenue's arguments...