Rossville Vending Mach. Corp. v. Comptroller of Treasury

• Citation: 97 Md.App. 305,629 A.2d 1283
• Decision Date: 01 September 1992
• Docket Number: No. 1404,1404
• Parties: ROSSVILLE VENDING MACHINE CORP. v. COMPTROLLER OF the TREASURY. ,
• Court: Court of Special Appeals of Maryland

Page 305

97 Md.App. 305

629 A.2d 1283

ROSSVILLE VENDING MACHINE CORP. v. COMPTROLLER OF the TREASURY.

No. 1404, Sept. Term, 1992.

Court of Special Appeals of Maryland.

Sept. 1, 1993.

Certiorari Denied Dec. 17, 1993.

Robert L. Hanley, Jr. (Thomas J. Renner, Christine K. McSherry and Nolan, Plumhoff & Williams, Chtd., on the brief), Towson, for appellant

Deborah B. Bacharach, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen. and Gaylin Soponis, Asst. Atty. Gen., on the brief), Baltimore, for appellee.

Argued before ALPERT, HARRELL, JJ., and ROSALYN B. BELL, Judge (Retired), Specially Assigned.

HARRELL, Judge.

This appeal by Rossville Vending Machine Corp. (Rossville or appellant) arises from an order of the Circuit Court for Baltimore County (Smith, J.) affirming a decision of the Maryland Tax Court (Tax Court), which had sustained an assessment for delinquent admissions and amusement taxes issued by the Comptroller of the Treasury (Comptroller) against Rossville.

The sole question posed by appellant for our review, as framed by Rossville, is "[w]hether the [c]ircuit [c]ourt erred in affirming the Maryland Tax Court's decision that cash payments made to players of Rossville's amusement machines were includable as gross receipts and therefore subject to the admissions and amusement tax[.]" We agree with the judgments

of the circuit court and Tax Court and, accordingly, shall affirm.

FACTS

Rossville owned a number of video poker machines that it placed in bars, restaurants, and other establishments frequented by the general public (collectively referred to hereafter as "establishments" or singularly as "establishment"). The machines were activated by patrons placing quarters in them. A player accumulated "points" or "credits" as he or she played and got winning poker hands. When the player accumulated sufficient "credits" or "points," he or she would be paid winnings in cash directly by the owner, or owner's employee, of the establishment (not Rossville), based on the player's number of accumulated "credits" or "points." It was conceded that such payouts constituted violations of Maryland's anti-gambling laws.

Rossville's financial arrangements with each owner of an establishment included a fifty-fifty split of the revenues received from the play of the machines in that establishment, after reimbursement for the owner's winnings payouts and deduction of expenses such as fees and taxes. The establishment would keep records of the payouts made and provide the information to Rossville's routemen. Sometimes Rossville would advance funds to an establishment owner and allow that person to pay back the loan out of the establishment's future share of the net revenues as earned.

Rossville's routemen would periodically visit each establishment where Rossville's machines were placed (only the routemen had access to the quarters in the machines). Generally, their visits were of two different types. A "dump" involved emptying machines of coins, counting the coins, repackaging them for continued use by the establishment, and noting the machines' total receipts. A "collection" visit consisted of again emptying the machines of coins, computing the total receipts during a particular time period (including monies removed during previous "dumps" within that time period), and settling When the routeman "settled up," he obtained information as to the amount of payouts made during the time period, generally from the records kept by the establishment's owner or employees, which the routeman could verify against internal accounting mechanisms in the video poker machines. The routemen then returned to Rossville with its share of the monies and documentation reflecting the gross receipts, payouts, and adjustments for fees, taxes, and the split.

up with the establishment owner in accord with the financial arrangement described earlier.

A statewide investigation of illegal gambling and the video poker industry in particular, dubbed "Operation Quartermatch," commenced in 1984, with Rossville as one of its targets. Detective Douglas Dunlap of the Baltimore County Police Department was a part of the task force. Detective Dunlap, and others, conducted undercover surveillance of establishments where Rossville's machines were located. They witnessed not only the illegal payouts, but also the activities of the routemen.

Based on the activities thus observed, search warrants were obtained on 7 March 1985 for Rossville's headquarters and fourteen establishments where its machines were located. Various records were seized at each location.

William Watts, an auditor with the Comptroller's office, reviewed the records seized by the police. Based on what these records revealed to him, he conducted a formal amusement tax audit of Rossville. From the seized records and the audit, Watts was able to calculate the total amount of money collected from the machines in the assessment period and the amount of payouts made to players. He computed the total amusement taxes due on the total monies collected (with no deduction for the payouts), and subtracted the amusement taxes previously paid by Rossville for the time period involved, resulting in a deficiency owed to the Comptroller of $736,033.98. Watts testified before the Tax Court that it was the practice of the Comptroller's office during the period of assessment The Comptroller levied a deficiency assessment ¹ against Rossville on 25 September 1985, plus interest and penalties, for the period 15 December 1982 through 6 March 1985. Rossville countered with a refund claim. After the assessment was affirmed and the refund denied by the Comptroller's hearing officer, Rossville concurrently, but separately, appealed both actions to the Tax Court. Because the refund claim aspect has been fully litigated, we will not address it further in this opinion. ²

involved in this case to tax the total amount in the machines.

The Tax Court held a hearing on the assessment appeal on 17 October 1991. The issue before the Tax Court was whether, for the purpose of computing gross receipts that are subject to the admissions and amusement tax, Rossville could deduct the cash payouts made to the players.

At the hearing, Watts and Dunlap, among others, testified. Dunlap, because of his extensive experience and knowledge of the video poker industry, was offered and received as an expert witness. He testified, among other things, that a company such as Rossville only places video poker machines in locations where it has the exclusive right to do so. He opined that the financial arrangements between Rossville and the establishment owners were typical of the industry, including The circuit court, by its 27 July 1992 Opinion and Order, filed on 29 July, affirmed the Tax Court's decision. The court found that the Tax Court's factual determination concerning the calculation of the assessment was supported by substantial evidence. It rejected Rossville's claim that gross receipts did not include cash payouts made to winning players on the amusement devices holding: "the Maryland Tax Court was not erroneous as a matter of law in its determination that gross receipts included all charges for use of Appellant's amusement devices without deduction for payouts made to customers who played."

                the necessity to make payouts to the customers so people would play the machines.   Watts essentially explained the bases and calculations for the Comptroller's assessment in terms of the information obtained from the seized records and the audit.   The Tax Court (Calvert, J.) issued an oral ruling at the end of its hearing affirming the Comptroller's assessment.   It followed that with an order to like effect on 19 November 1991
                

Rossville filed a timely appeal from the decision of the circuit court. ³ We will supply additional facts as may be necessary or desirable in our discussion of appellant's issue.

ANALYSIS

Standard of Review

Section 13-532 of the Tax-General Article of the Annotated Code of Maryland provides in pertinent part:

A final order of the Tax Court is subject to judicial review as provided for contested cases in §§ 10-215 and 10-216 of the State Government Article. ⁴

Md.Tax-Gen.Code Ann. § 13-532(a)(1) (1988). Section 10-215 of the State Government Article provided in pertinent part:

Decision.--In a proceeding under this section, the court may:

(1) remand the case for further proceedings;

(2) affirm the decision for the agency; or

(3) reverse or modify the decision if any substantial right of the petitioner may have been prejudiced because a finding, conclusion, or decision of the agency:

(i) is unconstitutional;

(ii) exceeds the statutory authority or jurisdiction of the agency;

(iii) results from an unlawful procedure;

(iv) is affected by any other error of law;

(v) is unsupported by competent, material, and substantial evidence in light of the entire record as submitted; or

(vi) is arbitrary or capricious.

Md.State Gov't Code Ann. § 10-215(g) (1984) (1993 Repl.Vol.).

It is well settled that judicial review of decisions of the Maryland Tax Court is severely limited. See CBS, Inc. v. Comptroller of the Treasury, 319 Md. 687, 697-98, 575 A.2d 324 (1990); See also Comptroller of the Treasury v. Diebold, Inc., 279 Md. 401, 406-08, 369 A.2d 77 (1977). Nevertheless, "a reviewing court is under no statutory constraints in reversing a Tax Court order which is premised solely upon an erroneous conclusion of law." Ramsay, Scarlett & Co. v. Comptroller of the Treasury, 302 Md. 825, 834, 490 A.2d 1296 (1985). See also Supervisor of Assessments of Montgomery County v. Asbury Methodist Home, Inc., 313 Md. 614, 626, 547 A.2d 190 (1988). Where the interpretation of a statute or regulation is at issue, the substituted judgment standard is used since such an interpretation involves a question of law. State Dep't of Assessments & Taxation v. Consumer Programs, Inc., 331 Md. 68, 71-72, 626 A.2d 360 (1993); Baltimore...