Sands Bethworks Gaming v. Dept. of Revenue, No. 577 M.D. 2007.

• Decision Date: 11 July 2008
• Docket Number: No. 577 M.D. 2007.
• Parties: SANDS BETHWORKS GAMING, LLC, Petitioner v. PENNSYLVANIA DEPARTMENT OF REVENUE, and Commonwealth of Pennsylvania, Respondents.
• Court: Pennsylvania Commonwealth Court

958 A.2d 125

SANDS BETHWORKS GAMING, LLC, Petitioner v. PENNSYLVANIA DEPARTMENT OF REVENUE, and Commonwealth of Pennsylvania, Respondents.

No. 577 M.D. 2007.

Commonwealth Court of Pennsylvania.

Argued June 12, 2008.

Decided July 11, 2008.

Publication Ordered September 24, 2008.

Kevin J. McKeon, Harrisburg, Frederick H. Kraus, Bethlehem, for petitioner.

Thomas J. Gohsler, Asst. Counsel, Harrisburg, for respondent.

BEFORE: PELLEGRINI, Judge, LEAVITT, Judge, and FLAHERTY, Senior Judge.

OPINION BY Judge PELLEGRINI.

Before this Court are preliminary objections and a motion to quash filed by the Department of Revenue (Department) to a petition for review invoking both our original and appellate jurisdiction filed by Sands Bethworks Gaming, LLC (Sands) challenging the method by which costs incurred by the Pennsylvania Gaming Control Board (Board) are assessed and the time frame in which payments to local municipalities are calculated. The Department contends that we lack jurisdiction to hear the matters in our original jurisdiction because there is an adequate administrative remedy, and that the appellate matter should be quashed because the Board of Finance and Revenue lacked jurisdiction to hear a pre-enforcement challenge. For the reasons that follow, we sustain the preliminary objections, grant the motion to quash, and dismiss the petition for review.

I.

A.

In 2004, the General Assembly enacted the Gaming Act, 4 Pa.C.S. §§ 1101-1904, with the purpose, inter alia, of enhancing "live horse racing, breeding programs, entertainment and employment in this Commonwealth." Section 1102 of the Gaming Act, 4 Pa.C.S. § 1102. According to its petition, Sands was issued a "Category 2 License" by the Board on February 1, 2007. Under Section 1401 of the Gaming Act, 4 Pa.C.S. § 1401,¹ slot machine licensees, like Sands, are required to maintain accounts into which certain funds must be deposited. Section 1402 of the Gaming Act, 4 Pa.C.S. § 1402, allows the Department to assess the costs, expenses or payments from each account established under Section 1402 to cover the costs and expenses of various state agencies enforcing the gaming laws. It provides in relevant part:

(a) Deductions.—After determining the appropriate assessments for each slot machine licensee, the department shall determine costs, expenses or payments from each account established under section 1401 (relating to slot machine licensee deposits). The following costs and expenses shall be transferred to the appropriate agency upon appropriation by the General Assembly:

(1) The costs and expenses to be incurred by the department in administering this part at each slot machine licensee's licensed facility based upon a budget submitted by the department to and approved by the board.

(2) The other costs and expenses to be incurred by the department in administering this part based upon a budget submitted by the department to and approved by the board.

(3) Sums necessary to repay any loans made by the General Fund to the department in connection with carrying out its responsibilities under this part, including the costs of the initial acquisition of the central control computer and any accessories or associated equipment.

(4) The costs and expenses to be incurred by the Pennsylvania State Police and the Office of Attorney General and not otherwise reimbursed under this part in carrying out their respective responsibilities under this part based upon a budget submitted by the Pennsylvania State Police and the Attorney General to and approved by the board.

(5) Sums necessary to repay any loans made by the General Fund to the Pennsylvania State Police in connection with carrying out its responsibilities under this part.

(6) The costs and expenses to be incurred by the board in carrying out its responsibilities under this part based upon a budget approved by the board.

(7) Sums necessary to repay any loans made by the General Fund to the board in connection with carrying out its responsibilities under this part.

To implement Section 1402, the Department promulgated the "Gaming Cash Flow Management Regulations," 61 Pa.Code § 1001.1 — § 1001.11. Addressing administration of the amounts deposited by the licensees to pay Commonwealth gaming-related costs and expenses, 61 Pa.Code § 1001.6(d) provides, in relevant part:

(d) Reimbursement of Commonwealth expenses will be as follows:

(1) The Department will issue to the licensed gaming entity, periodic assessments of expenses incurred by the Board, Department, Office of Attorney General and the Pennsylvania State Police, regarding expenses directly related to the licensed gaming entity, under budgets approved by the Board and upon appropriation by the General Assembly as required in section 1402.1 of the act (relating to itemized budget reporting). Expenses not included in budgets approved by the Board may not be assessed against the licensed entity under this section.

(2) Expenses incurred by the Commonwealth and assessed to the licensed gaming entity shall be charged back to the licensed gaming entity and deducted from the licensed gaming entity's account, as specified in section 1401 of the act (relating to slot machine licensee deposits) and this section.

(3) General administrative costs of the Commonwealth not specifically assessed to a licensed gaming entity under paragraph (1), shall be borne by each licensed gaming entity on a prorata basis at the discretion of the Secretary of Revenue until all Category 1 and Category 2 licensed gaming entities are operating as permitted under the act. (Emphasis added.)

Before the Gaming Cash Flow Management Regulations were promulgated on July 21, 2007, the Department and Gaming Control Board issued letters on January 29, 2007, and May 14, 2007, to gaming licensees addressing the method that would be used by the Secretary of Revenue to draw against the Section 1401 accounts for administrative expenses. The January 29, 2007 letter stated that the Secretary would draw $800,000 from each licensee's Section 1401 account, and this sum would be treated similarly to the $36.1 million General Fund loan that would be recovered through compensating charges when all licensees were up and running. This letter also stated that the Secretary would continue to draw against each licensee's account at the rate of 1.5% of gross terminal revenue earned retroactive to the date of each licensee's opening.²

The Department and Board's next letter, dated May 14, 2007, stated that they intended to continue the procedure from the January 29, 2007 letter, and that the Secretary would continue to draw against each licensee's account at the rate of 1.5% of gross terminal revenue. It also announced that beginning in fiscal year 2007-2008, the Secretary would withdraw the share of the State Police budget allocable to each licensed entity from that entity's Section 1401 account based on the actual personnel and operating expenses at each venue and its share of headquarter expenses. Finally, it stated that the remaining funding required to cover the budget approved by the General Assembly for the regulatory agencies would be covered by a loan, which would be treated similarly to the existing $36.1 million loan from the Gaming Fund in that it would be recovered from the licensees when all were up and running.

B.

The other fee that gaming entities have to pay is to local governments who "host" a gaming facility. Section 1403 of the Gaming Act, 4 Pa.C.S. § 1403, titled "Establishment of State Gaming Fund and net slot machine revenue distribution," requires licensees to pay into the State Gaming Fund an amount based on a tax of its gross terminal revenue and establishes a local share assessment to be paid by the Department via quarterly distributions among the municipalities, including home rule municipalities, hosting a licensed facility. Section 1403(c)(3)(iii) of the Gaming Act requires that a licensee in a city of the third class must pay "2% of the gross terminal revenue or $10,000,000 annually, whichever is greater[.]" 61 Pa.Code § 1001.5(c) sets forth how the local share is to be distributed.³

C.

On August 20, 2007, Sands submitted a "Petition for Review of Regulations of the Department of Revenue" to the Department's Board of Appeals, in which it challenged 61 Pa.Code § 1001.6(d)(3) contending that it exceeded the Department's statutory authority, was impermissibly vague, constituted an exercise of improper rulemaking, and was inconsistent with the Gaming Act. Sands also asserted that the letters issued by the Department were restrictive, directive and substantive statements leaving no discretion in application which, therefore, created an invalid and improperly promulgated regulation. Finally, Sands contended that the method of assessing the local share assessment in 61 Pa.Code § 1001.5(c)(1) was inconsistent with the Gaming Act. On August 31, 2007, the Department returned to Sands the petition and memorandum of law in support thereof on the basis that the Board of Appeals did not have jurisdiction to consider the petition at the time.

Sands next submitted a document entitled "Appeal from the Department of Revenue Board of Appeals Decision Not to Accept Jurisdiction over Petition for Relief." The Board of Finance and Revenue also returned this document to Sands citing a lack of jurisdiction to consider the appeal at the time. Sands then filed the instant petition for review invoking both our original⁴ and appellate⁵ jurisdiction.⁶

II.

A.

In that part of its petition for review invoking our original jurisdiction, Sands raises two counts. In Count I, Sands contends that 61 Pa.Code § 1001.6(d)(3) and the Department's letters create an unfair and arbitrary assessment because it requires a "pro rata" share of all licensee's gross terminal revenue rather than on a "per machine" basis, thereby penalizing those licensees with larger facilities that generate more revenue and forcing them...