857 N.W.2d 601
S.D.2014Background
- Three Deadwood casinos (First Gold, Mineral Palace, Four Aces) run "free play" loyalty promotions: coupons/credits permitting slot play without patrons using personal money; free play cannot be purchased, redeemed for cash, or exchanged for merchandise, but wins from play are cash.
- Establishments sued the South Dakota Department of Revenue seeking a declaratory judgment that free play is not part of "adjusted gross proceeds" and therefore not subject to gaming tax under SDCL ch. 42-7B.
- Circuit court granted summary judgment to the Department, holding administrative rules (ARSD) treat promotional awards as non-deductible and thus free play must be included in adjusted gross proceeds.
- The key statutory scheme: gaming tax imposed on "adjusted gross proceeds" (gross proceeds less cash prizes); "gross revenue" defined by ARSD 20:18:22:12 as drop less certain payouts; "drop" limited to money, chips, tokens removed from drop boxes.
- Free play is defined by regulation as a coupon for play where no bet is required; it is not money, chip, or token and thus not part of the drop per ARSD definitions.
- The Supreme Court reversed the circuit court, holding free play value is not included in adjusted gross revenue and therefore not taxable under chapter 42-7B.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether slot-machine free play must be included in adjusted gross proceeds for gaming tax | Free play is not included because no statute/regulation makes it part of gross proceeds; deductibility rules are irrelevant | Free play has value (functionally a token) and gaming regs prohibit deducting promotional awards, so promotional play must be reported as gross revenue/adjusted gross proceeds | Free play is not included in adjusted gross proceeds; regulations' non-deduction language does not by itself include free play in gross revenue |
Key Cases Cited
- Midcontinent Broad. Co. v. S.D. Dep’t of Revenue, 424 N.W.2d 153 (S.D. 1988) (de novo review when determining whether statute imposes a tax)
- Nat’l Food Corp. v. Aurora Cnty. Bd. of Comm’rs, 537 N.W.2d 564 (S.D. 1995) (statutes imposing tax construed liberally for taxpayer and strictly against taxing body)
- Thermoset Plastics, Inc. v. S.D. Dep’t of Revenue, 473 N.W.2d 136 (S.D. 1991) (same principle favoring taxpayer in tax construction)
- Goetz v. State, 636 N.W.2d 675 (S.D. 2001) (purpose of statutory construction is to ascertain legislative intent from statutory language)
- Robinson & Muenster Ass’n v. S.D. Dep’t of Revenue, 601 N.W.2d 610 (S.D. 1999) (give statute language a reasonable, natural, and practical meaning)
- Hartpence v. Youth Forestry Camp, 325 N.W.2d 292 (S.D. 1982) (administrative rules construed under same tenets as statutes)
- Estate of He Crow v. Jensen, 494 N.W.2d 186 (S.D. 1992) (construe administrative rules according to their intent as shown by the rules)
- US West Commc’ns, Inc. v. Pub. Utils. Comm’n, 505 N.W.2d 115 (S.D. 1993) (when regulation language is clear and unambiguous, declare meaning as expressed)