In re Tax Appeal of BHCMC
112911
| Kan. | Dec 29, 2017Background
- Boot Hill Casino & Resort (BHCMC) managed a gaming facility in Dodge City under a Lottery Gaming Facility Management Agreement with the Kansas Lottery; the State (Kansas Lottery) was the owner and operator of the gaming floor and electronic gaming machines (EGMs).
- Under the management agreement, Boot Hill purchased EGMs "on behalf of the State of Kansas, for the Kansas Lottery," maintained/insured/repaired them, and remitted revenues daily to the Lottery; the Lottery retained software ownership, control rights, and the power to deactivate or seize machines at any time.
- Boot Hill paid $801,588.95 in compensating use tax for EGMs bought out of state (2009–2011) and sought a refund from the Kansas Department of Revenue; the Department denied the refund.
- Boot Hill appealed to the Board of Tax Appeals (BOTA), which found the Lottery owned the EGMs and that Boot Hill’s use was not "incident to ownership" under K.S.A. 79-3702(c), and granted the refund.
- The Court of Appeals affirmed BOTA; the Kansas Supreme Court granted review to decide whether Boot Hill could be subject to compensating use tax for EGMs it did not and could not lawfully own.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a person taxed under the compensating use tax must be the owner of the property | Boot Hill: taxpayer must actually exercise rights incident to ownership; Boot Hill was not the owner so tax does not apply | Dept. of Revenue: statute’s “any person” and definition of use capture non-owner managers who exercise control or possession | Court: ambiguous statute resolved for taxpayer; ownership is a necessary condition — Boot Hill was not the owner, so no use tax imposed |
| Whether Boot Hill’s activities (buying, maintaining, insuring EGMs) constituted "use" incident to ownership | Boot Hill: these duties were performed as agent for the State, not acts incident to Boot Hill’s ownership | Dept.: Boot Hill’s payments, control tasks, and revenue handling evidence use within state | Court: duties performed on behalf of Kansas Lottery; Kansas retained rights/powers incident to ownership, so Boot Hill did not exercise ownership-related rights |
| Applicability of General Motors precedent | Boot Hill: General Motors supports that a non-owner bailee/agent is not liable for use tax when owner retains ownership and incident rights | Dept.: facts differ; ownership arguably transferred upon entry into state or by contracts | Court: General Motors controlling — where owner retains rights and property status, manager is not taxed |
| Whether purchase agreements signed only by Boot Hill (no State signature) defeat Boot Hill’s non-ownership claim | Dept.: absence of State signature indicates Boot Hill ownership at purchase and later transfer | Boot Hill: agreements expressly identify Kansas Lottery as owner and Boot Hill as purchasing agent; practice and contract language control | Court: substantive agreement language and statutory scheme control; signature absence insufficient to override clear ownership provisions |
Key Cases Cited
- General Motors Corp. v. State Comm’r of Rev. & Taxation, 320 P.2d 807 (Kan. 1958) (non-owner bailee/agent not liable for compensating use tax when owner retains ownership and rights incident to ownership)
- Boeing Airplane Co. v. State Commission of Revenue and Taxation, 113 P.2d 110 (Kan. 1941) (distinguished — taxpayer owned property when tax liability arose)
- State ex rel. Six v. Kansas Lottery, 186 P.3d 183 (Kan. 2008) (Kansas Expanded Lottery Act vests ownership and operational control of lottery gaming facilities in the Kansas Lottery)
- In re Tax Appeal of BHCMC, L.L.C., 364 P.3d 1213 (Kan. Ct. App. 2015) (Court of Appeals affirmed BOTA’s refund ruling that Boot Hill was not liable for compensating use tax)