In re the Appeal of BHCMC, L.L.C.
364 P.3d 1213
| Kan. Ct. App. | 2015Background
- BHCMC paid $801,588.05 in compensating use tax when it purchased electronic gaming machines (EGMs) from out-of-state vendors, then sought a refund from KDOR after asserting it bought the machines on behalf of the Kansas Lottery.
- Purchase agreements identified BHCMC as purchaser/manager acting on behalf of the State/Kansas Lottery; paperwork and filings listed the State of Kansas as owner of the EGMs.
- BHCMC operates Boot Hill Casino under a KELA-authorized management contract that (1) prohibits BHCMC from owning EGMs except on behalf of the Lottery, (2) vests ownership and operational control of games and software in the Kansas Lottery, and (3) requires daily remittance of all gaming revenue to the Lottery with BHCMC receiving a monthly revenue share.
- Kansas Administrative Regulations and the management contract give the Kansas Lottery strict control over testing, placement, transport, deactivation, and possession of EGMs; the Executive Director may physically secure or take possession of machines.
- BOTA granted BHCMC’s refund, holding BHCMC’s use of the EGMs was not “incident to ownership” and therefore not subject to use tax; KDOR appealed to the Court of Appeals.
Issues
| Issue | Plaintiff's Argument (KDOR) | Defendant's Argument (BHCMC) | Held |
|---|---|---|---|
| Whether BHCMC’s purchase/use of EGMs is taxable as a “use” incident to ownership under the compensating use tax statute | BHCMC exercised rights and control over EGMs under the management contract; securing title is not required to trigger use tax and BHCMC’s purchase was a taxable use incident to ownership | BHCMC purchased and used EGMs solely on behalf of the Kansas Lottery, which retained ultimate ownership and control as required by KELA and the management contract; use was not incident to BHCMC’s ownership | Court affirmed BOTA: BHCMC’s use was not incident to ownership; EGMs were owned by the State and BHCMC’s use was to accomplish the owner’s purposes, so no compensating use tax applied |
Key Cases Cited
- General Motors Corp. v. State Comm’n of Rev. & Taxation, 182 Kan. 237, 320 P.2d 807 (Kan. 1958) (use by a contractor was not taxable where the government owned the property and the contractor’s use was solely to accomplish the owner’s purposes)
- State ex rel. Six v. Kansas Lottery, 286 Kan. 557, 186 P.3d 183 (Kan. 2008) (KELA places full ownership and operational control of lottery gaming elements with the Kansas Lottery)
- State ex rel. Stephan v. Finney, 254 Kan. 632, 867 P.2d 1034 (Kan. 1994) (definition of “lottery” and state-owned lottery concept under the Kansas Constitution)