Mount Airy 1, LLC v. Pennsylvania Department of Revenue
2016 Pa. LEXIS 2174
| Pa. | 2016Background
- Mount Airy #1, LLC (a non-Philadelphia casino) challenged Section 1403(c) of the Pennsylvania Gaming Act, which imposes a municipal "local share assessment" (the greater of $10 million or 2% of Gross Terminal Revenue (GTR)) and related county assessments.
- Non-Philadelphia casinos pay county (2%) plus municipal (2% or $10M minimum); Philadelphia casinos pay a single 4% county-level assessment and no municipal minimum because city and county are coterminous.
- Mount Airy argued the municipal assessment violates the Pennsylvania Constitution’s Uniformity Clause (Art. VIII, §1) — both facially and as applied — because it creates revenue-based classes and disparate effective tax rates among similarly situated casinos.
- The Department of Revenue moved to dismiss, arguing the classification is rationally related to legitimate state purposes (revenue, local costs), invoking a rational-basis-style standard and contending Uniformity aligns with federal equal protection analysis.
- The Supreme Court exercised its exclusive jurisdiction under 4 Pa.C.S. § 1904, found the municipal portion non-uniform, granted declaratory relief, severed subsections 1403(c)(2) and (c)(3) (and minor cross-references), and stayed the judgment 120 days for legislative remediation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the municipal local share assessment violates the Uniformity Clause by creating revenue-based classes (below vs. above $500M GTR). | Mount Airy: The $10M floor plus 2% above $500M is effectively a variable/graded tax that treats similarly situated casinos unequally. | Dept. of Revenue: Legislature may rationally classify casinos to raise revenue; the test is rational relation to legitimate state purpose (analogous to federal equal protection). | Held: The municipal assessment is a non-uniform, unconstitutional tax because it creates impermissible quantity-based classifications (variable-rate effect). |
| Whether Pennsylvania’s Uniformity Clause should be analyzed under the same deferential rational-basis test as the federal Equal Protection Clause. | Mount Airy: Pennsylvania’s Uniformity Clause can be more protective than federal equal protection; precedents show stricter application. | Dept. of Revenue: Treat Uniformity coextensive with federal equal protection; rational-basis suffices. | Held: Uniformity can impose more stringent limits than federal equal protection; cited Pennsylvania precedents rejecting taxes that would survive federal rational-basis review. |
| Severability: If municipal assessment is unconstitutional, what portions of Section 1403 may remain? | Mount Airy: Asked for severance that results in a uniform 4% tax for all casinos. | Dept. of Revenue: Suggested retaining $10M minimum and excising taxes on >$500M receipts. | Held: Court severed subsections 1403(c)(2) and (c)(3) (municipal and county local share provisions) and minor references, but left most of the Gaming Act intact; stayed judgment 120 days for legislative fix. |
| Remedies and retroactivity: Whether Mount Airy is entitled to damages/refunds for prior payments under the struck provisions. | Mount Airy: Sought monetary relief/§1983 damages/refunds for payments made under unconstitutional tax. | Dept. of Revenue: No federal §1983 private right here; Pennsylvania law typically does not permit constitutional damages or retroactive refunds for invalidated taxes. | Held: §1983 claim not within this Court’s original jurisdiction and monetary damages/refunds not available; ruling prospective from date of decision (no retroactive refunds). |
Key Cases Cited
- Overholt & Co. v. Commonwealth, 200 A. 849 (Pa. 1938) (Uniformity requires taxes to operate alike on subjects)
- Clifton v. Allegheny Cnty., 969 A.2d 1197 (Pa. 2009) (statute invalid where tax formula yields arbitrary or unreasonably discriminatory results)
- Wilson Partners v. Board of Finance & Revenue, 737 A.2d 1215 (Pa. 1999) (discussing standard for tax-classification challenges)
- Cope’s Estate, 43 A. 79 (Pa. 1899) (holding quantity-based exemptions/classifications violate Uniformity)
- Kelley v. Kalodner, 181 A. 598 (Pa. 1935) (struck down graduated-rate income tax as non-uniform)
- Amidon v. Kane, 279 A.2d 53 (Pa. 1971) (personal income tax with embedded federal exceptions violated Uniformity)
- Turco Paint & Varnish Co. v. Kalodner, 184 A. 37 (Pa. 1936) (variable rates on same tax base lack uniformity)
- Leonard v. Thornburgh, 489 A.2d 1349 (Pa. 1985) (presumption to uphold tax statutes; but not dispositive where Uniformity violated)
- Oz Gas, Ltd. v. Warren Area Sch. Dist., 938 A.2d 274 (Pa. 2007) (decision invalidating a tax statute is prospective; no retroactive refunds)