Zorzit v. Comptroller of Md., 123 A.3d 627

Nick’s Amusements operated coin-operated games (video poker, jukeboxes, pool tables) at bars/restaurants from 1993–2009; profits were split with venue owners and payouts were illegal when made; Nick’s did not keep records of payouts and recorded revenue only in total per location, not per machine; a 2009 police raid seized 83 machines and analyzed motherboard data; the Comptroller used a payoff percentage (55%) inferred from motherboard data to estimate unreported revenue and assessed $2,159,724.97 in tax due plus interest and a 100% fraud penalty; the Tax Court upheld the assessment and adjusted the penalty to 50% after finding fraud; Nick’s challenged the merits of the fraud penalty and the adequacy of the Comptroller’s resulting calculation.
The Comptroller’s method relied on limited data and assumed payouts for all out-credits due to lack of precise records; Nick’s argued that records or expert testimony could produce a lower liability.
The Court reviewed the Tax Court’s decision under a severely limited standard of review, affirming the fraud penalty and the assessment, and holding that destruction of the motherboards by police did not prejudice the Comptroller.
The Tax Court used badges of fraud from Genie to support the penalty, and Rossville Vending to interpret “gross receipts” as taxable without deductions for payouts.
The court ultimately affirmed the circuit court’s judgment, upholding the Tax Court’s findings and result.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the civil fraud penalty requires proof of intent to defraud	Nick’s lacked intent to defraud	Genie allows penalties based on circumstantial badges of fraud	Penalty sustained; sufficient badges of fraud found
Whether the Comptroller’s assessment is supported when based on imperfect data and missing records	Assessment rests on erroneous assumptions and lack of records	Assessment reasonable under TG §13-403 given missing records	Assessment supported by substantial evidence
Whether spoliation of evidence by police invalidates the assessment	Destruction of motherboards prejudices Nick’s	Comptroller did not possess or destroy evidence; spoliation no fault	No reversal based on spoliation

Rossville Vending Machine Corp. v. Comptroller of the Treasury, 97 Md. App. 305 (1993) (tax liability for payouts and interpretation of gross receipts)
Genie & Co. v. Comptroller of Treasury, 107 Md. App. 551 (1995) (badges of fraud; circumstantial evidence supports penalty)
Comptroller of the Treasury v. Diebold, Inc., 279 Md. 401 (1977) (severely limited review; deference to Tax Court on facts)