OPINION ON PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT
INTRODUCTION
In this case, Bernard and Kathleen Tworek of Hayward, Wisconsin, seek a refund of income taxes paid to the Internal Revenue Service (“IRS”) for income generated from unauthorized gambling sponsored by them at their establishments. Pursuant to the Internal Revenue Code, business operators of a gambling enterprise pay two separate yearly taxes on their wagering income, ie., one as a percentage of receipts and one as a flat fee. 26 U.S.C. §§ 4401, 4411 (1995). The rate of the two taxes is based on whether the activity is state authorized. Id. If the gambling is authorized in the state in which it occurs, the IRS levies a $50 yearly fee and a 0.25% tax on wage receipts. Id. Those amounts are stepped up to $500 and 2.00%, respectively, if the wage activity is not legal or authorized in the state. Id.
As a result of the administrative determination, the IRS determined that plaintiffs’ gambling activity in Hayward, Wisconsin, was unauthorized by the State of Wisconsin and, therefore, levied against them the two higher taxes. The Tworeks have paid at least a portion of these taxes and currently seek a refund of the difference between the higher and lower rates. According to the plaintiffs, their gambling should be considered authorized by the state because the Wisconsin statute prohibiting it is unconstitutional and, thus, invalid. Although not relevant to this instant motion, the Tworeks additionally argue in their papers that some of their activity deemed gambling by the IRS was not actual wagering. By their partial summary judgment motion, plaintiffs request this court to hold that the Wisconsin statute, proscribing their gambling, is unconstitutional because it carries suspect classifications that favor Native-Americans and other groups over them.
The government responds with case law supporting the constitutionality of the Wisconsin statute as a valid exercise of that state’s legislative power. Furthermore, it argues that the Indian Gaming Regulatory Act (“IGRA”) creates the racial classification, not the Wisconsin statute, and that the IGRA has been upheld by the Supreme Court in recent decisions. Defendant, therefore, requests that plaintiffs’ partial summary judgement motion be denied in its entirety. Additionally, defendant has filed a counterclaim against plaintiffs for additional unpaid taxes, which are not part of this instant motion. For the reasons stated herein, the court finds that, as a matter of law, plaintiffs’ motion should be denied.
BACKGROUND AND PROCEDURAL HISTORY
The plaintiffs, Bernard and Kathleen Tworek, are a married couple living and operating businesses in Hayward, Wisconsin. During the relevant times herein, Kathleen Tworek owned the Wildlife Museum and Bar,
Under Wisconsin law, the Tworeks’ gambling activities are considered lotteries. Wis. Stat. § 945.01 (1997).
Consequently, the IRS assessed $2,950 in tax, interest, and penalties against the Tworeks pursuant to 26 U.S.C. §§ 4411(a) and 4401. In November, 1997 the Tworeks remitted cheeks totaling the $2,950 tax assessed, along with a claim for refund of those amounts. In February 1998, the IRS denied the Tworeks’ refund claims.
Following thereon, plaintiffs filed this action on June 19, 1998, alleging in their complaint two counts each for overpayment of the flat fee and the percentage taxes pursuant to U.S.C. §§ 4401 and 4411. Defendant filed its answer on October 29, 1998, and, subsequently, filed an amended pleading containing a counterclaim for additional gambling taxes pursuant to §§ 4401 and 4411. Trial is scheduled to commence in St. Paul, Minnesota, on February 22, 2000.
On November 16, 1999, plaintiffs filed this instant motion for partial summary judgment, seeking a ruling from this court that the IRS must tax the Tworeks at the lower rates of the aforementioned code sections. Specifically, plaintiffs argue that because the Wisconsin statute outlawing their gambling operation is unconstitutional, their wagering is thus legal and should be taxed at the lower state authorized rate.
The task before this court on the instant motion is simple — and that is to determine the constitutionality of the Wisconsin gambling statute as applied to the plaintiffs and, therefore, whether or not their gambling operation was state authorized as a matter of law.
DISCUSSION
A. REQUEST FOR PARTIAL SUMMARY JUDGMENT
Plaintiffs seek partial summary judgment pursuant to RCFC 56(c), which provides for judgment if “there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law.” A “genuine issue” is one in which a reasonable jury, or in this case, a reasonable judge, could return a judgment for the nonmovant. Anderson v. Liberty Lobby,
As stated above, in a summary judgment motion the moving party bears the burden of demonstrating that there is no genuine issue of material fact and that their version of the law is the correct one. Id.; Adickes,
Plaintiffs’ motion requests a judgment against the government that: “1) the proper tax rate for wagers placed with the Tworeks, pursuant to 26 U.S.C. § 4401 is 0.25%; and 2) the proper yearly tax on persons who accept wagers is $50.00, pursuant to U.S.C. § 4411....” Plaintiffs’ November 16, 1999 Motion For Partial Summary Judgment. Plaintiffs also seek allowable fees and expenses. Id.
Internal Revenue Code (“IRC”) sections 4401 and 4411 establish a two-tier federal tax structure for levies on gambling income procured by those who sponsor wagering activities. As previously stated, the respective tax is a flat fee of $500 a year plus 2.00% of wage receipts for unauthorized gambling activities and $50 a year plus .25% of wage receipts for state authorized activities. 25 U.S.C. §§ 4401, 4411. Wisconsin law prohibits the Tworeks from operating private lotteries at their establishments. Wis. Stat. § 945.02 (1997). Therefore, the Tworeks’ gambling activities were unauthorized and their operations were taxed by the IRS at the higher rates.
There are, however, certain legal gambling activities in Wisconsin, for instance “bingo and raffle games conducted by religious, charitable, service, fraternal, or veterans’ organizations ...” Wis. Const., Art 4, § 24. Additionally, the state allows “pari-mutuel on-track betting” and a lottery operated by the state itself. Id. Outside of Wisconsin’s authority, but well within her geographical boundaries, are federal Native-American reservations which conduct their own lotteries pursuant to the Indian Gaming Regulatory Act (“IGRA”), promulgated by the U.S. Congress in 1987. 25 U.S.C. § 2701.
Plaintiffs’ position is that the Wisconsin statute prohibiting the Tworeks from operating a lottery is unconstitutional and is based on the fourteenth amendment’s equal protection clause. Const, amend. XIV.
Plaintiffs’ supporting argument is twofold. First, they propose that it is a violation of the fourteenth amendment’s equal protection clause that Wisconsin allows itself to conduct a lottery but not private individuals. Second, they argue that because the IGRA allows for Native Americans to conduct lotteries on federal reservation land, within the State of Wisconsin, it is an equal protection violation for the state to proscribe it as to the Tworeks, who are outside of a reservation. Id. We address each argument seriatim and then, ultimately, analyze the Wisconsin statute under the appropriate basis of review.
B. STATE-RUN LOTTERIES
Wisconsin law allows the state to conduct its own lottery but prohibits private individuals from doing so. Wis. Const. Art 4, § 24 6(a) and Wis. Stat. § 945.02(3). Plaintiffs claim that because the state runs its own lottery and allows certain groups only to partake in other forms of gambling, but proscribes gambling promotion as to private individuals, the state is violating the equal protection clause of the fourteenth amendment.
Plaintiffs’ position can be disposed of quite simply. It is well established that a state can authorize itself to conduct a lottery and not give that same right to private individuals. United States v. Williams,
Furthermore, Wisconsin may also allow other, non-lottery forms of gambling to be engaged in by particular organizations, e.g., Bingo, and not others because the legislature believes that the public will be better served if only particular, non-profit groups are allowed to promote gambling. Williams,
Accordingly, plaintiffs’ argument that “[t]he State of Wisconsin has engaged in a patchwork approach ... [and] creates arbitrary and baseless distinctions between permitted participants” is completely untenable considering the text of the statute and established law on this issue. Plaintiffs’ November 16, 1999 Motion For Partial Summary Judgment at 7. Considering Wisconsin’s moniker as the “cheese state,” plaintiffs’ hyperbole that the state’s gambling statute “look[s] like Swiss cheese,” while a witty metaphor, does nothing to substantively persuade this court otherwise. Id.
C. NATIVE-AMERICAN LOTTERIES
On the first page of their brief, plaintiffs aver that — “[t]he State of Wisconsin created an unconstitutional racial classification when it developed a policy allowing Native Americans to engage in commercial gaming, but precluding others of different backgrounds from doing so.” Id. at 1 (emphasis added). Apparently, plaintiffs’ major threshold contention is that because they and other private individuals cannot legally run a lottery, Native Americans on federally-recognized reservations should likewise be prevented from doing so, lest there be an equal protection violation by the state. The plaintiffs buttress this weak position with general references to equal protection case law and an irrelevant case that rules “... Wisconsin has a policy toward commercial gaming that is regulato
A review of the Wisconsin gambling statute and the relevant part of its constitution show that the term “Native American” is never mentioned anywhere in the context of gambling. See Wis. Stat. §§ 945.01-02; Wis. Const, art. 4 § 24, supra. In fact, nowhere in these aforementioned sections does it indicate that Wisconsin desired to develop a “policy” allowing Native Americans as a racial group to gamble and other ethnic groups to be prohibited from doing so. Plaintiffs’ position that Wisconsin developed a suspect racial classification is specious, at best.
It is true, indeed, that within the borders of Wisconsin state Native Americans are legally allowed to sponsor their own lottery, but this power is conferred to them by federal, and not state, law, namely the Indian Gaming Regulatory Act (“IGRA” or “the Act”). 25 U.S.C. § 2710. They may only engage in such activity on federally-recognized reservations, which lands are, in many ways, separate jurisdictions from the state in which they are located. Id. at § 2703(4), (5); U.S. Const, art. I, § 8 (Indian Commerce Clause).
In that connection, the IGRA provides that Native Americans can sponsor their own lottery if the state itself “permits such gaming for any purpose by any person, organization or entity ...” 25 U.S.C. § 2710(a), (c). In Wisconsin, the state itself legally sponsors a lottery and, therefore, pursuant to the IGRA, the Native Americans can do the same on their reservations. Id.; Wis. Const, art. 4, § 24(6)(a). Congress’ reason for creation of the Act was expressed in section 2702, which states: “[t]he purpose of this chapter is—(1) to provide a statutory basis for the operation of gaming by Indian tribes as a means of promoting tribal economic development, self-sufficiency, and. strong tribal government ...” There is a valid purpose both in theory and practice with Congress’ intent in enacting the IGRA, as many such laws have been passed throughout our legislative history with a similar purpose. See, e.g. 25 U.S.C. § 450 (1999) (Indian Self Determination and Education Assistance Act).
As laudable as these goals are, however, a statute must still meet constitutional muster for this court to give deference to it. The IGRA has passed such constitutional analysis by the High Court in Seminole Tribe of Florida v. Florida,
Considering the above, what plaintiffs are asking this court to do is to find, alternatively, that: 1) the IGRA is unconstitutional in states that do not prophylactically prohibit all gambling; or 2) upon the enactment of the IGRA, all states’ laws that permitted gambling by any classification, regardless of reason, immediately became unconstitutional overnight. Plaintiffs launch this attack by wrapping their argument in the red, white, and blue of the fourteenth amendment. This position flies directly in the face of Congress’ intent in enacting the IGRA, and this court cannot subvert congressional intent when such has a firm constitutional foundation.
Stated differently, plaintiffs are demanding either a judicial repeal of the- IGRA or a decree from this court that individual states must make a choice between allowing every single person/entity to promote gambling or disallowing gambling completely for everyone. Plaintiffs state on page 10 of their brief: ‘Wisconsin’s policy is to allow Native American commercial gaming... [i]f Wisconsin desired to eliminate Native American gambling from Wisconsin, it would only need to take the simple expedient of ending its own gambling enterprises. Disallow commercial gambling by all practitioners, and the Indians would not be able to gamble either.” With all due respect to plaintiffs, this position is farcical. The Native-American policy plaintiffs speak about is not Wisconsin’s, but Congress’. What the Tworeks want this
Ironically, plaintiffs cite a case in support of their argument, but which inferentially finds that both the IGRA and the Wisconsin statute are constitutional. Lac du Flambeau Band of Lake Superior Chippewa Indians v. Wisconsin,
The equal protection clause does not create by itself substantive rights. Vacco,
Moreover, state regulations have been upheld that affect certain groups unevenly, even though the law itself treats them no differently from all members of the class described by the law. Massachusetts v. Feeney,
Courts will review a state’s legislative classification or distinction under the fourteenth amendment depending on whether the law targets a suspect class or burdens a fundamental right. Vacco,
D. BASIS OF REVIEW
The prior two sections of this opinion concluded that the Wisconsin statute prohibiting plaintiffs’ gambling operation did not involve a suspect classification. We will now address the question of whether operating a lottery is a fundamental right. If the court determines that the Wisconsin statute does not infringe on a fundamental right, it will then review it on a rational basis. Id. Strict scrutiny analysis would only be utilized if the statute involved a fundamental right or, as previously discussed, a suspect classification. Clark,
Generally, economic legislation does not involve fundamental rights, e.g., right to vote, right of free speech, and right of interstate travel. Williams,
Consequently, the Tworeks do not have a fundamental constitutional right to operate a gambling enterprise. Accordingly, the Wisconsin statute prohibiting their gambling operations will be reviewed under a rational basis analysis. Vacco,
After a careful review, this court holds that, indeed, Wisconsin’s gambling statute satisfies the rationality requirement. Wisconsin has an interest in regulating and controlling gambling, for obvious reasons which do not necessitate full enumeration herein. The law is logically tailored to meet those ends. For example, Wisconsin allows religious, charitable, service, and veterans’ organizations to conduct bingo games as long as all profits inure to the tax-exempt organization sponsoring such. Wis. Const. Art. 4, § 24. This is a far cry from the Tworeks’ offering of gambling to their bar patrons, while accruing profits for themselves only. The state, if it desires, can rationally distinguish alcohol-consuming bar patrons in a pub from a gathering of VFW members and their families in a town hall.
In the Williams ease cited previously, the court concluded that: “[i]n prohibiting certain gambling activities but not others, Pennsylvania lawmakers could have rationally concluded that the prohibited activities are-particularly undesirable — because they have an increased tendency to encourage self-destructive behavior, because they are especially susceptible to the dishonest practices and organized crime connections that have historically plagued the gambling business, or for other reasons.”
The Supreme Court’s holdings in the Williams and Williamson cases ’show that the rational basis standard is not a difficult one to meet. Courts will give much deference to a state’s legislature in structuring laws and regulations not impinging on fundamental rights or involving suspect racial classifications. Vacco,
CONCLUSION
Plaintiffs’ claim of reverse discrimination fails to persuade this court to find either that the IGRA or the Wisconsin gambling laws, as applied to the plaintiffs, violate the equal protection clause of the fourteenth amendment. Their constitutional argument is rejected, along with their interpretation of the aforementioned statutes. Under these facts, plaintiffs are not entitled to a judgment as a matter of law. As such, genuine issues of material fact exist as to whether the Tworeks engaged in unauthorized wagering and also whether they should, therefore, be taxed at the higher rate under the IRC. Consequently, plaintiffs’ motion for partial summary judgment is hereby DENIED.
In light of this decision and considering the current proximity to the trial date, the parties are hereby directed to forthwith discuss the possibility of definitively settling this matter short of a trial on the merits and shall inform the court of the status of such negotiations at the pretrial conference scheduled for February 15, 2000.
IT IS SO ORDERED.
Notes
. Wis. Stat. § 945.01 states in relevant part:
"945.01. Definitions
In this chapter:
... (5) Lottery, (a) A lottery is an enterprise wherein for a consideration the participants are given an opportunity to win a prize, the award of which is determined by chance, even though accompanied by skill. 'Lottery' does not include bingo or a raffle conducted under ch. 563, parimutuel wagering conducted under ch. 562 or the state lottery or any multi-jurisdictional lottery conducted under ch. 565.”
. Wis. Stat. § 945.02 states in relevant part:
"945.02. Gambling
Whoever does any of the following is guilty of a Class B misdemeanor:
... (3) Conducts a lottery, or with intent to conduct a lottery, possesses facilities to do so.”
Wis. Const. Art 4, § 24 states in relevant part: “§ 24. Gambling
Section 24... (6)(a) The legislature may authorize the creation of a lottery to be operated by the state as provided by law.”
. § 1 of the fourteenth amendment to the United States Constitution reads, in relevant part:
"No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”