Pennsylvania Greenwood Gaming Decision Could Have a Big Impact

On Nov. 17, 2021, the Pennsylvania Supreme Court issued a unanimous, taxpayer-favorable Gaming Act tax decision that provides strong arguments for taxpayers challenging any type of tax imposition or exclusion statute. In Greenwood Gaming & Entertainment, Inc. v. Commonwealth, the court strictly construed the Gaming Act to hold that concert tickets are not “services” as defined by the Gaming Act. Therefore, the value of such tickets is excluded from the casino’s tax base. The court reinforced the principle that tax imposition and tax exclusion statutes are to be interpreted strictly in favor of taxpayers. This reinforcement could signal how the court may rule in other cases where a taxpayer challenges the Department of Revenue’s interpretation. Therefore, a taxpayer challenging the department’s interpretation of a statute should consider the court’s analysis in this case carefully.

The Specific Holding in Greenwood Gaming

Section 1103 of the Gaming Act imposes tax on the gross revenue a casino derives from table games and slot machines, minus the “actual cost” the casino pays “for any personal property distributed to a player as a result of playing [but not including] services” (emphasis added).

On its original tax return, Greenwood Gaming included in its tax base the actual costs—generally, $200 to $300 per ticket—of the concert tickets to attend performances of artists including Jay-Z, Beyonce, Justin Timberlake, and Lady Gaga that it distributed to its patrons for playing table games and slot machines. Greenwood Gaming subsequently filed for a refund, claiming that the tickets were not services and, therefore, were to be excluded from its tax base. The commonwealth denied the refund, arguing that the concert tickets were services because each ticket merely conferred the right of admission to the event performance, and the event performance itself was an entertainment service.

The parties agreed that the concert tickets were personal property. The question before the court, therefore, was whether the concert tickets were services. The court turned to the common usage of the term “services” and found that it “connotes an interactive relationship—often a personal one—between the service provider and the recipient, where the provider directly performs work or a useful act for the individual which he or she would otherwise have to do themselves, such as when a laundry service washes an individual’s clothes, a landscaper performs yard work for a homeowner, or a car wash cleans an individual’s car.” Slip Op. at 16.

A concert ticket, however, provides the holder the right to view a performer’s “act of unique artistic expression.” Slip Op. at 17. The casino patron who uses the ticket, therefore, “does not receive a personal service when he or she attends such a performance.” Id. Because the definition of “services” is an exclusion from the Gaming Act tax base, the court held that such term is to be “strictly construed in the casino’s favor as the taxpayer.” Therefore, the court held that the concert tickets are not services and are to be excluded from Greenwood’s Gaming Act tax base.

The Broader Impact of Greenwood Gaming

The Greenwood Gaming holding is limited to the exclusion of concert tickets from the Gaming Act tax base. The court’s rationale, particularly as amplified by Justice Saylor’s and Justice Wecht’s concurring opinions, provides taxpayers in cases involving other types of tax cases with powerful ammunition against the commonwealth’s statutory interpretation arguments.

The majority opinion (in which all justices joined) reiterates the rule of statutory construction that taxing statutes and exclusions are to be interpreted strictly in the taxpayer’s favor. Justice Wecht, joined by Justice Donohue, concurred by emphasizing that the court, not an administrative agency, is the final arbiter of a statute’s meaning. Justice Wecht also reinforced that an administrative agency—in this case, the Department of Revenue—is completely off base to assert that its interpretation is to be upheld unless clearly erroneous:

"[T]his Court is not bound by an administrative agency’s interpretation of an ambiguous statute, though we certainly may consider the agency’s interpretation and adopt it if we find it persuasive. The Commonwealth’s argument that we must unconditionally defer to the interpretation that the Department of Revenue proffers unless it is ‘clearly erroneous’ is a nonstarter.” (emphasis added) Wecht concurrence at 2 – 3.

Citing U.S. Supreme Court precedent, Justice Wecht opined that the Department of Revenue’s interpretation was entitled to no deference because the Department of Revenue lacks specific expertise in the gaming industry and the department’s informal guidance was not well-founded and appeared to be a ploy to support its litigation position:

“First, the meaning of the term “services” does not implicate agency expertise. No one argues, for instance, that “services” is a term of art in the gaming industry. Second, the persuasive value of the Bulletin is low, since it flatly declares that “event tickets are not deductible” without any real analysis of the relevant statutory text. Third, the informality of the agency’s interpretation is problematic, since non-legislative rules like “manuals, interpretive memoranda, staff instructions, policy statements, circulars, bulletins, advisories, and press releases” are entitled to far less deference than formal regulations promulgated through ordinary rulemaking processes. Finally, the 2015 Bulletin was published after the tax year at issue in this appeal, and it appears to have been issued specifically because Greenwood prevailed in an earlier stage of this litigation—a practice that calls into question the Department’s objectivity.” (emphasis added, footnotes and citations omitted) Wecht concurrence at 3 – 4.

Justice Wecht’s unequivocally strong language could be a less-than-subtle hint to taxpayers challenging other types of taxes where the department has provided informal guidance beyond its ken to support its litigation position. The Supreme Court has recently granted oral argument in Synthes and limited argument to two issues:

1. Did the Commonwealth Court err in holding that the office of the attorney general was bound by the Department of Revenue’s interpretation of 72 P.S. § 7401(3)2(a)(17)—Subparagraph 17—and prohibited from presenting any independent legal argument contrary to the department’s position, even where, as here, the attorney general determined that the department’s position conflicted with the express language of the statute and the intent of the General Assembly?
2. Did the Commonwealth Court err in upholding the department’s interpretation of Subparagraph 17 over the express language of the statute and the intent of the General Assembly?

Let’s first turn to the second issue to be argued. As in Greenwood Gaming, the Department of Revenue has not issued formal guidance, such as a regulation approved by the Independent Regulatory Review Commission, on its interpretation of Subparagraph 17, which provides for the sourcing of services for corporate net income tax purpose. As a result, the department has supported its interpretation with informal guidance and historical practice. It may be argued that, as in Greenwood Gaming, the department has morphed its statutory interpretation to suit its current litigation position.

Now, let’s turn to the first issue, on which many taxpayers are anxiously awaiting the court’s resolution. Here, and putting aside how this situation ever rose to this level, the court will rule on what happens when the Department of Revenue and the office of the attorney general proffer conflicting interpretations of tax statutes. The court’s resolution of this issue will likely have broad procedural, policy, and practical impacts.

For these reasons, Greenwood Gaming—and Justice Wecht’s concurrence in particular—remind taxpayers of a straightforward path that may be available to successfully challenge the Department of Revenue interpretations in certain instances. Regardless, it will be interesting to see how the court’s approach in Greenwood Gaming may impact Synthes as well as other taxpayer challenges to Department of Revenue interpretations of Pennsylvania tax statutes.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Michael Semes is of counsel with BakerHostetler in Philadelphia and part of the firm’s state and local tax group. He is also Professor of Practice at the Villanova University Charles Widger School of Law in the Graduate Tax Program.

We’d love to hear your smart, original take: Write for Us