A Kansas Court of Appeals panel ruled Thursday that Boot Hill Casino and Resort in Dodge City isn’t required to pay the state’s “use tax” on electronic gaming machines it operates on behalf of the Kansas Lottery.
The three-judge appeals panel agreed with a Board of Tax Appeals’ decision that said the Kansas Department of Revenue was wrong in collecting $801,588 in compensating use tax from Boot Hill when it purchased from out-of-state vendors electronic gaming machines on behalf of the Kansas Lottery, the state agency that oversees operations at three state-owned casinos.
Boot Hill paid the tax under protest, then began an appeals process to get the payment refunded.
The Board of Tax Appeals ruled that Boot Hill doesn’t own, but only manages, the equipment for the Kansas Lottery, which is required by the 1987 Lottery Act to own and operate all gaming equipment used in the state.
Because it isn’t the owner of the machines, the tax board ruled Boot Hill isn’t required to pay the use tax.
The Kansas Compensating Tax Act passed in 2009 initially set a tax rate of 5.3 percent on the purchase price of “all property purchased or leased within or without this state and subsequently used, stored or consumed in this state.
“(Such property) shall be subject to the compensating tax if the same property or transaction would have been subject to the Kansas retailers’ sales tax had the transaction been wholly within this state.”
The tax rate was later modified by the Legislature in 2010 and 2011.
The Department of Revenue acknowledged to the tax appeals board that the Kansas Lottery was the ultimate owner of the machines.
But it argued that Boot Hill was still obligated to pay the use tax because it was “contractually allowed to exercise rights that allow it to use and enjoy the property.”
“It matters not that the Kansas Lottery ultimately holds title to the (machines),” the Revenue Department argued. “Securing title to tangible personal property is not and has never been a prerequisite for establishing a taxable use incident to the ownership of that property.”
In supporting the decision of the tax appeals board, the Court of Appeals panel cited purchase agreements Boot Hill signed as “manager under contract to the Kansas Lottery on behalf of the State of Kansas.”
It also cited provisions of the state’s gaming regulations that say no state-owned casino can purchase or lease any gambling device except on behalf of the Kansas Lottery.
Kansas’ three state-owned casinos — in Dodge City, Mulvane and Kansas City, Kan. — provide the Kansas Lottery with 100 percent of all gross gambling proceeds on a daily basis, the appeals panel noted in its ruling. The Kansas Lottery returns 73 percent of that revenue to each casino on a monthly basis.