Summary
In Sands Bethworks Gaming, LLC v. Pennsylvania Department of Revenue, 652 Pa. 61, 207 A.3d 315 (2019), we held that the Gaming Act's "Casino Marketing and Capital Development" ("CMCD") tax scheme violated the Uniformity Clause.
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No. 216 MM 2017
04-26-2019
SANDS BETHWORKS GAMING, LLC, Petitioner v. PENNSYLVANIA DEPARTMENT OF REVENUE ; C. Daniel Hassell in His Official Capacity as Secretary of the Pennsylvania Department of Revenue; and the Pennsylvania Gaming Control Board, Respondents
OPINION
This matter is brought in our original jurisdiction and involves a constitutional challenge to a recent amendment to Pennsylvania's gaming law. Under the amendment, casinos pay a supplemental assessment on slot-machine revenue, and the funds are then distributed primarily to underperforming slot-machine facilities to be used for marketing and capital development.
I.
Approximately fifteen years ago, the General Assembly substantially widened the scope of legalized gambling in Pennsylvania by passing the Pennsylvania Race Horse Development and Gaming Act (the "Gaming Act"). See generally Pennsylvanians Against Gambling Expansion Fund, Inc. v. Commonwealth , 583 Pa. 275, 877 A.2d 383 (2005) (upholding most of the Gaming Act against a challenge to the process by which it was enacted). The Gaming Act authorized slot-machine operations as a newly-created aspect of the gaming landscape, with licenses divided into three types: a Category 1 license authorizes slot machines at an existing horse racetrack; a Category 2 license allows for slot machines in a non-racing facility in a city of the first or second class, or in a revenue- or tourism-enhanced location; and a Category 3 license authorizes slot machines in an established resort hotel with at least 275 guest rooms. See 4 Pa.C.S. §§ 1301 - 1305 ; Mount Airy #1, LLC v. Dep't of Revenue , 638 Pa. 140, 157 n.7, 154 A.3d 268, 278 n.7 (2016).
Act of July 5, 2004, P.L. 572 (as amended 4 Pa.C.S. §§ 1101 -1904 ). The act is codified as Part II of Pennsylvania's Amusements Code.
As of 2017, a fourth category of slot machine licenses allows for slot machines at ten additional locations in Pennsylvania. See 4 Pa.C.S. § 1305.1. Category 4 facilities are not at issue in this case as they are not affected by the statutory provisions challenged here.
Persons holding one of these types of licenses pay a 34% tax on the gross terminal revenue ("GTR") generated by their slot machines, see 4 Pa.C.S. § 1103 (defining gross terminal revenue as slot-machine money received minus various types of payouts such as cash paid to slot-machine players), which is then transferred into the State Gaming Fund. See 4 Pa.C.S. § 1403 (establishing the State Gaming Fund within the Pennsylvania treasury). They also pay a daily assessment of 5.5% of GTR into the Pennsylvania Gaming Economic Development and Tourism Fund (the "Gaming Tourism Fund"), which is administered by the Department of Community and Economic Development (the "DCED"). See 4 Pa.C.S. § 1407(a) - (c).
The Gaming Act has been revised on multiple occasions since 2004. Of relevance here is amending legislation passed in 2017, known as Act 42. See Act of Oct. 30, 2017, P.L. 419, No. 42. Act 42 contains many varied provisions. For present purposes, it establishes a restricted account called the Casino Marketing and Capital Development Account (the "CMDC Account") within the Gaming Tourism Fund, to be administered by the Gaming Control Board (the "Board"). See 4 Pa.C.S. §§ 1407.1(a), (b). Act 42 states that, beginning on January 1, 2018, each Category 1, Category 2, and Category 3 slot-machine facility is required to pay a supplemental daily assessment of 0.5% of its GTR into the CMDC Account. See id. § 1407(c.1). Besides these monies, Act 42 also provides for ongoing transfers of $ 2 million annually from the State Gaming Fund into the CMDC Account. See id. § 1408(c.1).
Act 42 also includes a one-time payment into the CMDC Account of funds which had been designated for local law-enforcement agencies but remained unused as of the effective date of the act. See id. This one-time transfer is not legally significant in relation to this dispute.
In terms of how the CMDC Account monies are used, first, the Board is required to make certain statutory distributions from the account. These include disbursements of $ 4 million to each Category 1 or 2 licensee with a GTR of $ 150 million or less for the prior fiscal year; $ 2.5 million to any such licensee with a GTR between $ 150 million and $ 200 million during the prior fiscal year; and $ 0.5 million to each Category 3 licensee with a GTR of less than $ 50 million in the prior fiscal year. See 4 Pa.C.S. § 1407.1(e)(1)(i)-(iii). If the CMDC Account lacks sufficient funds, these distributions are prorated according to a statutory formula. See id. § 1407.1(e)(1)(iv). Any money remaining in the CMDC Account after such distributions are made is to be disbursed by the Board on a discretionary basis to Category 1, 2, or 3 licensees that have applied for grants, see id. § 1407.1(e)(2), with the proviso that no casino may receive more than $ 4 million from the account in a single year, and no casino may receive any funds from the account during the casino's first two years of licensure. See id. § 1407.1(e)(3).
To be precise, the DCED makes these distributions at the direction of the Board. See See id. § 1407.1(b).
Under Act 42, the Board is tasked with notifying the Legislative Reference Bureau, for publication in the Pennsylvania Bulletin, when the GTR of all Category 1 and 2 licensees exceeded $ 200 million during the previous fiscal year, and the GTR of all Category 3 licensees exceeded $ 50 million during the previous fiscal year. See id. §§ 1407(c.1)(1), 1407.1(f)(1), 1408(c.1)(1). The challenged provisions of Act 42 expire when such notice is published, or ten years after Act 42's effective date, whichever occurs first. See id. §§ 1407(c.1)(2); 1407.1(f)(2); 1408(c.1)(2).
II.
In December 2017, Sands Bethworks Gaming, LLC ("Sands") – which operates slot machines at a casino in Bethlehem under a Category 2 license – filed in this Court's original jurisdiction a petition in the nature of a complaint seeking declaratory and injunctive relief, naming as respondents the Department of Revenue, its Secretary in his official capacity, and the Board (collectively, the "Commonwealth"). Sands challenged the constitutionality, both facially and as applied, of Act 42's provisions relating to the CMDC Account. Sands alleged that those provisions violated the Pennsylvania Constitution's requirement of uniform taxation, its mandate that all enactments have a public purpose, and its rule against special legislation. Sands also claimed the scheme violated the Equal Protection and Due Process Clauses of the Fourteenth Amendment to the federal Constitution. Thus, Sands asked this Court to declare Sections 1407(c.1), 1407.1, and 1408(c.1) unconstitutional, and to enjoin the state from collecting the tax assessed under those provisions. Thereafter, Greenwood Gaming and Entertainment, Inc. – which operates slot machines under a Category 1 license at Parx casino and racetrack in Bensalem – was permitted to intervene as an additional plaintiff. Greenwood forwarded claims and arguments similar to those of Sands.
This Court has exclusive original jurisdiction to hear any challenge to, or render a declaratory judgment concerning, the constitutionality of the Gaming Act. It is authorized to take such action as it deems appropriate (while retaining jurisdiction) to find facts or expedite a final judgment in connection with a constitutional challenge or a request for declaratory relief. See 4 Pa.C.S. § 1904.
After oral argument, Sands notified this Court it had received a letter from the Office of Attorney General, which represents the respondents in this matter, stating that the Board intended to begin distributing funds from the CMDC Account in September 2018. Accordingly, Sands requested that we preliminarily enjoin such distributions until a ruling on the constitutionality of the challenged provisions of Act 42 is issued. We granted that request, directing the Board to retain all funds deposited into the account during the 2017-18 fiscal year until further order of this Court. We additionally noted that in the interim all affected slot machine licensees were still required to pay the supplemental daily assessment. See Sands Bethworks Gaming, LLC v. Dep't of Revenue , No. 216 MM 2017, Order at 1-2 (Pa. Aug. 30, 2018).
III.
Arguing that the CMDC Account program violates the Fourteenth Amendment, Sands calls our attention to Thomas v. Kansas City Southern Railway Co. , 261 U.S. 481, 43 S.Ct. 440, 67 L.Ed. 758 (1923) and Morton Salt Co. v. City of South Hutchinson , 159 F.2d 897 (10th Cir. 1947). See Brief for Petitioner at 34-36. In Thomas , Arkansas passed legislation creating a drainage district. To pay for the improvements, the law imposed a flat six-percent tax on the assessed value of all real estate within the district. The plaintiff, which had a rail line running through the district, complained that the railroad would pay a significant portion of the cost but would receive little benefit since its tracks were above flood level. The Supreme Court agreed: although the railroad might receive a speculative benefit in the form of increased future traffic, this was insufficient to justify imposing on the railroad liability for a significant portion of the project's cost. Deeming the tax "grossly discriminatory," the Court affirmed the order of the federal appellate court, which had held that the tax violated the Equal Protection Clause. Thomas , 261 U.S. at 485, 43 S. Ct. at 441.
Morton Salt involved analogous facts. In that matter, a city sought to issue bonds to build a waterworks system, with the bonds to be retired by a flat tax on properties in the city. Morton Salt alleged it would pay 46 percent of the cost, but would receive no benefit since the system would not supply water to its property. In ordering preliminary injunctive relief, the Tenth Circuit acknowledged that the Fourteenth Amendment does not require that tax statutes – particularly general ones supporting schools, roads, law enforcement, or the like – impose precisely equal hardships on taxpayers or benefit them identically. See Morton Salt , 159 F.2d at 900-01. It observed, however, that the Amendment does impose some restraints: the government must give something to taxpayers in return for the tax, and hence, a tax which results in a "palpable inequality between the burden imposed and the benefit received" will be voided. Id. at 901.
While Thomas has generally been understood as being decided on equal protection grounds, see, e.g. , S.W. Prop. Trust, Inc. v. Dallas Cty. Flood Control Dist. No. 1 , 136 S.W.3d 1, 14 (Tex. Ct. App. 2001) (Supp. Op. on Mot. for Reh'g), Morton Salt referred to due process rather than equal protection, finding that the tax was an "arbitrary taking of property without compensation." Morton Salt , 159 F.2d at 901.
Morton Salt 's formulation in this regard presumably reflects a conclusion that a special assessment which is grossly disproportionate to the benefit received by the taxpayer amounts to a "taking" of property under the Fifth Amendment's Takings Clause as applied to states through the Due Process Clause of the Fourteenth Amendment. That concept has support in some early decisions, see, e.g. , Dane v. Jackson , 256 U.S. 589, 599, 41 S.Ct. 566, 568, 65 L.Ed. 1107 (1921), although more recent cases have been somewhat ambiguous as to which Fourteenth Amendment precept – due process or equal protection – was involved. Compare, e.g. , Concerned Taxpayers Coal. of Scarborough v. Town of Scarborough , 576 A.2d 1368, 1369 (Me. 1990) (reciting that the taxpayers raised an equal protection argument), with id. at 1370 (rejecting the argument on the basis that the taxpayers were not deprived of due process); see also Allegheny County. v. Monzo , 509 Pa. 26, 38, 500 A.2d 1096, 1102 (1985) (referring to the challenged assessment as a "taking without due process" as well as a "violation of equal protection and state uniformity standards," albeit without providing developed reasoning distinguishing these types of violations).
Perhaps because of this uncertainty, some courts have used a litmus based on the concept of arbitrariness without directly stating which aspect of the Fourteenth Amendment it is founded on. See, e.g. , Bitter v. City of Lincoln , 165 Neb. 201, 85 N.W.2d 302, 307 (1957) (recognizing that, while special assessments need not correspond precisely to the benefits received, they may not be "arbitrary, capricious, or unreasonable"); see also Simmons v. City of Moscow , 111 Idaho 14, 720 P.2d 197, 206 (1986) (rejecting a constitutional claim where the tax was not "fraudulent, oppressive, arbitrary, unjust, unreasonable or an abuse of discretion").
For its part, Greenwood advances a similar contention, highlighting this Court's decision in Allegheny County. v. Monzo , 509 Pa. 26, 500 A.2d 1096 (1985). See Brief for Intervenor at 27-29. Monzo involved an ordinance imposing a one-percent tax on all hotel-room rental income in Allegheny County to fund the building of a convention center in Pittsburgh. The convention center would result in more business for hotels in Pittsburgh, but not for hotels in distant parts of the county. The operator of a hotel in Monroeville challenged the tax on that basis, claiming it violated the Fourteenth Amendment's due process and equal protection guarantees, as well as tax uniformity precepts under the state charter.
This Court indicated that the "simple but controlling question is whether the state has given anything for which it can ask return." Monzo , 509 Pa. at 38, 500 A.2d at 1102 (quoting Wisconsin v. J.C. Penney Co. , 311 U.S. 435, 444, 61 S.Ct. 246, 249, 85 L.Ed. 267 (1940) ) (emphasis added by Monzo ). Citing Thomas and Morton Salt , the Monzo Court continued that, as a general matter,
[w]here the benefit received and the burden imposed [are] palpably disproportionate, a tax is not only a taking without due process under the Fourteenth Amendment to the United States Constitution, but also an arbitrary form of classification in violation of equal protection and state uniformity standards.
Id. at 38, 500 A.2d at 1102 ; see also id. at 40, 500 A.2d at 1103 (observing that "money may not be expropriated constitutionally from one group to the benefit of another" (citing United States v. Butler , 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477 (1935) ) ). Because the tax effectively aided Pittsburgh hotels at the expense of the other hotels in the county, this Court determined it violated due process and equal protection, as well as several aspects of the Pennsylvania Constitution. See id. at 46, 500 A.2d at 1106 ; cf. Leventhal v. City of Phila. , 518 Pa. 233, 542 A.2d 1328 (1988) (upholding a similar hotel tax where the record did not support facts similar to those in Monzo ).
In response, the Commonwealth contends that where, as here, no fundamental rights are burdened, a statutory classification will survive a due process or equal protection challenge if it is rationally related to a legitimate state interest. In areas of social and economic policy, this occurs "if there is any reasonably conceivable state of facts that could provide a rational basis for the classification." FCC v. Beach Commc'ns, Inc. , 508 U.S. 307, 313, 113 S.Ct. 2096, 2101, 124 L.Ed.2d 211 (1993), quoted in Brief for Respondents at 43. Further, the Commonwealth notes, the burden of proof and evidentiary production is on the challenger.
Insofar as revenue-based taxes are concerned, the Commonwealth points out that the Supreme Court has rejected an equal-protection challenge to a statute imposing unequal taxes on slot-machine earnings, where revenue from machines at racetracks was taxed at 36 percent but revenue from machines on riverboats was taxed at 20 percent. See Fitzgerald v. Racing Ass'n of Cent. Iowa , 539 U.S. 103, 123 S.Ct. 2156, 156 L.Ed.2d 97 (2003). There, the Court applied rational-basis scrutiny to the classification, and theorized that Iowa might reasonably have decided to tax earnings from riverboats at a lower rate to help the economies of river communities or encourage riverboats to stay in-state. See id. at 109, 123 S.Ct. at 2160. Whereas in Fitzgerald there was a 16 percentage-point difference, the Commonwealth forwards that, here, the differential is far less, particularly as casinos exceeding the threshold for automatic distributions can still apply for a discretionary grant, and there is a cap on how much money any given casino can receive in a single year. See Brief for Respondents at 46-47. The Commonwealth also observes that graduated tax rates are permissible under federal equal protection principles.
Finally, the Commonwealth maintains that the provisions here "merely serve to spread the economic benefits of legalized gaming" – including job creation, economic development, and enhanced tourism – "throughout the various parts of the Commonwealth hosting Category 1, Category 2 and Category 3 casinos," and that Act 42 does not transgress any constitutional limitations recognized by the United States Supreme Court regarding the drawing of statutory classifications in the tax arena. Id. at 48-49. The Commonwealth adds that it is reasonable to assume that all Category 1-3 licensees will attempt to exceed the threshold for automatic distributions eventually, at which point the challenged provisions will expire under the sunset provisions. See id. at 35. It suggests that the CMDC Account's temporary nature in this respect demonstrates that the challenged provisions are only "designed to get the gaming industry up and running rather than to benefit some facilities over others." Id. at 36.
IV.
All duly enacted legislation "enjoys a strong presumption of validity, and ‘will only be declared void if it violates the Constitution clearly, palpably and plainly.’ " Commonwealth v. Bullock , 590 Pa. 480, 487, 913 A.2d 207, 211 (2006) (quoting City of Phila. v. Commonwealth , 575 Pa. 542, 573, 838 A.2d 566, 585 (2003) ). The party challenging a statute's validity carries a heavy burden to prove it is unconstitutional. See id. at 487, 913 A.2d at 212 (quoting Payne v. Dep't of Corr. , 582 Pa. 375, 383, 871 A.2d 795, 800 (2005) ). In matters of taxation, the Legislature retains "wide discretion." Devlin v. City of Phila. , 580 Pa. 564, 588, 862 A.2d 1234, 1249 (2004).
With that said, and as clarified in cases such as those discussed above, certain constraints apply where, as here, taxes are levied, not for general use by the state, but for specific projects or programs. Most pertinent for this matter, courts have viewed with disfavor circumstances in which the government enacts a special assessment but, for some subset of taxpayers, the tax imposed substantially outweighs any benefit received. One federal court has articulated that, unlike with general taxes, where special assessments are concerned there must "be some reasonable relationship between the burden imposed on each assessed property and the benefit, whether direct or indirect, which will be received by that property." N.C. Elec. Membership Corp. v. White , 722 F.Supp. 1314, 1335 (D.S.C. 1989) ; cf. Bennett v. Bd. of Equalization of City of Lincoln , 245 Neb. 838, 515 N.W.2d 776, 779-81 (1994) (striking a special assessment for street paving as arbitrary and capricious, where some of the properties assessed for the project would receive the same benefit as another group of properties which were not required to pay the assessment).
Monzo is illustrative of the principle. In that matter, there was no dispute that the construction of a convention center in downtown Pittsburgh would serve a valid public purpose and help the city's economy. The difficulty arose because the government did not limit the scope of the hotel tax to the hotels that would derive a benefit from the convention center. Instead, it imposed the assessment countywide so that some of the burden fell on hotels in remote areas of the county which were unlikely to realize any increased business from the convention center. The fact that the tax was uniform in its levy – each taxpayer was required to pay one percent of the income received from room rentals – was insufficient to save the legislation.
The CMDC Account program presents even greater difficulties, since there are only a small number of taxpayers (twelve at present), and the subset of those which receive a tangible benefit obtain, not an indirect advantage, but actual funds drawn directly from the account into which the taxpayers pay the special assessment. Apart from the annual $ 2 million contribution from the State Gaming Fund, which is relatively minor in the present context, this scheme tends simply to recirculate and redistribute money among the taxpayers – albeit with the mandate that any casino receiving funds from the CMDC Account must use them for marketing or capital development. See 4 Pa.C.S. § 1407.1(d).
In this latter regard, we recognize that the Gaming Act's legislative purposes can reasonably be seen to subsume the advancement of marketing and capital development among casinos. As stated by the General Assembly, the act's goals include such items as increasing Commonwealth revenue, supporting tax relief and reduction for all Pennsylvania citizens, creating development and employment opportunities, fostering tourism, and ensuring the sustainability and competitiveness of the commercial gaming industry in Pennsylvania. See 4 Pa.C.S. § 1102(2.1), (3), (6), (12.2). The Legislature could rationally conclude that these goals are best served when most or all slot-machine facilities engage in adequate promotional activities and have enough money for beneficial capital improvements.
By extension, the Generally Assembly could reasonably believe that, for a limited time at least, assisting underperforming casinos to expand by means of such items serves the public interest, and that the CMCD Account program is designed to achieve that end. Indeed, the program's statutory sunset provision reflects the Legislature's limited intent in this regard. See id. § 1407.1(f) (specifying that the CMCD Account provision – that is, all of Section 1407.1 – expires ten years after its effective date or upon notice that all of the affected licensees have reached the qualifying GTR levels, whichever occurs first); see also id. §§ 1407(c.1)(2) (same), 1408(c.1)(2) (providing for similar expiration of other transfers to the CMCD Account). Thus, we may assume that Act 42's passage was motivated by rational social-policy goals.
However, this only serves to place the circumstances of the present matter on a similar footing to those involved in Monzo – where, as noted, there was also little doubt that the assessment was prompted by a public purpose that the General Assembly could validly seek to foster. See Leventhal , 518 Pa. at 245, 542 A.2d at 1334 (referring to the establishment of a convention center in a city as "a legitimate public goal"). As developed above, the constitutional defect in Monzo was that the objective in question was advanced through a special levy imposed upon a limited group of taxpayers, a subset of which would not benefit in any meaningful way by the program.
The special assessment in issue here has similar features. For example, according to the Board, the fiscal-year 2017-18 GTR of a Category 1 licensee known as "Mohegan Sun" was approximately $ 202.8 million, placing it above the threshold to receive a mandatory distribution (notwithstanding that it paid over $ 1 million into the CMDC account). Likewise, Parx Casino, which is owned by Intervenor, had a GTR of over $ 400 million, and hence, paid over $ 2 million into the account, but it is not entitled to a mandatory distribution for the fiscal year. By contrast, during the same period another Category 1 licensee, known as "Harrah's Philadelphia," had a GTR of $ 199.7 million, only slightly below that of Mohegan Sun, and just under the $ 200 million threshold, thereby entitling it to receive a $ 2.5 million mandatory distribution.
See https://gamingcontrolboard.pa.gov/files/revenue/Gaming_Revenue_Weekly_20180701.pdf ("Board Data 2017-18"), last viewed January 14, 2019. We may take judicial notice of these statistics. See Pa.R.E. 201.
Overall, the financial data published by the Board demonstrate that seven of the twelve taxpayers are not due to receive any mandatory distribution based on fiscal-year 2017-18 data. At the same time, two are entitled to a $ 4 million mandatory distribution, two more are slated to receive $ 2.5 million, and one is set to obtain $ 0.5 million. Indeed, Act 42 establishes a system specifically designed so that the taxpayers who pay the least into the CMDC Account are the most likely to receive a mandatory distribution from that account (and the less they pay, the more they receive), and vice versa. Insofar as the discretionary grants are concerned, it is possible that some of the higher-earning casinos will be eligible to obtain a small amount of money. The funds remaining for discretionary grants when the mandatory distributions are made will be approximately $ 262,000. Even if that sum is distributed only to casinos that did not receive a mandatory distribution, such casinos would receive an average of just over $ 37,000 – a small fraction of the money they paid into the CMDC Account, and an even smaller fraction of the mandatory distributions granted to their competitors.
The Commonwealth argues that the state may make ability-to-pay distinctions when deciding how to allocate tax-funded benefits, such as in social-welfare benefits. See Brief for Commonwealth at 25 (citing Gean v. Hattaway , 330 F.3d 758, 771-72 (6th Cir. 2003) (noting the government may base such decisions on a person's ability to provide for himself without state assistance) ).
The present situation is distinguishable in that we are not evaluating a statute which, in the interest of public health, safety, and welfare, allocates benefits funded pursuant to general tax laws. Rather, we are addressing a special assessment scheme in the commercial arena which is designed to, in effect, cause underperforming casinos' marketing and capital-improvement costs to be subsidized by their competitors.
This Court recognizes that the Gaming Act is unusual in that it created an entirely new industry in this Commonwealth, and it "provides a limited number of licenses and guarantees geographic monopoly status to some licensees and near-monopoly status to others, thus alleviating the effects of free-market forces[.]" Mount Airy #1, LLC v. Dep't of Revenue & Eileen McNulty , 638 Pa. 140, 163, 154 A.3d 268, 282 (2016) (Saylor, C.J., concurring and dissenting) (citing 4 Pa.C.S. §§ 1304(b), 1307 ). We need not decide whether a program such as the one presently in issue would be valid if conceived from the outset of legalized slot-machine gambling. Here, however, Act 42 imposes on companies that are already part of Pennsylvania's gaming industry an assessment system in which "the benefit received and the burden imposed [are] palpably disproportionate" to one another, by design. Monzo , 509 Pa. at 38, 500 A.2d at 1102.
Nor are we persuaded by the Commonwealth's reliance on the Supreme Court's Fitzgerald opinion. That decision allows for different classes of slot machine facilities – those on land near racetracks, and those on riverboats – to be taxed at different rates. It does not involve a special assessment in which money is extracted from one subset of a defined class of casinos and redistributed for capital development and promotional purposes to other members of that same class. As such, it is inapposite to the present controversy.
Finally, any advantage that a high-earning casino which does not qualify for an automatic distribution might receive from the gaming industry being "up and running" throughout Pennsylvania is too speculative to be considered a benefit proportional to the amount of money it must pay into the CMDC Account.
Accordingly, we conclude that the challenged CMDC Account provisions cannot be sustained under the precedent set by Monzo and the federal cases it relied upon, as "the benefit received and the burden imposed [are] palpably disproportionate" insofar as casinos which do not obtain a mandatory distribution are concerned. Monzo , 509 Pa. at 38, 500 A.2d at 1102. The tax is thus inconsistent with the Fourteenth Amendment. V.
See generally supra note 6 (discussing various theories courts have used to find such invalid under the Fourteenth Amendment). In light of our holding we need not reach Sands' other claims.
In reference to Justice Wecht's suggestion that the present Fourteenth Amendment issue is "ancillary" in nature, Concurring Opinion, Op. at 326, 334–35, we observe that the claim is one of four separate causes of action set forth in the complaint – any one of which, if meritorious, requires a finding that the CMDC Account program is constitutionally infirm.
The concurrence, moreover, would rather this Court invalidate the legislation based on the Uniformity Clause, relying on the novel concept that a restricted-use distribution made in the post-collection timeframe effectively lowers the recipient's initial tax liability. See id. at 333. Notably, the Uniformity Clause, by its terms, is focused on the levying and collection of taxes, see PA. Const. art. VIII, § 1 ("All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax , and shall be levied and collected under general laws." (emphasis added) ), and this Court has never interpreted it in the manner advocated by the concurrence. Particularly as the federal and state precedent reviewed above make it clear that the challenged legislation works a constitutional violation independent of the Uniformity Clause, we see no present need to decide whether the clause's prohibitions should be extended to a new category of circumstances.
We now address whether those provisions should be severed from the Gaming Act. The provisions of all statutes are presumed to be severable. See 1 Pa.C.S. § 1925 ; see also D.P. v. G.J.P. , 636 Pa. 574, 595, 146 A.3d 204, 216 (2016) (reciting that, when faced with "a constitutional flaw in a statute, we try to limit the solution to the problem" (quoting Ayotte v. Planned Parenthood of N. New Eng. , 546 U.S. 320, 328, 126 S.Ct. 961, 967, 163 L.Ed.2d 812 (2006) ) ). Further, the Gaming Act itself states that, with exceptions that are not presently relevant, all of its provisions are severable. See 4 Pa.C.S. § 1902.
The supplemental assessment and CMDC Account program comprise aspects of the Gaming Act which stand apart from, and independent of, the remainder of the act, which is fully capable of operation without those provisions. Accord Brief for Petitioners at 37 (describing the program as "a self-contained scheme"). As such, and as the parties agree, see id. at 36-38; Brief for Intervenor at 31; Brief for Respondents at 49-51, the challenged provisions – namely, Sections 1407(c.1), 1407.1, and 1408(c.1) – may be (and now are) severed from the statute as a whole, which is not affected by the present ruling.
VI.
Ordinarily, a ruling invalidating a tax statute is not applied retroactively so as to require the government to refund all taxes paid under the statute, as doing so "subjects the taxing entities to the potentially devastating repercussion of having to refund taxes paid, budgeted and spent [.]" Oz Gas, Ltd. v. Warren Area Sch. Dist. , 595 Pa. 128, 145-46, 938 A.2d 274, 285 (2007) (emphasis added); see also Mount Airy #1 , 638 Pa. at 160 n.11, 154 A.3d at 280 n.11 (noting money damages are ordinarily unavailable as a remedy for a constitutional violation). That concern does not apply here because the funds have not been spent, but have been held in abeyance in the CMDC Account during the pendency of this matter. The sole purpose of those funds, as noted, is to implement the distribution scheme contemplated by the now-severed provisions.
That scheme cannot be implemented in light of our holding, and there is no remaining statutory directive regarding the disposition of the monies which the casinos have thus far paid into the CMDC Account. This suggests that the appropriate remedy is for the Commonwealth to refund such monies to those who paid them – and indeed, that is the remedy favored by all parties to this litigation. See Brief for Petitioner at 41-46 (arguing that such a refund is legally permissible and appropriate under the circumstances); Brief for Intervenor at 29-33 (same); Brief for Respondents at 21-22 (acknowledging that the Commonwealth has "agreed to facilitate a refund to Sands in the event that the challenged statutory provisions are invalidated ..., thereby making it unnecessary for this Court to decide whether retroactive relief of that kind would otherwise be appropriate").Accordingly, we direct that the supplementary daily assessment monies paid into the CMDC Account under 4 Pa.C.S. § 1407(c.1) by Sands, Greenwood, and any other Category 1-3 casino, be refunded to them.
Jurisdiction is relinquished.
Justices Baer, Todd, Donohue and Dougherty join the opinion.
Justice Wecht files a concurring opinion in which Justice Mundy joins as to Parts I, III, IV, and V.
JUSTICE WECHT, Concurring
The Pennsylvania Race Horse Development and Gaming Act requires that each casino contribute a small portion of its gross slot machine revenue into a special fund called the Casino Marketing and Capital Development Account. At the end of each fiscal year, the money in the CMCD Account is returned to the casinos in the form of certain mandatory distributions and discretionary grants. Under this system, some casinos will receive more from the CMCD Account than they pay into it, while others will receive little or nothing.
4 Pa.C.S. §§ 1101, et seq. ("Act" or "Gaming Act").
4 Pa.C.S. § 1407(c.1). I refer to this fund herein as "the CMCD Account."
The parties' briefs and arguments in this Court have focused overwhelmingly upon the question of whether the Act's collection-and-distribution scheme violates the Uniformity Clause of the Pennsylvania Constitution. Nonetheless, today's learned Majority chooses instead to resolve this case principally upon the basis of Allegheny County v. Monzo , 509 Pa. 26, 500 A.2d 1096 (1985), although even the Majority itself cannot specify with any confidence the constitutional provision upon which Monzo relied, or even whether any such provision is state or federal. See Maj. Op. at 320 n.6. Petitioner's Uniformity Clause challenge is much stronger and more coherent than the hopelessly muddled Monzo precedent and the strikingly vague "Fourteenth Amendment" rationale upon which the Majority seems to rely.
PA. Const. art. VIII, § 1.
See , e.g. , Maj. Op. at 320 n.6 ("more recent cases have been somewhat ambiguous as to which Fourteenth Amendment precept – due process or equal protection – was involved").
The tax scheme challenged here violates our Uniformity Clause. There is no need to reach any of Petitioner's ancillary arguments. I agree with the Majority that the challenged provisions are unconstitutional, but my conclusion rests upon the Uniformity Clause rather than upon Monzo .
I.
For as long as licensed casinos have existed in this Commonwealth, they have been subject to a 34% "daily tax" on all Gross Terminal Revenue ("GTR"), which the Gaming Act defines as the sum of all "cash or cash equivalent wagers received by a slot machine," minus amounts paid out to players in various forms. 4 Pa.C.S. § 1103 (defining gross terminal revenue). The Pennsylvania Department of Revenue collects this tax, and then transfers the proceeds into the State Gaming Fund. 4 Pa.C.S. § 1403(c)(1).
In October 2017, the General Assembly passed Act 42, and the Governor signed it into law. Act 42 dramatically expanded lawful gambling in Pennsylvania. Among many other things, the legislation allows gaming at airports and truck stops, 4 Pa.C.S. §§ 13B20, 3514, legalizes sports wagering, 4 Pa.C.S. § 13C11, regulates daily fantasy contests, 4 Pa.C.S. §§ 301 - 342, and authorizes some forms of internet gaming. 4 Pa.C.S. §§ 13B02 - 13B63.
At issue in this case is Act 42's requirement that each Category 1, Category 2, and Category 3 slot machine licensee pay a supplemental daily assessment equal to 0.5% of the facility's GTR. The licensees deposit these daily assessments into the CMCD Account, where they accumulate until the beginning of the next fiscal year, at which time the Gaming Control Board ("the Board") must distribute the previous year's collections back to the assessed casinos. Any funds that the casinos receive from the CMCD Account must be used for "marketing" or "capital development." The Gaming Act provides no definition of these terms, apart from mandating that "the term ‘capital development’ shall include, but not be limited to, expansion or renovation of an existing licensed facility or constructing or expanding amenities at a licensed facility." 4 Pa.C.S. § 1407.1(g).
A Category 1 license allows the holder to place slot machines at an existing horse racetrack, a Category 2 license authorizes the operation of slot machines in a stand-alone facility, and a Category 3 license allows for the placement of slot machines at an established "resort hotel" with at least 275 guest rooms. See 4 Pa.C.S. §§ 1301 -1305.
Although the CMCD Account is separate from the State Gaming Fund, the Gaming Act instructs the Board to withdraw $ 2 million from the State Gaming Fund and deposit it into the CMCD Account at the end of each fiscal year. 4 Pa.C.S. § 1408(C.1) ("Beginning July 1, 2017, and each year thereafter, $ 2,000,000 shall be transferred to the Casino Marketing and Capital Development Account."). In other words, the sum of all CMCD Account distributions made in a particular year will be equal to the revenue generated by the supplemental daily assessment for that year plus $ 2 million.
Disbursements from the CMCD Account are of two types: distributions and grants. First, the Board must make certain mandatory distributions to casinos with GTR that falls within a prescribed range. For example, a Category 1 or Category 2 casino with GTR of $ 150 million or less will receive a $ 4 million mandatory distribution, a Category 1 or Category 2 casino with GTR over $ 150 million but under $ 200 million will receive a $ 2.5 million mandatory distribution, and a casino with GTR of $ 200 million or more will receive no mandatory distribution. 4 Pa. C.S. § 1407.1(e)(1)(i)-(iii). A Category 3 casino, on the other hand, will receive a $ 500,000 mandatory distribution if its GTR is under $ 50 million.
After the Board makes all of the mandatory distributions, it must spend any money remaining in the CMCD Account on discretionary grants. Casinos may apply for these grants, and the Board has discretion to determine which casinos receive them. 4 Pa.C.S. §§ 1407.1(c) - (e) (instructing the Board to establish application procedures and program guidelines for discretionary grants from the CMCD Account).
See Pennsylvania Gaming Control Board, Casino Marketing and Capital Development Grant Program: Program Guidelines , available at https://gamingcontrolboard.pa.gov/files/grant_program/Casino_Marketing_and_Capital_Development_Grant_Program.pdf (explaining that grant applicants must provide a written statement describing the specific "projects and/or uses for which the grant is sought") (last visited Mar. 19, 2019).
The Gaming Act places three limits on the Board's grant-issuing discretion. First, Category 4 licensees (operators of "mini casinos") are not subject to the supplemental daily assessment and therefore are ineligible to receive grants. 4 Pa.C.S. § 1407.1(e)(2). Second, no licensee can receive more than $ 4 million from the CMCD Account in a single year. 4 Pa.C.S. § 1407.1(e)(3)(i). This means, for example, that a licensee which receives a $ 4 million mandatory distribution cannot also receive a discretionary grant in the same year. Finally, a licensee cannot receive any funds (mandatory or discretionary) from the CMCD Account during its first two years of operation. 4 Pa.C.S. § 1407.1(e)(3)(ii).
To facilitate understanding of how these rules might affect Pennsylvania's casinos in practice, I offer the following table, which shows the most recent financial data published by the Gaming Control Board. The table illustrates: (1) the dollar amount that each casino contributed to the CMCD Account during the fiscal year that ended on June 30, 2018; and (2) the total mandatory distribution, if any, to which each casino would be entitled under Act 42's distribution formula.
See Pennsylvania Gaming Control Board, Annual Report 2017-2018 , available at https://gamingcontrolboard.pa.gov/files/communications/2017-2018_PGCB_Annual_Report.pdf (last visited Mar. 19, 2019).
As with any business, many variables can influence a casino's financial results in a given year. The exercise is intended only to help explain the mechanics of this somewhat complex statutory scheme.
GTR Supplemental Daily Mandatory (FY 17/18) Assessment Distribution Parx $400,733,138 $2,003,666 $0 Sands $302,054,464 $1,510,272 $0 The Rivers $274,238,465 $1,371,192 $0 The Meadows $209,520,273 $1,047,601 $0 Hollywood $207,355,560 $1,036,778 $0 Mohegan Sun $202,793,257 $1,013,966 $0 Harrah's $199,718,368 $998,592 $2,500,000 SugarHouse $178,910,959 $894,555 $2,500,000 Mount Airy $146,997,589 $734,988 $4,000,000 Presque Isle $114,436,868 $572,184 $4,000,000 Valley Forge $86,686,698 $433,433 $0 Nemacolin $28,875,296 $144,376 $500,000 Total10 $2,352,320,935 $11,761,605 $13,500,000
[Editor's Note: The preceding image contains the reference for footnote ].
Six of these casinos (Harrah's, The Meadows, Mohegan Sun, Parx, Hollywood, and Presque Isle) operate under a Category 1 license; four of them (Mount Airy, Sands, The Rivers, and SugarHouse) are stand-alone casinos that operate under a Category 2 license; and the remaining two (Valley Forge and Nemacolin) are resort casinos which operate under a Category 3 license.
As shown above, the supplemental daily assessment generated just over $ 11.76 million in revenue in fiscal year 2017-2018. In addition to that amount, the Board should have transferred an additional $ 2 million into the CMCD Account from the State Gaming Fund, meaning that the balance in the CMCD Account at the end of the fiscal year was about $ 13.76 million. Had this Court not entered a temporary injunction preventing the Board from distributing CMCD funds, the Board would have been required to pay a collective $ 13.5 million in mandatory distributions to SugarHouse, Harrah's, Mount Airy, Presque Isle, and Nemacolin—five of the six lowest-GTR casinos in the state. After making those payments, the Board would have awarded the remaining funds (approximately a quarter million dollars) to one or more casinos in the form of discretionary grants.
Technically, all casinos are eligible to receive up to $ 4 million per year from the CMCD Account. Still, as the table above shows, in general, high-GTR casinos necessarily will end up subsidizing a portion of lower-GTR casinos' marketing and capital development expenditures.
II.
Sands Bethworks Gaming, LLC ("Sands") operates a casino in Bethlehem, Pennsylvania. During the 2016-2017 tax year, Sands operated over 3,000 slot machines at its casino, a location that brought in more than $ 300 million in GTR. Sands' Verified Petition at 5-6, ¶ 8. Like all Category 2 licensees, Sands is subject to the Gaming Act's supplemental daily assessment. But Sands does not expect that its GTR ever will fall below the $ 200 million threshold required to receive a mandatory distribution from the CMCD Account.
In December 2017, Sands filed with this Court a Petition for Review in the nature of a complaint seeking a declaratory judgment that the supplemental daily assessment is unconstitutional. Sands alleged that the Act's supplemental assessment scheme (consisting of the daily assessment, the mandatory distributions, and the discretionary grants): violates the Uniformity Clause and the Special Laws Clause of the Pennsylvania Constitution, PA. CONST. art. VIII, § 1 ; id. art. III, § 32; violates the Equal Protection and Due Process clauses of the Fourteenth Amendment, U.S. CONST. amend. XIV, § 1 ; and serves no legitimate public purpose. See Tosto v. Pa. Nursing Home Loan Agency , 460 Pa. 1, 331 A.2d 198, 202 (1975) (explaining that legislation must be non-arbitrary, rational, and reasonably designed to effectuate a public purpose).
Because Sands' complaint raises challenges to the constitutionality of the Gaming Act, it falls within this Court's original jurisdiction. See 4 Pa.C.S. § 1904 ("The Pennsylvania Supreme Court shall have exclusive jurisdiction to hear any challenge to or to render a declaratory judgment concerning the constitutionality of [the Gaming Act].").
The Majority declines to consider Sands' primary argument: that the Gaming Act's supplemental assessment scheme violates the Uniformity Clause of the Pennsylvania Constitution. Instead, the Majority opts to resolve this case principally on the strength of Monzo 's welter of rationales. Respectfully, I believe that this choice is misguided, for at least three reasons.
See , e.g. , Maj. Op. at 324–25 n.9 (citing "various theories courts have used").
First, the principal authority upon which the Majority relies, Monzo , is a decision so vague and disjointed that its reasoning is virtually indecipherable. Neither I nor the Majority, for example, can identify the particular constitutional provision—or even the Constitution (state or federal)—upon which the Monzo Court's holding relies. The Majority itself concedes that the Monzo Court did not "provid[e] developed reasoning distinguishing [between the asserted constitutional] violations." See Maj. Op. at 320 n.6. The Majority is being charitable. In truth, Monzo 's discussion ambles all about, defying any attempt at meaningful interpretation. Perhaps the Monzo Court might have been relying on equal protection concepts. See Monzo , 500 A.2d at 1102. Or it might have relied upon due process theories. Id. at 1102 (quoting Airway Arms, Inc. v. Moon Area Sch. Dist. , 498 Pa. 286, 446 A.2d 234, 243 (1982) ). Or, wait, perhaps it was the Uniformity Clause after all. Id. (citing Commonwealth v. Staley , 476 Pa. 171, 381 A.2d 1280 (1978) ). Perchance it was an unconstitutional "taking." Id. Alternatively, it could have been Article III, Section 32's prohibition on special laws. Id. at 1106. Or perhaps it was all five of those theories, tossed around in a veritable jurisprudential buffet— Monzo offers something for everybody, and consequently delivers nothing.
Second, critical aspects of the Monzo Court's reasoning are premised upon wholly irrelevant judicial decisions. For example, Monzo derived one of its key pronouncements—"that money may not be expropriated constitutionally from one group to the benefit of another"—from United States v. Butler , 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477 (1936), a much-criticized Lochner -like case that struck down a New Deal tax on agricultural processors. Butler concerned the United States' Congress' authority to tax and spend for the general welfare, see U.S. CONST. Art. I, § 8, cl. 1, yet Monzo concluded, based in part on Butler , that a tax violates the "Fourteenth Amendment" if the burden imposed is "palpably disproportionate" to the benefit received. Monzo , 500 A.2d at 1102. There is no untying this knot. I have tried.
Federal courts have recognized that Butler "relied on an overly narrow view of Congress' enumerated powers," and that its analysis "has been discredited as flawed and unworkable, and has not been followed." Kansas v. United States , 214 F.3d 1196, 1201 n.6 (10th Cir. 2000) ; see Pace v. Bogalusa City Sch. Bd. , 403 F.3d 272, 286 (5th Cir. 2005) ; accord Laurence H. Tribe, American Constitutional Law § 5-b, at 836 (3d ed. 2000) ("[T]he Supreme Court has effectively ignored Butler in judging the limits of congressional spending power.").
Given Monzo 's shaky foundation and amorphous legal standard, it is not surprising that our appellate courts have been constrained to limit and avert their eyes from Monzo 's grab-bag holding in case after case. See , e.g. , Bold Corp. v. Cty. of Lancaster , 569 Pa. 107, 801 A.2d 469, 476 (2002) (distinguishing Monzo and upholding Lancaster County's hotel room tax); Appeal of Torbik , 548 Pa. 230, 696 A.2d 1141, 1146 (1997) (distinguishing Monzo and upholding Luzerne County's hotel room tax); Leventhal v. City of Phila. , 518 Pa. 233, 542 A.2d 1328, 1332 (1988) (distinguishing Monzo and upholding Philadelphia's hotel room tax); Barrel of Monkeys, LLC v. Allegheny Cty. , 39 A.3d 559, 569 (Pa. Cmwlth. 2012) (distinguishing Monzo and upholding Allegheny County's tax on alcoholic beverages); Edwards v. Cty. of Erie , 932 A.2d 997, 1001 (Pa. Cmwlth. 2007) (distinguishing Monzo and upholding Erie's hotel room tax); English v. Commonwealth , 845 A.2d 999, 1005 n.12 (Pa. Cmwlth. 2004) (distinguishing Monzo and upholding a statute creating a Regional Asset District); Eways v. Bd. of Com'rs of Berks Cty. , 717 A.2d 8 (Pa. Cmwlth. 1998) (distinguishing Monzo and upholding Berks County's hotel room tax); Airpark Intern. I v. Interboro Sch. Dist. , 677 A.2d 388, 394 (Pa. Cmwlth. 1996) (distinguishing Monzo and upholding a tax on commercial parking lots). If the instant case truly required that I grapple with the due process, equal protection, and other concepts tossed about in the Monzo blender, I would happily wade in. But because the CMCD collection-and-distribution scheme violates the well-settled Uniformity Clause principles that have been the focus of this case, I would save the question of whether Monzo retains any continuing vitality for some future controversy. At this point, suffice it to say that I am skeptical.
See , e.g. , Monzo , 500 A.2d at 1102 ("Where the benefit received and the burden imposed is palpably disproportionate, a tax is not only a taking without due process under the Fourteenth Amendment to the United States Constitution, but also an arbitrary form of classification in violation of equal protection and state uniformity standards.").
Finally, as this Court's Uniformity Clause decisions have explained, "federal equal protection jurisprudence ... sets the floor for Pennsylvania's uniformity assessment." Downingtown Area Sch. Dist. v. Chester Cty. Bd. of Assessment Appeals , 590 Pa. 459, 913 A.2d 194, 200 (2006) (citing 1 WADE J. NEWHOUSE, CONSTITUTIONAL UNIFORMITY AND EQUALITY IN STATE TAXATION 27-28 (2d ed. 1984) ). In other words, if the Majority is correct that the challenged tax scheme violates the Fourteenth Amendment to the United States Constitution, and assuming that the Majority relies upon the Equal Protection Clause (something to which today's Majority will not commit), then the scheme necessarily violates the Uniformity Clause of the Pennsylvania Constitution as well. Because of this overlap between constitutional doctrines, and because there are many reasons to question the correctness of our holding in Monzo , this Court should have begun and ended its analysis with Sands' Uniformity Clause challenge.
III.
I am persuaded by Sands' contention that the Gaming Act's supplemental assessment scheme violates the Uniformity Clause of the Pennsylvania Constitution. Sands argues that the Act's collection-and-distribution scheme impermissibly ties each casino's tax liability to its annual revenue, creating what amounts to a graduated-rate tax of the sort that the Uniformity Clause prohibits. Sands acknowledges that the supplemental daily assessment's rate is the same for every casino (0.5% of GTR), but argues nevertheless that the overall scheme is rendered non-uniform by virtue of the fact that some casinos will "receive a payout back from the CMCD Account," which Sands likens to a "tax credit or refund." Brief for Sands at 20.
In making this argument, Sands relies upon decisions from this Court which have held that the non-uniformity of a tax need not be explicit on the face of the statute. Id. at 22-23. In Cope's Estate , 191 Pa. 1, 43 A. 79 (1899), for example, we explained that the Uniformity Clause guards against any "device that necessarily or intentionally infringes on the established rules of uniformity and relative equality[.]" Id. at 81. In Clifton v. Allegheny County , 600 Pa. 662, 969 A.2d 1197 (2009), we underscored that the Uniformity Clause prohibits any "method or formula for computing a tax" that will, "in its operation or effect, produce arbitrary, unjust, or unreasonably discriminatory results." Id. at 1211. And in Shelly Funeral Home v. Warrington Township , 618 Pa. 469, 57 A.3d 1136 (2012), we explained that, "irrespective of how taxes are described, reviewing courts assess their validity based on how they operate in practice." Id. at 1141.
Respondents—the Pennsylvania Department of Revenue, the Secretary of the Department of Revenue, and the Pennsylvania Gaming Control Board—do not dispute that a tax statute which classifies similarly situated taxpayers based solely upon their incomes violates the Uniformity Clause. Brief for Respondents at 23. They contend, however, that the supplemental daily assessment does not violate this precept, since every casino is assessed at a uniform 0.5% rate regardless of GTR. Thus, in Respondents' view, Sands is attempting to challenge the post-collection distribution of tax revenue, which Respondents believe is not constrained by the Uniformity Clause. Id. at 25 (arguing that the Uniformity Clause "has no application whatsoever to post-collection distributions."). For this reason, Respondents object to Sands' characterization of a mandatory distribution from the CMCD Account as a "tax credit," since it is not technically an offset against taxes owed. Id. at 26 (citing Berks Cty. Tax Collection Comm. v. Pa. Dep't of Cmty. & Econ. Dev. , 60 A.3d 589, 592 (Pa. Cmwlth. 2013) ("A tax credit is commonly accepted to mean a direct reduction against the liability for tax owed.") ). Put differently, Respondents suggest that a casino which is entitled to a mandatory distribution still owes the full 0.5% assessment, even if it can expect to get that money back at some point in the future.
IV.
The Uniformity Clause of the Pennsylvania Constitution provides: "All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws." PA. CONST. art. VIII, § 1. As interpreted by this Court, the Uniformity Clause requires that every tax "operate alike on the classes of things or property subject to it." Commonwealth v. Overholt & Co. , 331 Pa. 182, 200 A. 849, 853 (1938). This means that, "when a method or formula for computing a tax will, in its operation or effect, produce arbitrary, unjust, or unreasonably discriminatory results, the uniformity requirement is violated." Clifton , 969 A.2d at 1211.
The General Assembly, of course, possesses wide latitude in matters of taxation, Aldine Apartments v. Commonwealth , 493 Pa. 480, 426 A.2d 1118, 1121 (1981), and this Court has stressed that the Uniformity Clause does not mandate absolute equality or perfect uniformity. Columbia Gas Corp. v. Commonwealth , 468 Pa. 145, 360 A.2d 592, 595 (1976). When faced with a challenge to the validity of a tax classification, we ask whether the legislature's classification is based upon some legitimate distinction between the classes such that it provides a non-arbitrary, "reasonable and just" basis for the disparate treatment. Aldine Apartments , 426 A.2d at 1121-22. The critical question is whether there exists "some concrete justification" for treating the relevant group of taxpayers as members of distinguishable classes. Columbia Gas Corp. , 360 A.2d at 595-97. Absent such a legitimate distinction, the imposition of unequal tax burdens upon similarly situated taxpayers is unconstitutional. Amidon v. Kane , 444 Pa. 38, 279 A.2d 53, 63 (1971).
This Court consistently has held that taxes with rates that vary based upon the quantity or value of the property being taxed violate the Uniformity Clause. In Cope's Estate , 191 Pa. 1, 43 A. 79 (1899), for example, we considered a Uniformity Clause challenge to Pennsylvania's inheritance-tax statute, which exempted from taxation the first $ 5,000 worth of property in every estate. Because of that $ 5,000 exemption, 90-95% of all estates paid no inheritance tax, while the remaining 5 to 10% paid a 2% tax. We held that the exemption violated the Uniformity Clause, explaining "[a] pretended classification, that is based solely on a difference in quantity of precisely the same kind of property, is necessarily unjust, arbitrary, and illegal." Id. at 81. The basic principle announced in Cope's Estate —that "[t]he money value of any given kind of property ... can never be made a legal basis of subdivision or classification for the purpose of imposing unequal burdens on [similarly situated] classes" ( id. at 82 )—remains good law by virtue of constitutional mandate.
The gist of Respondents' position is that the only non-uniform parts of the supplemental assessment scheme are the mandatory distributions and discretionary grants, which are not taxes at all and therefore cannot possibly violate the Uniformity Clause. While there is some superficial appeal to that argument, the history of the Uniformity Clause and this Court's early decisions on the subject both counsel otherwise.
As this Court has explained in prior cases, the Uniformity Clause was first adopted in the late nineteenth century, when the electorate ratified the so-called "Reform Constitution" of 1874. Nextel Communications of Mid-Atlantic, Inc. v. Pa. Dep't. of Revenue , 642 Pa. 729, 171 A.3d 682, 694 (2017). That charter, which was "drafted in an atmosphere of extreme distrust of the legislative body and of fear of the growing power of corporations," was intended to eliminate the legislature's authority to enact certain categories of "improvident and corrupt legislation." Mount Airy #1, LLC v. Pa. Dep't. of Revenue , 638 Pa. 140, 154 A.3d 268, 273 (2016) (quoting ROSALIND L. BRANNING, PENNSYLVANIA CONSTITUTIONAL DEVELOPMENT 37 (1960) ).
The Uniformity Cause in particular embodied a populist backlash against the preferential tax treatment that the legislature often had extended to favored industries and individuals. Id. (citing ROBERT E. WOODSIDE, PENNSYLVANIA CONSTITUTIONAL LAW 576 (1985) ). As a result of those preferential laws, "[t]he burden of maintaining the state had been, in repeated instances, lifted from the shoulders of favored classes, and thrown upon the remainder of the community." Fox's Appeal , 112 Pa. 337, 4 A. 149, 153 (Pa. 1886). "The Uniformity Clause was, thus, the specific remedy fashioned by the delegates to that convention to eliminate the power of the legislature to enact special tax legislation, and its paramount purpose in requiring uniformity of taxation was to prevent certain groups from having to shoulder the burden of progress from which all would benefit." Nextel , 171 A.3d at 695.
Respondents here ask the Court to draw a bright line between the imposition of a tax and the spending of that tax's proceeds. While that may be a workable rule in many cases, ignoring the practical effect of the Gaming Act's collection-and-distribution scheme would require that the Court retreat from the core promise of the Uniformity Clause. Upholding an inequitable distribution scheme like the one at issue here would allow the General Assembly to circumvent the Uniformity Clause at will through artful statutory draftsmanship. Instead of imposing an unconstitutional graduated-rate tax, the General Assembly simply could impose a uniform tax on everyone and then later refund all or part of the taxes paid by a chosen few. It could, for example, tax all earned income on April 15 and then, on April 16, give a full refund to anyone making more than $ 500,000. The effect of this would be to tax disfavored taxpayers at a higher rate, while still maintaining the mere appearance of uniformity.
This case can be resolved by applying well-established Uniformity Clause principles. If the Uniformity Clause is to mean anything, it must prohibit the discriminatory refunding of a tax in the same way that it prohibits the discriminatory imposition of a tax. To hold otherwise would be to ignore the practical effect of a given tax scheme while instead focusing on trivial labels like "credit," "deduction," "refund," or "distribution." This Court repeatedly has held that the validity of tax legislation does not hinge on the General Assembly's chosen jargon; reviewing courts instead must consider how the tax operates in practice. See , e.g. , Nextel , 171 A.3d at 698 ("In determining whether this statute violates the Uniformity Clause, we do not look at its language in a vacuum[.]"); Shelly Funeral Home , 57 A.3d at 1141 ("When assessing the validity of tax legislation, the nomenclature employed by the General Assembly is not necessarily dispositive, as our analysis considers how the tax operates in practice."); Clifton , 969 A.2d at 1211 ("When a method or formula for computing a tax will, in its operation or effect, produce arbitrary, unjust, or unreasonably discriminatory results, the uniformity requirement is violated.").
Rather than coming to grips with my analysis, the Majority simply dismisses it as "novel," see Maj. Op. at 324–25 n.9, as if "novelty" itself suffices to undo my reasoning. But this leapfrogs the issue before us. The reason that this Court has never struck down a "restricted-use distribution" scheme is simple: the General Assembly has never tried it before.
Under the Gaming Act's collection-and-distribution scheme, a Category 1 or Category 2 casino with GTR of less than $ 200 million will have its entire supplemental assessment offset by a refund from the very same account into which the assessment was deposited. The same is true for Category 3 casinos with GTR of less than $ 50 million. In fact, any casino receiving a mandatory distribution effectively would pay a negative-rate supplemental daily assessment, since the mandatory distribution would exceed the casino's assessment liability. This arrangement is irreconcilable with our Uniformity Clause jurisprudence, which instructs that every member of a particular class must be obligated to pay every applicable tax, and requires that "[p]art of the class may not be excused, regardless of the motive behind the action." Saulsbury v. Bethlehem Steel Co. , 413 Pa. 316, 196 A.2d 664, 666 (1964).
The fact that CMCD disbursements must be used for marketing or capital development purposes does not alter my conclusion that the overall disbursement scheme violates the Uniformity Clause. In truth, Act 42 imposes only minor restrictions on how licensees can spend CMCD funds. The Act does not define the term "marketing," and the definition of "capital development" is broad and open-ended. See 4 Pa.C.S. § 1407.1(g) (providing that " ‘capital development’ shall include, but not be limited to, expansion or renovation of an existing licensed facility or constructing or expanding amenities at a licensed facility"). Plus, it is no secret that substantial marketing and promotional expenditures, including traditional advertising, sponsorships, loyalty programs, and player incentives, are an inherent part of the casino business. This means that Act 42 gives some licensees funds that can be used for the kinds of expenses that a licensee would incur even if it received no CMCD funds at all. A distribution-receiving licensee can simply replace its existing marketing budget with the CMCD distribution, thus freeing up an equal amount of cash on its balance sheet that can be used for any purpose.
If that minimal restriction is enough to satisfy the constitutional mandate that all taxes shall be uniform, then nothing would stop the General Assembly from enacting a tax scheme that gives a preferred group of individual taxpayers $ 5,000 "distributions" at the end of each tax year, provided that those taxpayers are required to spend the distributions on food, clothing, or shelter. Because this is precisely the evil that the Uniformity Clause sought to eradicate, see Mount Airy , 154 A.3d at 273, I have little difficulty rejecting the fiction that tax benefits fall outside the scope of the Uniformity Clause whenever their use is nominally restricted.
V.
Although I conclude that the Gaming Act's collection-and-distribution scheme violates the Uniformity Clause of the Pennsylvania Constitution, and although I would not reach Sands' ancillary claims, I nevertheless agree with the Majority that Subsections 1407(c.1), 1407.1, and 1408(c.1) of the Act are severable from the remainder of the statute and must be stricken. I also agree that the remainder of the Gaming Act is capable of execution after the above-mentioned provisions are excised. Indeed, the Gaming Act existed without those sections prior to Act 42, and the entire supplemental daily assessment scheme was designed to expire within a maximum of ten years after its enactment. See 4 Pa.C.S. § 1407.1(f)(2) ("This section shall expire on the earlier of ten years after the effective date of this subsection; or when the gross terminal revenue for each Category 1 and Category 2 slot machine licensee for the previous fiscal year exceeds $ 200,000,000"); id. at 1407(c.1)(2) (same); id. at 1408(c.1)(2) (same).
Although the Majority (Maj. Op. at 324–25 n.9) takes me to task for my characterization of Sands' other arguments, and while I certainly acknowledge that Sands' complaint includes a Fourteenth Amendment challenge, the fact remains that Sands has treated that claim as a distinctly subsidiary issue throughout this litigation. For example, the section of Sands' brief arguing that the CMCD tax scheme violates the Fourteenth Amendment is only three pages in length (if one rounds up) and comes last among Sands' constitutional arguments. See Brief for Sands at 34-36. Similarly, counsel for Sands devoted his entire oral argument to the Uniformity Clause question. And while counsel for Intervenor (Greenwood Gaming and Entertainment) did invoke Monzo 's ramshackle benefits-versus-burdens discourse, he offered it as evidence that the CMCD collection-and-distribution scheme violates the Special Laws Clause of the Pennsylvania Constitution (not, as today's Majority holds, the Fourteenth Amendment).
See 4 Pa.C.S. § 1407(c.1) ("[E]ach licensed gaming entity, other than a Category 4 slot machine licensee, shall pay a supplemental daily assessment of 0.5% of its gross terminal revenue to the Casino Marketing and Capital Development Account."); id. at § 1407.1 (creating the CMCD Account, setting forth eligibility criteria for mandatory distributions, and instructing the Board to establish guidelines for awarding discretionary grants); id. at § 1408(c.1) (providing that $ 2 million shall be transferred from the State Gaming Fund to the CMCD Account at the end of each fiscal year).
Finally, I agree with the Majority that Sands, Greenwood, and other similarly situated casinos are entitled to a refund of the amounts that they already have paid into the CMCD Account. While decisions invalidating tax statutes generally should not be applied retroactively, I am persuaded that a different conclusion is warranted here because it is the distribution (rather than the collection) of the tax that renders the scheme unconstitutional. Furthermore, and as the Majority notes, Respondents have agreed to secure refunds for all affected casinos if the statute is struck down. I see no reason to disturb the parties' agreement.
Oz Gas, Ltd. v. Warren Area Sch. Dist. , 595 Pa. 128, 938 A.2d 274, 285 (2007) (explaining that "a decision of this Court invalidating a tax statute takes effect as of the date of the decision and is not to be applied retroactively").
In sum, I would hold that the Gaming Act's CMCD collection-and-distribution scheme violates the Uniformity Clause of the Pennsylvania Constitution. Although I would not reach Sands' Fourteenth Amendment arguments, I agree with the Majority that the challenged provisions cannot stand and that affected casinos are entitled to a refund.
Justice Mundy joins sections I, III, IV, and V of this concurring opinion.