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Court sides with racinos in tax dispute with state

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A federal bankruptcy court has sided with two Indiana racinos in a dispute over their tax burdens, a ruling that could reduce the total amount they pay into state coffers by as much as $30 million per year.

In his ruling Wednesday in U.S. bankruptcy court in Delaware, Judge Brendan Linehan Shannon agreed with Indiana Live’s attorneys that the state is unfairly taxing the Shelbyville racetrack and casino on money it doesn’t get to keep. Hoosier Park, the state’s other racino in Anderson that recently emerged from bankruptcy, joined in the case in August and also will reap the benefit of the ruling.

Indiana Live, which is in the midst of Chapter 11 bankruptcy reorganization, appealed to the court in late July to consider whether the Indiana Department of Revenue is correctly interpreting state tax law.

The racinos have to set aside 15 percent of their revenue in horse-industry trust accounts that go toward purse money and care for older horses. Some of the money also goes toward tobacco cessation and, if it exceeds a state-mandated cap, a portion goes back to the state’s general fund. The racinos have been paying taxes on that portion of their revenue — a policy Indiana Live contends is unfair.

In a 27-page ruling, Shannon argued that Indiana Live is not subject to taxation on that 15 percent because the racino is a “mere conduit” and does not control the money.

“The debtor merely collects the funds and passes them along, and thus they are not included in the debtor’s income,” Shannon wrote. “Because the Graduated Tax is measured by the debtor’s income, the [15 percent] cannot be included in that tax.”

In its initial appeal to the court, Indiana Live attorneys projected that it could save it about $15 million annually in taxes, a figure that would be doubled if applied to both racinos.

“We are pleased with the court’s decision and are gratified that the correct legal result was reached,” David Suess, a Bose, McKinney & Evans attorney representing Indiana Live, wrote in an email.

It’s not clear whether the state will appeal the decision. An Indiana Department of Revenue spokesman said staffers would review the ruling Thursday.
 

This story originally ran in the Oct. 27, 2011, IBJ Daily, a sister publication to Indiana Lawyer.

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  1. Frankly, it is tragic that you are even considering going to an expensive, unaccredited "law school." It is extremely difficult to get a job with a degree from a real school. If you are going to make the investment of time, money, and tears into law school, it should not be to a place that won't actually enable you to practice law when you graduate.

  2. As a lawyer who grew up in Fort Wayne (but went to a real law school), it is not that hard to find a mentor in the legal community without your school's assistance. One does not need to pay tens of thousands of dollars to go to an unaccredited legal diploma mill to get a mentor. Having a mentor means precisely nothing if you cannot get a job upon graduation, and considering that the legal job market is utterly terrible, these students from Indiana Tech are going to be adrift after graduation.

  3. 700,000 to 800,000 Americans are arrested for marijuana possession each year in the US. Do we need a new justice center if we decriminalize marijuana by having the City Council enact a $100 fine for marijuana possession and have the money go towards road repair?

  4. I am sorry to hear this.

  5. I tried a case in Judge Barker's court many years ago and I recall it vividly as a highlight of my career. I don't get in federal court very often but found myself back there again last Summer. We had both aged a bit but I must say she was just as I had remembered her. Authoritative, organized and yes, human ...with a good sense of humor. I also appreciated that even though we were dealing with difficult criminal cases, she treated my clients with dignity and understanding. My clients certainly respected her. Thanks for this nice article. Congratulations to Judge Barker for reaching another milestone in a remarkable career.

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