Electronic Gaming Devices Properly Taxed as Games of Entertainment in Maryland

A Maryland Court of Appeals held that a taxpayer’s electronic gaming devices were properly characterized as games of entertainment for purposes of being assessed Admissions and Amusement (A&A) Taxes. The taxpayer placed the electronic gaming devices in bars, restaurants, and convenience stores. An audit showed that business owners who operated the machines were making illegal payouts to customers who “won” while using the machines. The audit also showed that the taxpayer had not paid A&A taxes on the amounts that were illegally paid out to customers as winnings from the machines. Accordingly, the Comptroller had assessed the taxpayer for additional millions in A&A taxes that should have been paid on the machine’s gross receipts for the period in question. Prior to the audit, the taxpayer otherwise paid A&A taxes on the machines’ net receipts (excluding amounts paid out as illegal winnings). The taxpayer argued that the machines should not have been subject to the A&A tax at all since they were not “games of entertainment” subject to the tax. The taxpayer further argued that since its machines offer “the purchase of random chances to win prizes or money,” they are materially indistinguishable from Instant Bingo, and thus, are excluded from the A&A tax. The Court of Appeals disagreed with the taxpayer, finding that the Tax Court had correctly recognized the gaming devices as “games of entertainment” subject to A&A tax. Further, the taxpayer’s attempt to characterize its gaming devices as indistinguishable from electronic Instant Bingo machines—because they require no skill to play and offer purchasers the chance to win prizes or money— overlooks the fact that its machines are not officially licensed as Instant Bingo. The taxpayer is not allowed to create a tax loophole by attempting to rebrand its coin-operated amusement devices as Instant Bingo machines. As such, the Court of Appeals confirmed that gross receipts from the electronic gaming devices are properly subject to A&A tax. (Carbond, Inc. v. Comptroller of the Treasury, Maryland Court of Special Appeals, No. 2767, July 29, 2020)

Posted on September 29, 2020