NEW ORLEANS – A federal appeals court has decreed that owners of two casinos with attached hotels in Louisiana have to square off with the City of Baton Rouge over sales taxes on complimentary hotel rooms in their establishments in state court, as opposed to federal court.
In a June 18 per curiam ruling handed down in a consolidated case, Fifth Circuit judges Edith Clement, Kurt Engelhardt and Cory Wilson ordered that plaintiffs Centroplex Centre Convention Hotel, LLC, PNK (Baton Rouge) Partnership, PNK Development 8, LLC and PNK Development 9, LLC would have to resort to a Louisiana state court in its battle against the City of Baton Rouge/Parish of East Baton Rouge’s Department of Finance and its Director, Linda Hunt.
“The Owners operate full service casinos attached to full service hotels, and casino patrons often stay at the attached hotel. The Owners incentivize their casino patrons to continue gaming at their establishments by rewarding them with points, credits, offers and complimentary goods and services, including the complimentary stays at the Owners’ hotels out of which this dispute arises. The single sales and occupancy tax collector for all taxes levied by the local taxing authorities within the City conducted an audit for taxes owed from Jan. 1, 2016 to Feb. 28, 2021. That audit revealed that the Owners neither charged nor collected city sales and occupancy taxes connected with their furnishing complimentary hotel rooms through their rewards programs for that period,” the Fifth Circuit said.
“The City filed suit against both Owners in two separate suits in Louisiana state court, alleging that the Owners were ‘dealers’ who, in failing to properly charge and collect local sales and occupancy taxes, became liable for those taxes themselves. The Owners denied owing any taxes on complimentary hotel rooms and claimed that the City violated their procedural due process rights, by failing to notify them of the amount of taxes allegedly due and not affording them an opportunity to ‘administratively challenge’ the amount or otherwise ‘proceed before the Louisiana Board of Tax Appeals’ before filing suit. The Owners removed their respective suits to federal court under diversity jurisdiction, and no one disputes that the requirements for diversity jurisdiction are met. So, the City filed a motion to remand on a different basis: that the Tax Abstention Doctrine (TAD) weighed in favor of this tax dispute being litigated in Louisiana state court. The District Court agreed, so the Owners appealed in this consolidated case.”
According to the Fifth Circuit, the District Court invoked the TAD both “within the bounds of Levin v. Commerce Energy, Inc.” and “within its discretion”.
The five criteria used to determine whether or not that decision was made “within its bounds” were these: (1) Whether plaintiff seeks review regarding matters over which the state enjoys wide regulatory latitude; (2) Whether the claimed constitutional violation requires heightened judicial scrutiny; (3) Whether the plaintiff seeks aid in federal court to improve its competitive position; (4) Whether the state court is more familiar with legislative preferences; and (5) Whether the federal court’s remedial options are constrained.”
“The Owners ask the federal courts to decide whether certain Louisiana sales and occupancy taxes apply to their complimentary hotel rooms. But ‘the Supreme Court has recognized in Levin and numerous other cases that states enjoy wide regulatory latitude over the administration of their tax systems.’ Indeed, as the Seventh Circuit observed, the ‘principal concern of Levin” is the risk of federal court interference impacting local governments’ fiscal affairs, and attempting to have a federal court evaluate this tax dispute necessarily impacts the City’s fiscal affairs. This factor therefore weighs in favor of abstention,” per the Fifth Circuit.
“Both Owners expressly invoke their state due process rights in their responsive pleadings, so there is little doubt that a Louisiana state court would be adept at analyzing their Louisiana state constitutional claims. Similarly, there is little doubt that nothing would be added to the analysis were it conducted in federal court because Louisiana’s due process guarantee ‘does not vary from the Due Process Clause of the Fourteenth Amendment to the United States Constitution,’ and thus no higher scrutiny would be needed, Because the claimed constitutional violation ‘does not involve any fundamental right or classification that attracts heightened judicial scrutiny,’ this factor weighs in favor of abstention.”
The Fifth Circuit then moved on to the third, fourth and fifth factors.
“The Owners, through removal, may well be seeking to avoid being impacted by the reasoning in Jazz Casino Co. v. Bridges. In that case, Harrah’s Casino (one of the Owners’ competitors) was made to pay ‘all taxes levied by [Louisiana] and [New Orleans] on the furnishing of sleeping rooms,’ including complimentary and discounted rooms. But Jazz Casino is not entirely on point because, despite presenting a similar fact pattern and reaching a result the Owners wish to avoid, even the City concedes that Jazz Casino concerns a slightly different Louisiana state occupancy tax statute than the one here. That said, the Owners may still wish to avoid the Louisiana state court system altogether in the hope that the District Court would reach a different conclusion than the Jazz Casino court on the merits. We tend to agree with the District Court that this factor may slightly weigh in favor of abstention because the reasoning and analogous facts presented in Jazz Casino cut against the Owners. But it is not entirely clear that the federal court would present a competitive advantage to the Owners given that Jazz Casino concerned a slightly different statute. So, this factor moderately favors abstention,” according to the Fifth Circuit.
“There is little doubt that Louisiana’s state courts are ‘more familiar with Louisiana’s tax laws and the intent of its legislature in crafting them.’ Indeed, no less than six cases percolating through Louisiana’s court system concern the taxes at issue here, at least one of which has now gone to trial on the merits. This factor weighs in favor of abstention. Finally, given the Owners’ procedural due process claims, the TIA would ‘stand in the way of any [federal] decree that would ‘enjoin collection of [the] tax under [Louisiana] state law.’ So, ‘a [Louisiana] state court [would have] greater latitude to act should it find constitutional infirmity in the procedural provisions of the tax code.’ The Owners argue that they do not wish to ‘enjoin’ the City’s tax collection efforts but simply ‘defeat’ them. But this is a distinction without difference: the TIA also uses the words ‘suspend’ and ‘restrain,’ and ‘bars federal jurisdiction’ where, as here, the litigation threatens to ‘stop the collection of Louisiana [taxes]’ and state law provides an adequate remedy. This factor weighs in favor of abstention.”
The Fifth Circuit judges then concluded that the District Court was proper in its rationale and chose to uphold their ruling to send the case to state court.
“All five TAD factors counsel in favor of abstention here: (1) Louisiana enjoys wide regulatory latitude over its taxation structure; (2) the Owners’ express invocation of their due process rights under the Louisiana Constitution does not invoke heightened federal court scrutiny; (3) the Owners may seek an improved competitive position in the federal court system; (4) Louisiana courts are more familiar with Louisiana’s tax regime and the legislature’s intent in crafting it; and (5) the Tax Injunction Act constrains the remedies available in federal court. We therefore affirm,” the Fifth Circuit stated.
U.S. Court of Appeals for the Fifth Circuit cases 23-30690 & 23-30696
U.S. District Court for the Middle District of Louisiana cases 3:22-cv-00093 & 3:22-cv-00094
From the Louisiana Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com