In the Matter of the Appeal of BHCMC, L.L.C., d/b/a Boot Hill Casino & Resort.
BY THE COURT
K.S.A. 2016 Supp. 79-3702(c), to "use" property a
taxpayer must "exercise within this state . . . any
right or power over tangible personal property incident to
the ownership of that property." This language is
ambiguous. It may or may not require that the user or
taxpayer be the owner. This ambiguity must be read to favor
the taxpayer. In addition, the taxpayer must have exercised a
right or power incident to ownership of the property,
otherwise, the taxpayer has not used property, as
"use" is defined in K.S.A. 2016 Supp. 79-3702(c),
and is not subject to the Kansas compensating use tax under
K.S.A. 2016 Supp. 79-3703.
of the judgment of the Court of Appeals in 52 Kan.App.2d 232,
364 P.3d 1213 (2015). Appeal from Board of Tax Appeals.
Opinion filed December 29, 2017. Judgment of the Court of
Appeals affirming the Board of Tax Appeals is affirmed.
Judgment of the Board of Tax Appeals is affirmed.
Michael Hale, of Kansas Department of Revenue, argued the
cause, and Jennifer C. Bates, of the same agency, was on the
brief for appellant.
Matthew J. Limoli, of Edgar Law Firm LLC, of Kansas City,
Missouri, argued the cause, and Michael D. Pospisil, of the
same firm, and Clinton E. Patty, of Frieden, Unrein &
Forbes LLP, of Topeka, were with him on the brief for
appeal from a Board of Tax Appeals summary decision granting
a compensating use tax refund to BHCMC, L.L.C., doing
business as Boot Hill Casino & Resort, we address whether
such a tax can be imposed on Boot Hill for electronic gaming
machines it does not-and, under the law and its management
agreement with Kansas Lottery, cannot-own.
that Boot Hill did not exercise a right or power incident to
ownership of personal property in order to be subject to a
compensating use tax for that property. Because Boot Hill has
not exercised such a power or right, we affirm BOTA's
refund and the Court of Appeals panel decision that upheld
and Procedural Background
Hill challenges its payment of $801, 588.95 in compensating
use tax for the years 2009 through 2011. The amount assessed
was based on the sale price for electronic gaming machines
(EGMs) that Boot Hill purchased out of state for use at the
casino it manages in Dodge City.
casino/resort is divided into "Lottery Gaming"
facilities and operations and "Ancillary Lottery
Gaming" facilities and operations. The "Lottery
Gaming" label applies to the gaming floor and its
operations, whereas the "Ancillary Lottery Gaming"
label applies to the rest of the property and its operations,
including, for example, a restaurant. Boot Hill owns the
Ancillary Lottery Gaming facilities and operations. The State
of Kansas, through the Kansas Lottery, owns the Lottery
Gaming facilities and operations. Boot Hill manages the
Lottery Gaming facilities and operations for the State under
a "Lottery Gaming Facility Management Agreement, "
which provides in pertinent part:
"1. Certain Defined Terms. . . .
. . . .
"g) 'Electronic Gaming Machine' [EGM] means any
electronic, electromechanical, video or computerized device,
contrivance or machine authorized by the Kansas Lottery which
. . . is available to play, operate or simulate the play of a
game authorized by the Kansas Lottery pursuant to the Kansas
Expanded Lottery Act. . . . Electronic Gaming Machines are
one type of Lottery Facility Games.
. . . .
"j) 'Gray Machine' means any mechanical,
electro-mechanical or electronic device, available to the
public for play that is capable of being used for gambling,
that is: (1) not authorized by the Kansas Lottery; (2) not
linked to the lottery central computer system as required by
the Kansas Expanded Lottery Act; or (3) capable of simulating
a game played on an Electronic Gaming Machine or any similar
gambling game authorized pursuant to the Kansas Expanded
. . . .
"6. Manager's Representations and Warranties. . . .
. . . .
"l) Manager will comply with all applicable rules and
regulations imposed now, or in the future, by Kansas Lottery.
. . . .
"n) Manager acknowledges and agrees the State of Kansas,
acting through the Commission and the Kansas Lottery,
pursuant to their statutory authority, has the sole right to
own, lease and operate the Lottery Facility Games placed at
the Lottery Gaming Facility and has the full, complete and
ultimate ownership and operational control of the gaming
operation of the Lottery Gaming Facility. Manager further
acknowledges and agrees the Lottery explicitly retains the
power to overrule any action of Manager affecting the gaming
operation without prior notice and the Lottery retains full
control over all decisions concerning Lottery Gaming Facility
Games. No Gray Machines will be permitted at the Lottery
. . . .
"16. Exclusive Use of Lottery Gaming Facility. The
Lottery Gaming Facility will be used exclusively for the
playing of Lottery Facility Games owned and operated by the
Kansas Lottery, and the ancillary management activities
approved by the Executive Director, which may include
beverage service, food service, and ATM facilities. Manager
may not permit any other business activities within the
Lottery Gaming Facility unless approved in writing by the
. . . .
"21. Lottery Facility Game Ownership. The Manager must
purchase or lease, on behalf of the State of Kansas, for the
Kansas Lottery all Lottery Facility Games, including all
necessary equipment such as approved tables, felt, dice,
cards, chips, layouts, or intellectual property rights as
determined by the Executive Director. Manager has no
authority under this Agreement to own, purchase or lease any
Lottery Facility Games, except on behalf of the State of
Kansas and through the Kansas Lottery. The Executive
Director, in consultation with Manager, will select the
Lottery Facility Games to be offered for play at the Lottery
Gaming Facility and determine the Prizes to be awarded for
the play of such games. The Executive ...