this 3rd Circuit Petition - The Indiana Law Blog

Case: 12-1582 Document: 003111182475 Page: 1 Date Filed: 03/01/2013 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No: 12-1582 

In re: Indianapolis Downs, LLC, et al., 

INDIANA DEPARTMENT OF REVENUE, 

Appellant 

v. 

INDIANAPOLIS DOWNS, LLC, 

Appellee 

v. 

HOOSIER PARK, L.P. 

Intervenor-Appellee 

Appeal from the United States Bankruptcy Court 

for the District of Delaware 

Chapter 11 Case No. 11-11046 

Bankruptcy Court: The Honorable Brendan L. Shannon 

Before: SLOVITER, NYGAARD, and JORDAN, Circuit Judges 

PETITION FOR CERTIFICATION OF QUESTION OF LAW 

1


To the Honorable Justices of the Indiana Supreme Court: 

This matter came before the United States Court of Appeals for the Third Circuit 

on direct appeal from an order entered by the United States Bankruptcy Court for the 

District of Delaware. Having reviewed the briefs and record of the case, the panel 

(Sloviter, Nygaard, Jordan, JJ.) has unanimously voted to petition for certification to the 

Indiana Supreme Court pursuant to Third Circuit L.A.R. Misc. 110 and Rule 64 of the 

Indiana Rules of Appellate Procedure. We believe that this case raises an important issue 

of Indiana law that is both determinative and novel. See Ind. R. App. P. 64 (providing for 

certification “when it appears to the federal court that a proceeding presents an issue of 

state law that is determinative of the case and on which there is no clear controlling 

Indiana precedent”). We respectfully request that the Indiana Supreme Court accept this 

certification. 

The parties agree on the legal question at issue, and on the relevant facts: 

1. This case turns on the interpretation of two provisions of an Indiana statute, Ind. 

Code § 4-35-1-1 et seq. (“the Racino Statute”), which governs the operation of Indiana 

racinos (casinos combined with horse-racing tracks). Section 4-35-7-12, the “set-aside” 

provision, requires racinos to set aside fifteen percent of their adjusted gross slot machine 

receipts to be distributed to various state-endorsed organizations and programs (“the setaside 

funds”). Section 4-35-8-1, the “Graduated Wagering Tax,” levies a tax on the 

adjusted gross receipts “received” by racinos. The issue of first impression raised by this 

appeal is whether, for purposes of calculating the tax, the set-aside funds are included in 

“adjusted gross receipts received.” 

2


2. The set-aside provision, Ind. Code § 4-35-7-12(b), provides, in pertinent part, that: 

a licensee shall before the fifteenth day of each month 

distribute an amount equal to fifteen percent (15%) of the 

adjusted gross receipts of the slot machine wagering from the 

previous month at the licensee's racetrack as provided in this 

subsection. 

The Graduated Wagering Tax, Ind. Code § 4-35-8-1, provides, in pertinent part, that: 

(a) A graduated slot machine wagering tax is imposed as 

follows on one hundred percent (100%) of the adjusted gross 

receipts received before July 1, 2012, and on ninety-nine 

percent (99%) of the adjusted gross receipts received after 

June 30, 2012, from wagering on gambling games authorized 

by this article: 

(1) Twenty-five percent (25%) of the first one hundred 

million dollars ($100,000,000) of adjusted gross 

receipts received during the period beginning July 1 of 

each year and ending June 30 of the following year. 

(2) Thirty percent (30%) of the adjusted gross receipts 

in excess of one hundred million dollars 

($100,000,000) but not exceeding two hundred million 

dollars ($200,000,000) received during the period 

beginning July 1 of each year and ending June 30 of 

the following year. 

(3) Thirty-five percent (35%) of the adjusted gross 

receipts in excess of two hundred million dollars 

($200,000,000) received during the period beginning 

July 1 of each year and ending June 30 of the 

following year. 

(b) A licensee shall remit the tax imposed by this section to 

the department before the close of the business day following 

the day the wagers are made. 

3


There is no Indiana case law concerning either of these provisions. 

The 

disposition of this case will settle this tax issue for Indiana’s racino industry because the 

entire industry, which consists of two racinos, is party to the lawsuit. 

3. The facts relevant to the question certified are as follows: 

(a) 

Indianapolis Downs, LLC (“Indianapolis Downs”) is the operator of an 

Indiana racino and a debtor in the process of Chapter 11 bankruptcy. Hoosier Park, LLP 

is also an operator of an Indiana racino and is present in this case as an intervenorappellee. 

These two entities represent the entirety of the Indiana racino industry. 

(b) 

In November 2010, Indianapolis Downs filed a tax refund claim with the 

Indiana Department of Revenue (“IDOR”) seeking a refund for the taxes it had paid on 

the set-aside funds in fiscal years 2008, 2009, 2010 and part of 2011. IDOR denied the 

claim. 

(c) 

Subsequently, while in Chapter 11 proceedings, Indianapolis Downs filed a 

Motion for a Determination of the Legality of Certain Taxes, which challenged the 

application of the Graduated Wagering Tax to the set-aside funds. The motion did not 

seek a refund for taxes already paid. Rather, it sought a determination of whether the 

Graduated Wagering Tax must be paid on set-aside funds in the future. After hearing 

argument, the Bankruptcy Court entered its opinion on October 26, 2011, holding that the 

Graduated Wagering Tax did not apply to the set-aside funds. IDOR appealed the 

opinion to the District Court, and Indianapolis Downs initiated a direct appeal to this 

court pursuant to 28 U.S.C. § 158 (d)(2). We agreed to hear the direct appeal. 

4


(d) 

Meanwhile, Indianapolis Downs filed both an action in the Indiana Tax 

Court and a refund proceeding in the Bankruptcy Court to pursue a refund. Indianapolis 

Downs immediately informed the Indiana Tax Court of the related proceedings and 

requested a stay, which was granted. IDOR requested that the Tax Court vacate the stay, 

but it declined to do so. IDOR then challenged the stay in the Indiana Supreme Court. 

IDOR also petitioned for direct review of the merits of the tax dispute by the Indiana 

Supreme Court. On June 20, 2012 the Indiana Supreme Court voted to affirm the stay 

and to deny IDOR’s petition for direct review. 

(e) 

In fiscal year 2012, Indianapolis Downs paid approximately $70 million in 

Graduated Wagering Tax and distributed approximately $37 million as required by Ind. 

Code § 4-35-7-12. In accordance with the Bankruptcy Court’s opinion, it did not pay tax 

on the $37 million in set-aside funds. Indianapolis Downs paid $10.6 million less in 

Graduated Wagering Tax than it would have if it were required to include the set-aside 

funds in its taxable adjusted gross receipts. 

4. IDOR argues to this court that the Graduated Wagering Tax is unambiguous and 

“adjusted gross receipts received” includes the set-aside funds. IDOR asserts that the 

term “received” is non-technical and, given its ordinary meaning, applies to any funds of 

which Indianapolis Downs takes possession. IDOR further contends that, in the context 

of the highly regulated racino industry, the state may tax the set-aside funds even if 

Indianapolis Downs has no beneficial interest in them. Lastly, IDOR argues that it is 

immaterial whether the Graduated Wagering Tax imposes double taxation because 

double taxation does not per se invalidate a taxation statute. 

5


5. Indianapolis Downs argues that it never “receives” the set-aside funds for 

purposes of the Graduated Wagering Tax because it never receives the beneficial use of 

the funds. Rather, it is a mere conduit through which the funds flow to the entities 

designated by Ind. Code § 4-35-7-12. Indianapolis Downs contends that, under Indiana 

law, it may not be taxed on funds that simply pass through it to others. Indianapolis 

Downs also argues that, by IDOR’s reading, the Racino Statute results in double taxation, 

which Indiana law disfavors. 

6. The Bankruptcy Court found the Racino Statute to be ambiguous. Turning to 

broader principles of Indiana law, the Court agreed with Indianapolis Downs that Indiana 

common law generally prohibits taxing funds for which a party is a mere conduit, and 

also disfavors double taxation. The Bankruptcy Court reasoned that, in the absence of a 

clear statutory directive to the contrary, set-aside funds should not be deemed “received” 

for purposes of the Graduated Wagering Tax. 

7. This court has consistently refrained from certifying cases to state courts when we 

can confidently predict how the state court would decide the issue presented. See, e.g., 

Travelers Indem. Co. v. DiBartolo, 171 F.3d 168, 169 n.1 (3d Cir. 1999) (declining to 

certify a question to the Pennsylvania Supreme Court in part because the issue was not 

sufficiently difficult). In this case, however, we cannot predict with confidence how the 

Indiana Supreme Court would decide this issue. There are no decisions that we are aware 

of applying Ind. Code §§ 4-35-7-12 and 4-35-8-1. 

8. Furthermore, we believe that the question of law certified is of such substantial 

public importance in Indiana as to require prompt and definitive resolution by your 

6


Honorable Court. The issue is significant both in terms of the amount in controversy and 

for future policy in the state. We have found certification to be “a useful vehicle . . . to 

give the state supreme courts an opportunity to elucidate an important issue of state law, 

thereby avoiding erroneous predictions that will confuse rather than clarify the issue.” 

Kendrick v. Dist. Attorney of Phila., 488 F.3d 217, 219 n.1 (3d Cir. 2007). While we are 

strangers to Indiana tax law and Indiana’s racino industry, the Indiana Supreme Court is 

the entity that can interpret the Racino Statute in the manner most consistent with 

Indiana’s law and policy. Because the Supreme Court of Indiana is uniquely qualified to 

decide this novel question of Indiana law, and because certification may “in the long run 

save time, energy, and resources and help[] build a cooperative judicial federalism,” 

Lehman Bros. v. Schein, 416 U.S. 386, 391 (1974), we think that certification is 

warranted. 

NOW, THEREFORE, the following question of law is certified to the Indiana 

Supreme Court for disposition according to the rules of that Court: 

certification. 

Are the funds that racinos must distribute pursuant to Ind. Code § 4-35-7-12 

included in “adjusted gross receipts received” for purposes of the Graduated 

Wagering Tax, Ind. Code § 4-35-8-1? 

This court shall retain jurisdiction of the appeal pending the resolution of this 

Circuit Judge 

/s/ Dolores K. Sloviter 

7


Dated: March 1, 2013 

tmk/cc: 

Kevin D. Finger, Esq. 

Dennis A. Meloro, Esq. 

David A. Suess, Esq. 

Thomas D. Cameron, Esq. 

Jennifer E. Gauger, Esq. 

John D. Snethen, Esq. 

Andrew W. Swain, Esq. 

Jeffrey M. Schlerf, Esq. 

Michael C. Shepherd 

8

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