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Video gaming distributor challenges laws in tax court

Company alleges double standard in Maryland’s gaming regulations

Video poker and other games are not illegal – but it is against the law when the devices pay out winnings. (File photo)

Video poker. (File photo)

After being hit with a multi-million dollar tax assessment, a company that distributes video gaming devices has launched a constitutional challenge to Maryland’s gaming regulations, claiming they are arbitrary and treat small businesses differently than big casinos.

Columbia Amusements Inc., a Baltimore company that owns coin-operated video gaming devices throughout the state, has been fighting a $7 million tax assessment – $22 million with interest and penalties – for several years in Maryland Tax Court.

Columbia’s owner, Anthony Paszkiewicz, was paying income tax on the net proceeds from the machines but has deliberately not paid admissions and amusement tax, a locally-established tax rate collected by the comptroller, according to David R. Cohan, a lawyer for Paszkiewicz and Columbia.

That’s because of a double standard alleged in the constitutional challenge to the gaming regulations and laws Cohan and his colleagues have been developing for more than a year.

At its root is the fact that Columbia’s video poker machines and similar devices — a common presence in bars, taverns, bowling alleys and laundromats in the Baltimore metropolitan area — are not illegal if used for entertainment purposes. The devices, however, do become illegal when the establishments begin to pay out on credits earned by players – unless they are located within one of Maryland’s casinos.

“The Legislature of Maryland has arbitrarily crossed the line and capriciously decided that only the wealthy, big businesses, namely casinos which historically often have had a tainted reputation, are permitted to engage in slot machine gambling,” states a brief filed in tax court by Cohan, of Cohan, West & Karpook PC in Baltimore.

“It’s just not fair,” Cohan said in an interview. “It’s not legally fair, it’s not ethically fair.”

Held for two years

Paszkiewicz’s case began with a 2008 audit by the comptroller, according to Cohan, and eventually machines were seized and held for two years before attempts were made to read their circuit boards.

In a brief to the tax court, filed last week, Columbia raises constitutional challenges to Maryland’s laws in light of modern, state-sanctioned gambling, claiming the current regulatory scheme is unenforceable and violates equal protection and due process rights guaranteed by the state and federal constitutions.

Though Cohan wanted to bring the constitutional issues in a state circuit court case, he found the Maryland Tax Court, despite being an administrative body, has original jurisdiction to rule on constitutional issues and the validity of statutes.

A hearing on the issues is scheduled for June 1, where Paszkiewicz has requested a jury trial on disputed factual issues. By statute, the tax court may submit factual issues to a circuit court jury.

A spokeswoman for the Maryland Office of the Attorney General, representing the comptroller, said she could not comment on a pending case.

Different treatment

Local governments can determine whether to impose an admissions and amusements tax, according to the brief, but the law has no guidelines for when to do so.

Baltimore enacted an ordinance exempting video slot machines from the local admissions and amusements tax, but other devices remained subject to it. Making the tax optional creates a discriminatory playing field, according to the brief, and allows politics to determine its application in various jurisdictions.

The admissions and amusement tax also is rarely enforced in some jurisdictions, in part because the collection amount is too low to justify the expense of pursuing the money.

The small businesses that participate in the video gaming industry are being forced out by these regulations, according to Cohan.

“It’s not a rogue industry,” he said. “It’s a well-respected industry. It’s been around forever.”

The amusement industry, which finds most of its business in bars, is a struggling one, according to Larry Bershtein, member of the Amusement Game Advisory Committee and former president of the Maryland Amusement and Music Operators Association.

“One of the fundamental issues with the amusement industry is there was a time 30 or 40 years ago when it was kind of a dirty industry and there was a lot of money being made out of it,” he said.

Bershtein, who sold his company in 2014, said there’s no chance of rolling back regulations, but industry members can do what they can to prevent further harmful ones.

“Now, if you want to gamble, you go to a casino where it’s legal,” he said, “and if you want to play a game you do it on your phone but we’re still being governed as if we’re putting out a Ms. Pac-Man and pulling in $200 a week. Now if you get $20, you’re lucky.”

The case is Anthony Paszkiewicz et al. v. Comptroller of Maryland, MTC No. 15AAOO0148.