Ruling allows Nebraska to continue to collect taxes on BankShot games (2024)

A Lancaster Countyjudge dismissed a lawsuit filed against the Nebraska Department of Revenuechallenging the validity of the agency's new interpretation and application of regulations regarding sales tax on mechanical amusem*nt devices, in particular BankShot games.

The case filed by Bellevue business American Amusem*nts Co.was the second to make such a challenge.

The first, filed by Music Service LLC of Omaha, resulted in the same fate: a dismissal in April.

But it is not likely to be the end of it just yet, since neither of the judges ruled on the merits of the cases.

Attorneys in both pointed to a section of the Mechanical Amusem*nt Device Tax Act, which says "payment of the tax and license fees due and owing on or before the licensing date of each year shall exempt any such mechanical amusem*nt device from the application of the sales tax which would or could otherwise be imposed under the Nebraska Revenue Act of 1967."

Thomas Culhane, the attorney for American Amusem*nts, summarized the current dispute in the complaint filed in November.

"In its continuing efforts to interfere with the business of American Amusem*nts and its operators/distributors, the department is now attempting to illegally require them to pay sales tax on all monies deposited in Bankshot devices by players despite the Nebraska Legislature's clear and unequivocal exemption of those funds from sales tax," he said.

On April 19, 2023, the Department of Revenue sent American Amusem*nts a voluntary compliance letter saying the company owed $2,139,525in sales taxes, penalties and interest for unreported sales tax on cash device leases for 2020 through 2022.

Culhane said the tax scheme set forth would be "a departure from long established statutory law and the department’s own regulations, neither of which have ever been interpreted in the manner the department now attempts."

American Amusem*nts asked the judge to find the attempt to retroactively collect sales tax invalid, unconstitutional and in direct contradiction of the Mechanical Amusem*nt Device Tax Act and to bar the state from collecting sales tax on gross receipts from the Bankshot devices.

Assistant Attorney General Joseph Messineo, who represented the Department of Revenue, asked that the case be dismissed, saying it was too early to file the case because the department had not yet made a demand for the unpaid sales taxes. The letter had sought voluntary compliance.

In a decision last week, Lancaster County District Judge Darla Ideus agreed, finding the case should be dismissed "for lack of standing and ripeness."

She said the letter was clear that if the matter cannot be resolved by voluntary compliance, the department may issue a notice of deficiency determination and assessment.

But, since that hasn't yet happened, it was too early to bring a suit, she said.

Last month, another district judge, Susan Strong, ordered the dismissal of Music Service LLC's case, which was similar but farther along in the process.

In that case, the Department of Revenue had sent a notice of deficiency determination asserting the company owed $5,813 for unreported sales taxes on mechanical amusem*nt device leases.

Attorney Kevin Dostal, who represented Music Service, said the department collected more than $1 million, forcing operators and distributors to purchase provisional decals "under threat of loss of business and livelihood to operators and distributors throughout Nebraska, including Music Service."

He said the Nebraska Legislature has repeatedly rejected legislation that would remove the sales tax exemption from the mechanical amusem*nt devices.

Last session, LB685 failed even to advance from committee.

Dostal said the department's actions constituted a "regulatory taking" of its property.

But Strong said the business's claims were outside the limited exceptions to be able to sue the state, and taxes and user fees are not "takings."

She also said there are "wholly adequate" remedies to request administrative and judicial review to contest the assessment or collection of taxes.

For instance, Music Service could seek an administrative review and appeal it to the courts later if it doesn't like the decision.