PW Enterprises, Inc. v. State of North Dakota

No. 14-1077 (8th Cir. Feb. 20, 2015).
North Dakota law, which did not explicitly authorize the state to collect taxes for “account wagering,” did not impliedly authorize the collection of such taxes either. Accordingly, taxes collected by the state prior to the amendment of North Dakota law to authorize such collections must be returned to the bankruptcy estate.
Procedural context:
One of the debtor’s largest creditors obtained standing to commence an adversary proceeding seeking to disallow the state’s claim for unpaid taxes, among other relief. The bankruptcy court granted summary judgment to the state, concluding that such taxes were authorized. The district court reversed, and the state appealed.
North Dakota law authorizes parimutuel betting, including through “account wagers,” in which a person deposits money in an account and uses the account balance to pay for parimutuel wagers. State law also authorizes the collection of taxes on parimutuel wagers, but that law was not amended to expressly include account wagers until 2007. PW Enterprises (PWE) placed extensive parimutuel account wagers through an account maintained by the debtor, RSI, which was responsible for paying required taxes to the state. When the debtor became distressed, the state “inconspicuously” collected over $5 million in taxes from the debtor, incuding taxes on account wagers made prior to 2007. Concurring with the district court’s analysis, the Circuit Court observed that the power to impose taxes may not extend “beyond the clear meaning of the statute,” and that any ambiguity must be resolved in the taxpayer’s favor. Finding no express authorization to collect taxes on account wagers prior to 2007, and no basis in either law or legislative history to imply such an authorization, the Circuit Court affirmed, directing the state to return the unauthorized taxes to the bankruptcy estate.
Riley, Wollman, and Bye.

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