The Betsy King LPGA Classic Hit with Amusement Tax Liability
On September 7, 1999, a three judge panel of the Pennsylvania Commonwealth Court reversed an order of the Berks County Court of Common Pleas which had held that The Betsy King LPGA Classic was not retrospectively liable for the collection of a local amusement tax with event ticket sales in connection with the 1996 and 1997 golf tournaments. The Berks County Court had also denied an injunction against prospective enforcement of the tax and denied the taxing authorities' requests for interest and penalties on the unpaid tax. This tournament, now known as The First Union Betsy King Classic, is held at Berkleigh Country Club in Kutzstown, PA and was played this past weekend, October 8-10 1999.
In 1966, Richmond Township enacted an amusement tax, and the Fleetwood Area School District passed a resolution, both pursuant to the Local Tax Enabling Act [53 P.S. §§ 6901-6924] and both imposing a tax of 10% to be levied on "the admission to sporting events held within their areas of jurisdiction." Betsy King LPGA Classic, Inc. ("King LPGA") and Betsy King Charities, Inc. ("King Charities") were formed to "promote golf tournaments" and "conduct charitable activities and promote the Betsy King Classic Golf Tournament," respectively. King LPGA held its first tournament in 1996, and King Charities became involved in 1997.
The township and school district attempted to collect the tax for 1996 and 1997, estimated to be $83,200 King LPGA and King Charities refused to pay, asserting an exemption from such taxes due to their status as charitable entities. King LPGA and King Charities filed separate declaratory judgment actions against the township and the school district, seeking an order declaring the amusement taxes unenforceable against them for 1996 and 1997 and seeking injunctive relief against future imposition of the tax.
Hearings were held, and King LPGA and King Charities filed motions for summary judgment. The Berks County Court granted the motions as to the 1996 and 1997 tournaments but denied prospective injunctive relief, stating that the "Institutions of Purely Public Charity Act" [Act 1997-55] now governed that issue. The Court also denied the township's and school district's request for interest and penalties on the taxes claimed due for 1996 and 1997.The township, but not the school district, appealed, contending that the Berks County Court made numerous errors of law and factual findings not supported by substantial evidence. A majority of the Commonwealth Court panel agreed, and reversed.
The Commonwealth Court's holding, in Judge Doyle's opinion, determines that the Berks County Court was wrong to find that King LPGA and King Charities passed the "HUP test", as set out in Hospital Utilization Project v. Commonwealth, 507 Pa. 1, 487 A.2d 1306 (1985). The HUP test requires an institution to prove five things to sustain its "charitable purpose"; the township argued that the Berks County Court committed reversible error when it concluded that the HUP test had been met, and the Commonwealth Court stated that it "readily agreed." The Court reviewed the first prong of the HUP test -- whether King LPGA and King Charities "advance a charitable purpose" -- and found that they clearly did not, based on evidence such as:
- While the two tournaments generated $1,804,090 in revenue, King LPGA and King Charities made direct charitable contributions of only $340.00;
- $120,600 of contributions to charities were made by sponsors, but the funds did not pass through King LPGA or King Charities;
- "the record is devoid of any evidence that the organizations which received these contributions were charitable organizations pursuant to Pennsylvania law"; and
- "We specifically question the corporate structure (if it is a corporation) of the LPGA Foundation, what it does, which segment of society it benefits and all aspects of its charitable endeavors."
The Court also held that under Pennsylvania law, charitable exemptions are not transferable. See Appeal of Northwestern Corporation, 665 A.2d 856 (Pa. Cmwlth. 1995).
While the above summarizes the bulk of the Court's opinion, the Court's final comment, and the concurring opinion from Judge Pelligrini, seem to indicate a much clearer basis for deciding that the tax must be collected. Judge Doyle pointed out that "this very situation" is addressed in Department of Revenue regulations, 61 Pa. Code § 32.1, states that an organization's
"primary purpose cannot involve the promoting or sponsoring of a noncharitable fund raising event such as an athletic...event...[e]xamples are as follows....an organization which....hires a promoter to run a professional golf tournament. The money raised by the event is used to pay the promoter...or the event participants with any remaining funds distributed to exempt organizations. This is a noncharitable fundraising event."
King LPGA and King Charities hired International Golf, Inc. to manage and promote the 1996 and 1997 tournaments, and the record established that the overwhelming majority of revenue, after expenses, went to fund the prize purse for players. Thus, the Court held that the Berks County Court was wrong as a matter of law to conclude that King LPGA and King Charities advanced a charitable purpose and were institutions of purely public charity "simply because they provided funds to organizations that were tax exempt under federal law."
Judge Pelligrini concurred in the decision of the majority, but for a different reason. While he agreed that neither King LPGA nor King Charities were charitable institutions, it was his position that the tax was a "patron tax" payable by the person attending the tournament, and that the sponsor merely collects the tax. Therefore, the tax-exempt status of the collector is irrelevant, because it would be required to collect and tender to the township the taxes collected from those buying tickets, whether or not it was a charitable institution.
The Court's decision is appealable within thirty (30) days of its entry. The King parties have filed a Petition for Clarification & Reargument as a result of the September 7 order, and that Petition is pending. While the opinion does not say so, it is reasonably inferred that given the reversal, those entities are now liable for the past taxes and interest and penalties. It is also clear that from at least three different perspectives, it is proper for local taxing authorities to impose amusement taxes on tickets to professional golf tournaments, despite their involvement with charities. Commonwealth Court's opinion (1) such that collection from attendees is required, whether the collector is a charity or not from at least three different perspectives, it is proper for local taxing authorities to impose amusement taxes on tickets to professional golf tournaments, despite their involvement with charities. Commonwealth Court's opinion (1) questions the charitable purpose of the tournament organizers, (2) points out that the use of a promoter is specifically addressed in Department of Revenue regulations, and (3) posits the question that the amusement tax is a patron tax such that collection from attendees is required, whether the collector is a charity or not.
Saul Ewing's Golf Practice Group is a multi-disciplinary group within the firm which regularly represents entities and individuals involved in all aspects of the golf industry. The foregoing summary of a recent court decision is not intended as legal advice, and readers are cautioned that if they face similar issues, they should contact their legal and tax advisors for advice. Questions concerning this Update can be directed to Michael A. Finio, Chair, Golf Practice Group, Saul Ewing LLP, PNI Plaza, 2 North Second Street, Harrisburg, PA 17101. Mike's phone number is (717) 238-7671; his fax number is (717) 257-7585; and his email address is firstname.lastname@example.org
Note: Posted articles are for general information only and should not be considered legal advice.