The Treasury Department recently released proposed regulations to better explain a portion of the new Federal tax code that applies to pass-through entities. Before exploring the content of selected portions of the proposed regulations, it is important to understand the underlying law that the regulations purport to clarify.
On December 22, 2017, Congress passed a sweeping overhaul of the Federal tax code entitled The Tax Cuts and Jobs Act (the “Act”). As part of this overhaul, corporate tax rates were cut dramatically from a top statutory rate of 35% to a flat rate of 21%. The corporate tax rate is only paid by C-corporations and does not affect pass-through entities such as sole proprietorships, partnerships, LLCs, and S-corporations. But according to the Brookings Institution, 95% of the over 26 million businesses in the United States of America in 2014 were pass-through entities. The earnings of a pass-through entity flow through the entity and are reported directly on the individual taxpayer’s tax return and taxed at the individual’s tax rate. C-corporations, on the other hand, are subject to what is often referred to as a double tax. The corporation pays taxes at the entity level and the shareholder is taxed on any disbursements, in the form of dividends, at the individual level.
This shift in entity selection is particularly relevant when legislators are drafting tax laws intended to reduce the tax burden on what is broadly referred to as “business.” The much-publicized decrease in the corporate tax rate did nothing to change the tax liability of 95% of American businesses—nor was it intended to. In what was likely an effort to mirror the tax cuts being given to C-corporations, the Act provided for a 20% deduction on qualifying earnings of a pass-through entity (codified in 26 U.S.C. § 199A). As is always the case in taxes, we must begin by defining a few terms.
The Act extends to taxpayers other than corporations a deduction up to 20% of the taxpayer’s “qualified business income” (“QBI”) earned in a “qualified trade or business.” To determine the amount of deduction for taxpayers in excess of statutorily defined Threshold Amounts (defined below), the taxpayer must calculate: (1) 50% of allocable W-2 wages; and (2) 25% of allocable W-2 wages plus 2.5% of the unadjusted basis immediately after acquisition of all qualified property. The taxpayer then must take the greater of those two numbers and compare that to 20% of QBI. Whichever is less is the deduction amount to which the taxpayer is entitled.
A qualified trade or business, as defined in 26 U.S.C. § 199A(d), is any trade or business except: (1) a specified service trade or business—yes, that is another definition—or, (2) the trade or business of performing service as an employee. The second prohibition simply prevents an employee, rather than owner, from claiming this deduction. The first exclusion on “specified service trade or business” (“SSTB”) caps the deduction that an owner may take if the entity is engaged in health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any business in which the principal asset is the reputation of any one or more of its owners or employees. Notably, the Act carved out exceptions to the income cap limitation to businesses in engineering and architecture. There is good news for SSTBs. Section 199(A)(d)(3) states that any SSTB that has taxable income less than $315,000 if married filing jointly and $157,500 for all other taxpayers, (“Threshold Amounts”) shall be treated as a qualified trade or business and qualify for the full 20% deduction. SSTBs earning up to $415,000 if married filing jointly ($207,500 for all others) may take the deduction with the W-2 limitations enumerated in Section 199(A)(b)(2) and discussed above.
Four important points were clarified in the proposed regulations: (1) De minimis exception; (2) clarification of reputation or skill catch all; (3) conversion of employee to independent contractor; and (4) cracking. I will discuss each in turn.
De Minimis Exception
The proposed regulations clarified the very foreseeable situation in which a business sells products and engages in services. Regulation Section 1.199A-5(c) provides a de minimis exception allowing a trade or business with annual gross receipts of $25 million or less and receiving less than 10% of gross receipts from performance of one of the services in the disqualified fields to avoid being treated as an SSTB. The same rule exists for companies with gross receipts in excess of $25 million, but in that case gross receipts for performance of services within a disqualified field must account for less than 5% of gross receipts of the company to avoid treatment as an SSTB.
Reputation or Skill
One major area of clarification in the proposed regulations was how expansively to read the broad language relating to businesses where the principal asset is the reputation or skill of any one or more of its employees or owners. This catch all provision had the possibility of being broadly interpreted and thus widely applicable; fortunately, however, the proposed regulations offer a very narrow reading. The catch all will only apply to—and therefore disqualify from eligibility, subject to Threshold Amounts—those trades or businesses in which: (1) compensation is received for endorsing a product or service; (2) compensation is received for licensing the use of an individual’s image, likeness, name, signature, voice, trademark, or any other symbol associated with the person; or (3) compensation is received for appearing at an event, on television, radio, or other media format.
This means that a celebrity that owns a business cannot take a deduction on an endorsement, personal licensing, or appearances, but her otherwise qualified trade or business is eligible for the 20% deduction, regardless of the fact that it is the celebrity’s reputation that draws clients and drives revenue.
The Act makes it very clear that employees are not eligible for the deduction. Law firms provide a good example: a law firm’s equity partner, as an owner of the firm, qualifies for the 20% deduction (subject to Threshold Amounts), but the associate attorney, as an employee, does not. When the Act was released this was an area that many thought would be ripe for strategic planning. For example, what if the associate attorney left the law firm, opened his own, and was then contracted by his old law firm in the same work? In that case, the IRS will still classify the associate as an employee. So long as the employee is engaged in providing substantially the same services to the same employer, the IRS will treat the person as an employee. If, however, that same associate left and became an independent contractor performing the exact same work but for another employer, this would be acceptable, and he would qualify for the 20% deduction.
Those who are unfortunate enough to fall within the disfavored categories have sought strategic ways to reap the benefits of the deduction. One way that they have sought to do so is by stripping income out of disqualified SSTBs and moving it to qualifying businesses—a practice referred to as “cracking.” It was thought that a doctor could sell the building that contained his practice to an LLC and that LLC could rent the building back to the doctor. This would remove profit from the disfavored business (health) and place it in a favored business (real estate) that qualifies for the pass-through deduction.
Unsurprisingly, the Treasury anticipated cracking and imposed certain limitations. The proposed regulations severely limit, but do not totally eliminate, the potential for cracking. Under the proposed regulations, an otherwise qualified trade or business will be considered an SSTB (and therefore not eligible for the 20% deduction) if that trade or business provides 80% or more of its services or its property to an SSTB with which the qualified trade or business shares 50% or more common ownership. That means that the LLC created by the doctor to purchase his building and rent it back to his practice would be treated as an SSTB and not qualify for the 20% deduction. All of the hypothetical LLC’s income would be derived from the doctor, and the doctor’s practice and the LLC would share 100% common ownership.
It would not be impossible for a dedicated SSTB to find non-prohibited workarounds that would allow profits to be stripped and moved to a qualifying entity. However, such an arrangement will take considerably more work than originally anticipated and most likely involve partnering with other SSTBs to come in under the percentage business and ownership caps discussed above.
For many pass-through entity owners, the Act has provided a significant deduction to mirror that given to C-corporations. The proposed regulations have offered clarity on some of the major questions held by tax practitioners in law and accounting. Even if an entity is engaged in one of the disfavored categories of business, there is still a strong possibility that due to income or strategic planning that the Section 199A deduction may still apply. Every pass-through entity should analyze their Section 199A qualification and plan to take full advantage of this new deduction.
Austin Judkins is an Associate in Boylan Code’s Business and Corporate Finance Group concentrating in entity selection and formation and business transactions.
Remember the old Seinfeld episode when Kramer went on a smoking binge for 72 hours and even set up a “smoking lounge” for “pipe night” in his apartment? You know, the one where Jerry told Kramer that the smoking was starting to negatively impact his appearance, so Kramer decided he wanted to sue the tobacco companies? Look away, I’m hideous! Gone are the days of lighting up in an apartment, especially for those individuals who live in public housing. In 2009, U.S. Office of Housing and Urban Development (HUD) released guidance that encouraged public housing agencies (PHA’s) and property owners/agents of subsidized multifamily housing to implement smoke-free policies. Aside from the overwhelming medical data about the dangers of secondhand smoke, HUD reported that secondhand smoke in multifamily house resulted in higher property maintenance costs, an increase in unit turnover and increased the risk of fires. Fast forward to 2016 when HUD finalized a rule (24 CFR Parts 965 and 966) requiring all PHA’s to implement a smoke-free policy by July 31, 2018 prohibiting the use of certain tobacco products in all public housing living units, indoor common areas in public housing and in PHA administrative offices.
Effective July 31, 2018, HUD prohibits smoking cigarettes, cigars and pipes in PHA apartments, public areas or within 25 feet of public housing buildings. The 25-foot perimeter is necessary to prevent secondhand smoke from entering open windows in lower level units and prevent secondhand smoke exposure to individuals on lower floor balconies or porches. Water pipes and hookahs are also a no-no. At this time, the smoking ban does not apply to electronic cigarettes (“e-cigarettes”). This ban does not yet affect the Section 8 programs or any other affordable housing program. Oh, the humanity!
In response to HUD’s new rule, many [non-PHA] landlords are jumping on the smoke-free policy bandwagon and implementing strict “No Smoking” policies into their leases, thus making a tenant’s failure to comply with a smoke-free policy a default under the lease and grounds for eviction. Is it crazy? Or so sane that it just blew your mind? However, the “one strike you’re out” policy does not apply to public housing residents—HUD regulations allow residents up to three violations of the smoke-free policy prior to commencing a summary proceeding. HUD encourages PHA’s to assist residents with locating smoking cessation resources rather than jumping to an eviction. In other words, termination of assistance for a single incident of smoking, in violation of the smoke-free policy, is not grounds for eviction. HUD encourages a graduated enforcement approach to address violations of the smoke-free policy that includes escalating warnings with documentation to the tenant file and leaves specific graduated enforcement procedures up to state and local governments.
As New York moves towards legalizing adult-use of marijuana, owners and landlords of federally assisted housing should know that HUD requires owners of federally assisted multifamily properties to deny admission to any household with a member who the owner determines is, at the time of application for admission, illegally using a controlled substance as defined by the Controlled Substances Act (CSA), 21 U.S.C. Section 801 et. seq. These pretzels are making me thirsty! The CSA categorizes marijuana as a Schedule 1 substance and therefore the manufacture, distribution, or possession of marijuana is a federal criminal offense. Because the CSA prohibits all forms of marijuana use, the use of “medical marijuana” is illegal under federal law even if it is permitted under state law. See, Quality Housing and Work Responsibility Act of 1996 (QHWRA), P.L. 105-276 (Oct. 21, 1998), 42 U.S.C. 13662; see also, U.S. Dep’t of Housing and Urban Dev., Memorandum Regarding the Use of Marijuana in Multifamily Assisted Properties (Dec. 29, 2014). The QHWRA provides owners with the discretion to determine, on a case by case basis, when it is appropriate to terminate a tenant’s lease for violation of the CSA. This has led many [non-PHA and PHA] landlords to specifically identify and prohibit recreational adult marijuana use in their smoke-free lease policies in anticipation of the forthcoming legalization. If and when New York legalizes adult marijuana use, regardless of the purpose for which it is legalized under state law, the use of marijuana in any form is illegal under the CSA and therefore is an illegal controlled substance under Section 577 of QHWRA so it will not be allowed in PHA housing. You better believe it, buddy!
Before you shift to soup mode, there’s more! Protected Classes include Source of Income, Immigration Status and Citizenship
What else is new with Fair Housing? Well, unfortunately, not every prospective tenant can be as well off as H.E. Pennypacker (the wealthy industrialist, philanthropist and bicyclist). On June 21, 2018, the Erie County Legislature voted 9-2 to approve a Fair Housing Law to make it illegal for landlords or property owners to discriminate against prospective tenants who receive government subsidies like vouchers or who are not U.S. citizens. This law expands existing state and federal anti-discrimination housing laws to include “source of income” and “immigration and citizen status” as protected classes.
According to the Erie County Fair Housing Law, as amended Local Law No. 4 at Section 1, “[i]t is the intent of the Legislature to provide for fair housing through the County of Erie and prohibit discrimination of any kind in the sale, rental or leasing of housing to any person.” As set forth in Section 3 of the Erie County Fair Housing Law, the legislature prohibits discrimination against any tenant or prospective tenant on the basis of “…race, color, religion, sex, age, marital status, disability, national origin, source of income, sexual orientation, gender identity, military status, familial status or immigration and citizenship status.” The remainder of the law remained unchanged, except to exempt from protection any “…religious or religious organizations limiting the sale, rental or occupancy of housing accommodations which it owns or operates, to persons of the same religion or giving preference to such persons, unless membership in such religion is restricted on account of race, color, religion, sex, age, marital status, disability, national origin, source of income, sexual orientation, gender identity, military status, familial status or immigration and citizenship status.”
The change in Erie County’s law is significant for landlords and property owners across the entire state of New York. On April 26, 2018, Governor Andrew Cuomo proposed a bill to prohibit landlords and property owners from refusing housing to a person based on that individual’s source of income. The bill also would prohibit related advertising limiting who can come to the Festivus table (no more “will not rent to Section 8” advertising). The bill was first introduced by Assemblyman Walter Mosley, D-Brooklyn (Bill A10077/S08606) before Gov. Cuomo introduced his own bill at the end of May. Stay tuned, George—if this bill makes it through, a statewide anti-discrimination shift to protect tenants (and prospective tenants) on the basis of source of income could take effect as early as Spring 2019.
But what about the Fair Housing Act, Jerry?!
On May 18, 2018, Gov. Cuomo announced New York State was the first state to join a lawsuit, In National Fair Housing Alliance et al v. U.S. Dep’t of Housing and Urban Dev., which seeks to reverse HUD’s suspension of the implementation of the Affirmatively Furthering Fair Housing Rule, a set of federal regulations implemented under the Obama administration that encourage grantees of federal funding to conduct an Assessment of Fair Housing (AFH) planning process. The AFH informs efforts to address housing discrimination, encourage residential integration, and remove barriers to opportunity. The rule also requires the results of that analysis to be submitted to HUD, with actions identified to remove barriers to fair housing, prior to receiving federal housing funds. In January, under the Trump administration, HUD put the kibosh on the implementation of a requirement that local governments conduct an AFH thus resulting in over 40 communities in New York and over 1,000 communities nationwide left in a standstill without federal funds to resolve their neighborhood fair housing disparities. It’s outrageous, egregious, preposterous!
But before you start calling HUD the Soup Nazi, HUD recently filed a housing discrimination complaint against Facebook for its alleged ongoing violations of the Fair Housing Act. Happy, Pappy? According to its Complaint dated August 13, 2018, HUD alleges that Facebook “unlawfully discriminates by enabling advertisers to restrict which Facebook users receive housing-related ads based on race, color, religion, sex, familial status, national origin and disability.” The Complaint cites the following non-exhaustive list of ways in which Facebook’s ad targeting tools enable advertisers of housing and housing-related services to discriminate including, but not limited to:
- Facebook enables advertisers to discriminate based on sex by showing ads only to men or only to women.
- Facebook enables advertisers to discriminate based on disability by not showing ads to users whom Facebook categorizes as interested in “assistance dog,” “mobility scooter,” “accessibility” or “deaf culture.”
- Facebook enables advertisers to discriminate based on familial status by not showing ads to users whom Facebook categorizes as interested in “child care” or “parenting” or by showing ads only to users with children above a specific age.
- Facebook enables advertisers to discriminate based on religion by showing ads only to users whom Facebook categorizes as interested in the “Christian Church,” “Jesus” “Christ” or the “Bible.”
- Facebook enables advertisers to discriminate based on national origin by not showing adds to users whom Facebook categorizes as interested in “Latin America,” “Southeast Asia” “China,” “Honduras,” “Somalia,” the “Hispanic National Bar Association” or “Mundo Hispanico.”
- Facebook enables advertisers to discriminate based on race and color by drawing a red line around majority-minority zip codes and not showing ads to users who live in those zip codes.
…To name a few (serenity now!). For all the landlords out there, here is your courtesy reminder to review your online advertisements to determine if your targeting follows a pattern like the one above. Any targeting of advertisement that purposefully excludes classes of persons protected from discrimination under federal, state or local law should be discontinued immediately. Giddyup, Jerry!
Jennifer Aronson -Jovcevski is an associate and a member of Boylan Code’s Real Estate Practice Group. She concentrates her practice in commercial and residential real estate, commercial lending, Fair Housing and Charter School law.
To read the published article in the Daily Record, click here.
State and Local Taxes (“SALT”) are getting a little shake up thanks to a new Supreme Court decision that, according to the headlines, is going to change the landscape of online sales. Take those headlines with a grain of SALT.
On June 21, the Supreme Court, in South Dakota v. Wayfair, overruled National Bellas Hess v. Illinois and Quill Corp. v. North Dakota. You’d be forgiven for not recognizing those case names (tax cases seldom make memorable headlines), but they each impact businesses and consumers on a daily basis.
Have you ever ordered something online and not had to pay sales tax? Say thanks to Quill, in which the Supreme Court held that in order for a state to require a merchant to collect sales tax, the merchant must have a physical presence in the state. This is called “nexus”, which enables a state to impose the duty to collect sales tax under the Constitution. Under Quill, the physical presence within the state does not have to be extensive, but it had to be more than just the company’s goods passing through the state. A single employee in the state was all it took to establish nexus.
When Quill was decided in 1992, mail order (remember when you had to order things from catalogs?) sales totaled $180 billion (about $327 billion in 2018 dollars) and less than 2% of Americans had internet access. Today, e-commerce sales are estimated to be around $453.5 billion with over 90% of Americans having internet access.
In Wayfair, South Dakota had enacted a law, which only applied prospectively, that required out of state retailers who sold more than $100,000 worth of goods or engaged in 200 or more separate transactions in South Dakota to collect sales tax. This concept is known as an “economic nexus.” South Dakota’s law was in direct conflict with Quill, as the South Dakota law required no physical presence.
You may be asking yourself at this point, “So what? How does this affect me as a business owner or a consumer?” It affects you, the business owner or consumer, like most tax laws do, in the wallet. For consumers, it’s pretty straight forward, sales tax from online purchases will be more of the rule than the exception. For businesses though, it’s more of an indirect cost.
As any business owner knows, in the US, a business doesn’t pay sales tax on the items it sells. The business collects the sales tax from consumers and remits it to the state (don’t forget to do that part; New York in particular is very tough on this point, imposing personal liability on business owners for unpaid sales tax).
So, how might this change result in increased costs for businesses? In New York alone, there are 62 counties. In addition to the 4% state sales tax rate, each county can impose its own tax rate up to 3%. However, because every rule has exceptions, New York has allowed more than forty waivers to allow municipalities to impose sales taxes in excess of 3%. That means, just for sales into New York, should New York adopt a sales tax statute requiring out of state merchants to collect sales tax, the merchant would have to account for 62 different potential sales tax rates. When thinking about nationwide sales, compliance will be complicated.
Additionally, I will quickly note, since 2000, there has been an effort, called the Streamlined Sales Tax Project, to have states utilize the Streamlined Sales and Use Tax Agreement (“SSUTA”), in order to assist out of state sellers in complying with the collection of sales tax. Twenty four states have signed on to SSUTA, but the largest states, California, New York, Florida, Texas and Pennsylvania, which make up 40% of the US population, have not signed on to SSUTA. The Supreme Court in Wayfair noted, South Dakota was a member of SSUTA and its membership was a factor that supported the constitutionality of the sales tax statute.
Companies collecting sales tax from a state in which they have no physical presence is nothing new. Amazon has been capitalizing on this complexity for a few years now. Amazon used to challenge state sales tax in many states where they did not have a physical presence. After losing a number of these cases, they saw revenue potential and now offer a service to help sellers comply with the collection of sales tax, for an additional cost, of course.
Undoubtedly, enterprising people will pump out software designed to help businesses comply with the collection of the thousands of different sales taxes.
Though it may seem clear at first glance, we do not know the outer bounds of the Wayfair decision. The Supreme Court did not say that any imposition of the requirement to collect sales tax is constitutional; there must still be a “nexus” with the taxing state. As stated above, South Dakota’s statute required $100,000 worth of goods sold into the state or engage in 200 or more transactions before the merchant was required to collect sales tax. What happens if a state enacts a law that mandates any sale into the state obligates the merchant to collect tax? What about ten items? What about $20,000 worth of goods or services? What threshold is constitutionally acceptable? What if a state is not a member of SSUTA? What happens if a sales tax statute applies retroactively? We don’t know.
To come full circle, we need to take Wayfair with a grain of SALT. The full impact of the decision and how states will respond is unknown. If I had to guess states’ responses, it would be in favor of increasing tax revenue by enacting statutes similar to South Dakota’s law. Some states have statutes that will automatically adjust to the new constitutional standards, referred to as “sleeper laws”; however, most states will need to amend their sales tax laws to reflect the change.
What can a business do to prepare and what must be done right now? To prepare, businesses who sell into states in which they have no physical presence should keep apprised of those states’ sales tax laws and seek out professional guidance. As for right now, nothing has changed (except if you sell into South Dakota or a state with a sleeper law), but you can be positive that states will begin to enact these types of sales tax regimes because of plummeting sales tax revenues due to online sales. Forthcoming software and services to help businesses comply with the complexity of thousands of different sales tax regimes will be worth their SALT.
Jason W. Klimek is an associate and a member of Boylan Code’s Corporate Practice and Real Estate Groups. He concentrates his practice in business planning and development, tax planning, advising and financing.
To read the published article in the Daily Record, click here.
ROC Artist Captures Breckenridge Beauty in Sculpture- Install of Syncline in Breckenridge, Colorado
Breckenridge is the first Colorado town to feature a permanent installation by renowned contemporary sculptor Albert Paley, whose work graces cultural art centers from the Smithsonian Institution to the Metropolitan Museum of Art. The 24-foot-tall, azure blue, abstract steel sculpture is fabricated from hydraulically formed steel plates. It takes its name from a geological formation, using intersecting convex and concave planes to represent the irregular contours of the mountain milieu, replete with the interplay of slope and light.
”The emphasis of this sculpture is the focus on the identity of the mountain topography, skiing and winter sports. The sculptures gestural concave and convex forms refer to the mountain and valley contours. The gestural angle of the sculpture makes reference to the mountains various inclines and slopes. The silhouettes of these forms are basically curved and “S” shaped arabesques – visually one of the most dramatic visual elements reflecting balance and counter balance of skiing. These contours refer to the lines of force and the trails left by the skier. This lyric pattern emphasizes the play of line on the snow covered mountain slopes. Thus the sculptures curvilinear interlacing emphasizes contour and incline. Besides the skiers physical imprint in the snow these lines also reflect the psychological and experiential reality of those involved. Between the two major concave and convex forms there is a series of tumbling or cascading folded metal forms. These are to suggest the experience of skiing – a fluid act of passage or time sequence. Anticipation, experience and memory are implied within this visual dialogue.” Albert Paley
This update was provided by Albert Paley.
Photo credit: Liam Doran www.liamdoranphotography.com/
“I married you for better or worse, but not for lunch!” Retirement decisions require more than just determining how you will spend your days so that you enjoy your time together and don’t view these years forced togetherness.
You and your spouse or partner may have very different ideas of what that retirement will look like. Here are 5 key decisions you need to make as a couple before you retire:
- Timing. Financial needs and whether or not you enjoy your work are usually the main determining factors in when to retire. Couples also need to consider how they can maximize Social Security benefits and whether they want to “step down” their work schedules gradually.
- Finances. If one spouse has been handling the family finances, it’s time for both to understand their financial situation and how retirement may impact it. Hopefully you have been working with a certified financial planner for many years already but if not, there is no time like the present to start a relationship with an advisor who can help you take a realistic look at the costs of retiring. We frequently refer to trusted financial advisors and will even attend your meetings if you wish.
- Lifestyle. One spouse may want to travel more in retirement, while another just wants to putter around the house. One may want to move, while the other wants to stay put. You need to reach a decision together on your retirement lifestyle. As for cost, see #2.
- Healthcare. Both spouses need to have good healthcare coverage, either from Medicare and supplemental plans or, if you will continue to work in retirement, from an employer’s plan.
- Long-term care. Studies show that most of us will need some long-term care during our lifetimes. You will need to determine together if you want to shield the potential cost through use of long-term care insurance, personal savings and whether your asset mix is such that you should consider using asset protection strategies, such as an irrevocable trust, for protection. We would be happy to help you examine the options for long-term care planning and put a plan together that suits your needs; we can refer to trusted insurance experts as well. This is not an area to simply call an 800 number and hope someone knowledgeable can sell you what you need.
If you would like to learn more about retirement planning, call our office today at 585-232-5300 to schedule a time for us to sit down and talk.
Article written by: Lisa M. Powers, Esq.
My father and I went on a trip last summer to tour the national parks on the way from Colorado to San Francisco. In between the travel from the unparalleled beauty of Zion National Park to the striking sequoia trees in California we stopped in the State of Nevada. For our very first stop in Nevada we went into a gas station and I was immediately struck by a sight I did not expect. Inside the gas station were about fifteen slot machines with numerous patrons making use of their attraction. Nevada has always been uniquely known for its gambling attractions, especially since it has long been the only State to offer legal sports betting in its casinos, that is, until now.
With the Supreme Court’s decision in Murphy v. National Collegiate Athletic Association, et al., No. 16-476, 2018 WL 2186168 on May 14, 2018, the door has opened for other States to begin their excursion into the world of sports gambling. Murphy analyzed whether the Professional and Amateur Sports Protection Act (“PASPA”), and specifically its provision that made it unlawful for a State to “authorize” by law any gambling or wagering schemes on one or more competitive sports games, was constitutional. Id. at *4; 28 USCA § 3702. At the time of PASPA’s adoption in 1992, a few states had already offered limited sports gambling opportunities and, most significantly, Nevada fully allowed sports gambling in its casinos. Id. at *5. As a compromise, these state efforts were “grandfathered” in and their operations were not nullified by the act. Id.
Besides an extended discussion of the meaning of the word “authorize” in the provision above, Murphy held PASPA’s declaration that a state could not authorize sports gambling was held unconstitutional mainly because it ran afoul the “anticommandeering” principle. This fictional Constitutional Law word (just added it to “my dictionary” in the word program) stands for the principle that the Federal Government cannot regulate a State’s exercise of its lawmaking power by prohibiting it from making laws, such as a law that authorizes sports gambling. Id. at *10. The central counter-argument used by the National Collegiate Athletic Association (“NCAA”) and the United States (“US”) was that the anticommandeering principle should not apply because PASPA does not require State lawmakers to do anything – it simply stops them from doing something. Id. at *13. (more…)