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Number-of-units taxation standard of the former Bremen and Saarland Entertainment Tax Code only applicable until 31 December 2005
Press Release No. 24/2014 of 21 March 2014
Order of 12 February 2014
1 BvL 11/10
In a decision published today, the First Senate of the Federal Constitutional Court decided that the number-of-units taxation standard of the former Bremen and Saarland entertainment tax laws for slot machines is unconstitutional and was applicable only until 31 December 2005. The rules may only continue to apply until the point in time at which the legislature had to recognise that, due to the change in the Federal Administrative Court's case-law in April 2005, a number-of-units taxation standard was unconstitutional. The Laender had an approximately six-month deadline for transposition; waiting until the publication of the decision of the Federal Constitutional Court on the Hamburg entertainment tax law of 2009, however, was not justified.
Facts of the Case and Course of the Proceedings:
Parties to the initial proceedings 1 BvL 11/10 are a Bremen operator of a gaming hall and the Tax Office. They argue about the amount of entertainment tax payable for the months of December 2007 to February 2009. Pursuant to the Bremen entertainment tax law in force at the relevant time, the operation of slot machines was subject to entertainment tax. The taxation was based on the number of machines. Since 1 January 2010 the law has changed; the tax is now assessed on the basis of a percentage of the net income generated by the machines.
Parties to the initial proceedings 1 BvL 14/10 are a Saarland operator of a gaming hall and the mayor of the municipality in which the hall is located. They argue about the amount of entertainment tax payable for the months of January to December 2007. The Saarland entertainment tax law that applied during the relevant time authorised the municipalities to issue an entertainment tax for operating slot machines in gaming halls. The amount of the tax could be set by municipal statute up to a certain statutory maximum. Since 1 March 2013, the tax is assessed on the basis of a percentage of the amount brought in by the slot machines.
Key Considerations of the Senate:
§ 3 sec. 1 of the Bremen Entertainment Tax Act and § 14 sec. 1 of the Saarland Entertainment Tax Act in the versions relevant for the initial proceedings violate - insofar as they govern slot machines - the general principle of equality (Art. 3 sec. 1 of the Basic Law, Grundgesetz - GG).
1. The Federal Constitutional Court has already clarified the guidelines for applying the general principle of equality to the tax on slot machines (Order of 4 February 2009 - 1 BvL 8/05 -, BVerfGE 123, 1; cf. on this issue also Press Release No. 45/2009 of 28 April 2009). No aspect that could lead to a different assessment has been stated by the parties or is otherwise apparent.
2. The provisions brought before the Court do not stand up to an examination based on these constitutional considerations. There is no viable justification for using a lump-sum substitute standard of taxation that is based on the number of slot machines, instead of taxing the effort of each player assessed by applying a reality-based standard.
3. The provisions brought before the Court can only be applied until 31 December 2005.
a) In general, the unconstitutionality of a legal provision leads to its annulment. However, this does not tend to apply if the Constitution was violated by a breach of Art. 3 sec. 1 GG. In these cases, the Constitutional Court usually declares the provision incompatible with the Basic Law, because the legislature has different ways to remedy the violation of the Constitution. The Federal Constitutional Court may order that the norm which was declared incompatible with the Basic Law has to temporarily continue to apply if the interests under constitutional law outweigh the respective concerns.
b) Arguments for letting the provisions brought before the Court remain in force until 31 December 2005 are, first, the need of the Free Hanseatic City of Bremen and the Saarland to reliably plan their finances and their budgets. Moreover, the burden imposed on the holders of slot machines by applying the number-of-units taxation standard seems relatively light. They are not necessarily disadvantaged by the unconstitutional equal treatment regarding the tax rate, but could also be subject to a comparatively more favourable taxation, depending on the individual turnover of their slot machines.
c) However, when applying the number-of-units taxation standard, the legislatures in the initial proceedings could only consider themselves in compliance with federal jurisprudence until the Federal Administrative Court changed its case-law with the judgments of 13 April 2005. After that date, the legislatures were called upon to examine whether the requirements established by the Federal Administrative Court for maintaining the number-of-units taxation standard were met in their jurisdictions. The Federal Administrative Court had explicitly held that a number-of-units taxation standard for slot machines was only compatible with the Constitution if certain levels of tolerance were adhered to; a revision of the tax on slot machines could not solely be based on the number of units. However, the Free Hanseatic City of Bremen and the Saarland did not examine whether these levels of tolerance were met, nor did they explain in other ways why they held on to the number-of-units taxation standard. The Free Hanseatic City of Bremen and the Saarland were also able and could be reasonably expected to react within about six months after the change of the Federal Administrative Court's case-law, i.e. by the end of 2005.