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By Dale Wetzel, Associated Press Writer, Published January 21 2010

Racing Services Inc. contests tax claim

BISMARCK – An attorney for a company that handled almost $100 million in horse-racing wagers asked the North Dakota Supreme Court on Wednesday to revive a lawsuit that claims the state illegally taxed the company and drove it out of business.

Bruce Schoenwald, a lawyer for Racing Services Inc. of Fargo and its owner, Susan Bala, argued the state has been attempting to collect back taxes on most of RSI’s wagers, when the state did not authorize such taxes. At the time, RSI was the only company licensed in North Dakota to handle off-track betting on horse races.

The state’s actions caused the business to shut down in 2003, and its claim for $6.73 million in still unpaid taxes has delayed Racing Services Inc.’s bankruptcy proceedings, Schoenwald told the Supreme Court.

“The problem that the state had at the time, was that they didn’t have any actual regulations that they could apply” to the tax situation, Schoenwald said. “In their frustration ... they essentially used whatever tools they had at their disposal. Unfortunately, their tool box was full of hammers.”

Bala and RSI were convicted in February 2005 of a dozen federal felony charges for illegal gambling and money laundering. They were accused of taking $99 million in wagers at an unlicensed off-track betting site in Fargo between October 2002 and April 2003.

Bala served about 18 months in prison. She was freed when a federal appeals court reversed her convictions in March 2007. A three-judge panel ruled the evidence against Bala and RSI was insufficient to convict them.

Douglas Bahr, an assistant attorney general, told the Supreme Court that the lawsuit missed a state-imposed deadline for filing the claim.

The lawsuit should have been filed within three years after a bankruptcy judge ordered the liquidation of Racing Services in June 2004, Bahr contended. Instead, it was filed last May. East Central District Judge Wade Webb dismissed the case four months later.

Bala and RSI also paid almost $4.2 million in taxes after the state raised questions about the gambling operation, Bahr said. “RSI voluntarily paid the taxes it now claims, almost six years later, were illegal or unconstitutional,” Bahr wrote in a court filing.

Schoenwald argued that the time frame for filing the lawsuit was longer than Bahr believed, and that the three-year clock should have begun running in March 2007 when the federal appeals court threw out Bala’s felony convictions.

“This isn’t a typical takings case, where they actually come in and take the property and use it for some public purposes,” Schoenwald said. “What we’re alleging is that, the various actions by the Racing Commission throughout the course of several years ... amounted to a taking.”

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