                 REPORTED

  IN THE COURT OF SPECIAL APPEALS

              OF MARYLAND


                   No. 825


           September Term, 2014

       _________________________


           JOHN ZORZIT, ET AL.

                       v.

     COMPTROLLER OF MARYLAND

       _________________________


      Krauser, C.J.,
      Graeff,
      Nazarian,

                       JJ.

       _________________________

          Opinion by Nazarian, J.
       _________________________


      Filed: October 1, 2015

* Judge Kevin F. Arthur did not participate,
pursuant to Md. Rule 8-605.1, in the Court’s
decision to report this opinion.
        John Zorzit and Nick’s Amusements (collectively, “Nick’s”) were ordered to pay

$5,770,353.18 by the Maryland Tax Court—$2,159,724.97 in unpaid admissions and

amusement taxes, interest on those taxes, and a fraud penalty of $1,079,862.45. Nick’s

does not dispute failing to pay taxes, but contests the amount owed and disagrees with the

fraud penalty. It argues that the Comptroller’s assessment that was the basis for the Tax

Court’s Order was fatally flawed and that the Comptroller failed to prove the necessary

intent to defraud. We disagree with both arguments and affirm.

                                  I.     BACKGROUND

        From 1993 until 2009, Mr. Zorzit owned and operated Nick’s Amusements. Nick’s

provided coin-operated entertainment machines to bars and restaurants, including

jukeboxes, pool tables and video poker machines. Nick’s retained ownership of the

machines, and split the profits with the owner of the venue. With video poker machines,

owners and managers of the locations made cash payouts to winning customers, with

Nick’s knowledge and approval, and these payouts were deducted from the profit they split.

Nick’s concedes that these payouts were illegal. Moreover, Nick’s kept no records of the

payouts—indeed, as counsel for the Comptroller suggested at the Tax Court, keeping

records would have been recording a criminal enterprise.1




1
    Cf. The Wire: Straight + True, Season 3, Episode 5:
                STRINGER BELL: [W]hat is that?
                SHAMROCK: Robert Rules say we gotta have minutes for a
                meeting, right? These the minutes.
                STRINGER BELL: [I]s you taking notes on a criminal . . .
                conspiracy?
       Nick’s was charged criminally as a result of the video poker business many times.

Mr. Zorzit testified that prior to 2009, Nick’s was a defendant in more than fifteen cases in

the Circuit Court for Baltimore County, but none of these ever yielded a conviction. He

claimed, in fact, that there was an understanding between Nick’s and the former State’s

Attorney for Baltimore County:

              MR. ZORZIT: If [Baltimore County Police saw gambling],
              they’d come back, [get] a search warrant, come in there with
              20 people. Go through the machines, call us up and say we got
              your machines, can you come over and open them up. We’d
              come over and open them up so they didn’t bust them. And it
              was very cordial with everybody. They had my cell
              number . . . .

              As soon as they would tell us, you know, what location [from
              which police were seizing machines], the truck would go over
              there with some more new ones because they were going to
              take those out. So the truck would be sitting there. They would
              be wheeling the machines that they have out, and we’d be
              wheeling the new ones in, and that’s since I was a kid.

              THE COURT: Okay.

              MR. ZORZIT: And then we go to court, and [our attorney]
              Arnold Zerwitz, I know he testified 12 to 15 times. I think it
              was a little more than that. We’d go to work. It’s already
              worked out before we go in. The prosecutor . . . for years said
              I’m not prosecuting these things. This is ridiculous.

       It is, of course, lawful to operate video poker machines without making payouts, at

least so long as the machines are properly licensed and taxes are paid. See Md. Code (1992,

2010 Repl. Vol.), §§17-405, 17-408, and 17-414 of the Business Regulation Article. Video

poker machines and other “games of entertainment” are subject to an “admissions and


                                             2
amusement” tax of 10% in Baltimore County.            Baltimore County Code §11-4-601.

Although counties impose these taxes, businesses are required to remit admissions and

amusement taxes to the Comptroller. Md. Code (1988 Repl. Vol. 2010), §§2-109, 4-201,

4-301 of the Tax General Article (“TG”).

       Nick’s helped its Baltimore County customers obtain licenses for their video poker

machines and collected the taxes.2 After the machines were installed and running, Nick’s

“route men” visited each location, opened the machines, counted the cash, calculated the

admission and amusement taxes to be paid on the revenue at that location, and, then-and-

there, split the profits with the location’s owner.

       But Nick’s did not consider illegal payouts to be taxable, and the route men did not

include payouts when calculating Nick’s tax liability. What’s more, Nick’s route men did

not keep records that would allow anyone to calculate the taxes due on payouts. First, the

route men kept no records of payouts at all. Second, they did not record revenue on a per-

machine basis—they tallied all of the revenue by location, net of payouts, and wrote down

only that total before calculating taxes and license fees, and splitting the profits. Thus,

when a route man returned to Nick’s office with the day’s receipts, video poker revenue

was indistinguishable from revenue from jukeboxes, pool tables, or any other cash revenue.




2
  It is worth noting too that of the approximately forty to fifty bars and restaurants where
Nick’s had placed video poker machines by 2009, Mr. Zorzit and a business partner owned
the building at thirty through a separate company.
                                             3
       Beginning in 2006, the Baltimore County Police Department (“County Police”)

conducted a wide-scale investigation of Nick’s video poker operations. After significant

undercover work and speaking with informants, the County Police seized eighty-three

video poker machines owned by Nick’s from twenty-nine locations on January 28, 2009.3

Police opened the machines and analyzed their motherboards in an effort to determine how

much money was paid into the machines and how much had been won (the “in-credits”

and “out-credits,” respectively). County Police officers later called to testify conceded that

bar and restaurant owners likely did not pay out every credit won,4 and that if Nick’s had

purchased used machines, the in- and out-credits from previous owners would still be

recorded on those machines. But having no way to distinguish between previous out-

credits and out-credits during Nick’s ownership of machines, the County Police compiled

the raw data from these motherboards into a report, and turned that report over to the

Comptroller’s Office.

       The Comptroller independently analyzed the report. The Comptroller at no time

took possession of or tested the machines. Using the figures from the motherboards, the




3
  Police also conducted a raid of Nick’s offices, where they found over $41,000 in cash,
including $26,000 in a plastic bag in the ceiling.
4
  Sergeant Thomas Hench conceded in general terms that every out-credit does not result
in a payout, but did not testify that he ever saw a bar or restaurant owner in the Nick’s
network fail to pay an out-credit, and insisted that all out-credits on Nick’s machines led
to a payment.

                                              4
Comptroller’s Office devised a “payoff percentage,” representing the percentage of out-

credits to in-credits.   The Comptroller assumed that every out-credit was paid, and

ultimately hypothesized that 55% of the money paid into a machine would be paid back to

customers.5 The Comptroller then applied this figure to the gross revenue that Nick’s had

recorded for the period of August 2003 to January 2009. Nick’s had not retained records

for January 2000 through July 2003, so the Comptroller devised a monthly average return

for the 2003-2009 period, used that number for the months without records, then applied

the payoff percentage.6 After estimating the amount of money bar and restaurant owners

had paid out over the years, and applying a 10% admissions and amusement tax rate, the

Comptroller ultimately arrived at a tax deficiency of $2,159,724.97 for the 2000-2009

period. The Comptroller then added interest on the outstanding tax bill and imposed a

100% fraud penalty.

         Mr. Zorzit later testified that after the raid, he sought access to the video poker

machines from the County Police, but his request was denied. Sergeant Thomas Hench of

the County Police testified, however, that no one at Nick’s asked for access to the machines

to conduct their own testing of the motherboards. He also testified that the Comptroller




5
 The Comptroller originally arrived at a payoff percentage of 59% via an “average of
averages” method before adopting the 55% figure.
6
    The record does not reveal why liability attached only from January 2000 onward.
                                                5
never asked for the machines, nor asked the County Police to preserve them, and that after

storing the machines for “[a] year or two” they were destroyed.

       Nick’s appealed the assessment to the Tax Court. It argued that the deficiency

assessment was inadequate because the assessment (1) assumed all of Nick’s revenue

claimed by Nick’s came from video poker; (2) used out-credits from the life of the video

poker machines when a significant number of Nick’s machines had been bought used; and

(3) assumed that all out-credits represented payouts even though bar and restaurant

management often would not pay and repairmen might accumulate out-credits while testing

the machines. At the hearing, Nick’s offered testimony from Ben Cummings, one of Nick’s

route men,7 who estimated that only 65% of Nick’s revenues came from video poker, and

that the payoff percentage was between 20 and 25%. Nick’s also offered expert testimony

from a statistician, who applied Mr. Cummings’s numbers to the Comptroller’s

methodology and calculated a tax deficiency of only $466,016.10. Finally, Nick’s disputed

the fraud penalty, claiming that neither of the two CPAs they employed, nor their retained

attorney, nor anyone else on staff were aware that payouts were taxable, and that Mr. Zorzit

and the company lacked the requisite intent to defraud.

       The Comptroller in turn called two police officers who had participated in

investigating Nick’s, Corporal Montgomery and Sergeant Hench. They described their




7
 Mr. Cummings, who was thirty-seven years old at the time of testimony, testified that he
had worked for Mr. Zorzit in various capacities from the age of 18.

                                             6
investigation and the illegal video poker business in general. The Comptroller also called

one of its auditors, Charles Drasher, who testified that Nick’s did not maintain records or

program the machines in a way that allowed auditors to determine which out-credits

resulted in payouts and which did not:

              COUNSEL: If there were statements to the effect that not all
              out-credits may have resulted in payments, why did the
              comptroller base the assessment on all of the out-credits that
              were made?

              MR. DRASHER: Again, there was no reliable documentation
              as to what percentage of out-credits represented payouts. And
              in speaking with Sergeant Hench, he informed me that he
              believed [] all of the out-credits to be payouts.

              COUNSEL: Ben Cummings has provided what he called
              guesstimates as to the amount of money that came from the
              non-video poker machines and the number of out-credits that
              did not result in payouts. Why didn’t the Comptroller take his
              guesstimates into account?

              MR. DRASHER: Again, there were no documents, no records
              to back up any estimates he may have made.

       Mr. Drasher echoed the testimony of Corporal Montgomery regarding the relative

revenue that came from the video poker machines. He testified that one bar owner in the

Nick’s network ascribed roughly $50 and $300-$400 per week respectively to pool table

and jukebox revenue, but that video poker devices brought in $7,000-$10,000 per week.

Mr. Drasher also referred to this Court’s decision in Genie & Company, Inc. v. Comptroller

of the Treasury, 107 Md. App. 551 (1995), and identified the “badges of fraud” that, in the

Comptroller’s view, supported the fraud penalty.


                                            7
      The Tax Court ultimately found enough evidence of fraud under Genie to uphold

the fraud penalty. And although the court expressed doubt about the accuracy of the

assessment, it adjusted the fraud penalty to compensate:

             What I don’t have is sufficient evidence for me to come up with
             the accurate percentage of how much of the total receipts come
             from video [poker] machines and how much come from the
             other sources. I know it’s not a hundred percent, and I’m pretty
             sure it was above 65 percent, but I don’t know what it is in
             between, and I’m not allowed to guess. I need sufficient
             evidence in the record to come up with a number, and I don’t
             have it.

             The other issue I had to address is the out-credits and how
             much of them represented payouts. Some testimony was that
             it was about 25 percent on these, it looks like bartenders
             playing on the machines after hours, repair people putting
             credits onto the machines to make sure that they operated
             correctly. The other end of the extreme was someone who said
             the amount is inconsequential. Again, I don’t have any
             testimony that gives me the ability to specify a number
             somewhere between 0 and 25 percent.

             So I will affirm the assessment that I have in front of me since
             I can’t come up with a different number that I feel [confident]
             is correct. What I will do, though, is I have discretion in terms
             of the amount of [the] fraud penalty charge, based on the fact
             that I don’t believe the accounting is a hundred percent
             accurate. As a matter of fact, I’m pretty sure that it’s not. I’m
             going to reduce the fraud penalty to 50 percent, which should
             cover any illegal accounting by the comptroller’s office, as
             well as allow the fact that, you know, if fraud takes place, I
             think there should be a penalty.

      The Tax Court’s order affirmed the $2,159,724.97 assessment, charged interest

through July 31, 2013 totaling $2,530,765.72, “which interest shall accrue until the



                                            8
assessments are paid off in their entirety,” and assessed a reduced fraud penalty in the

amount of $1,079,862.45.

       Nick’s filed a Petition for Judicial Review on August 13, 2013 in the Circuit Court

for Baltimore County. The court heard argument on April 24, 2014, and on June 5, 2014,

filed a Memorandum Opinion affirming the Tax Court’s decision. Nick’s filed a timely

Notice of Appeal.

                                    II.    DISCUSSION

       Nick’s presents two questions for our review:

          1. Whether the Tax Court erred in imposing a civil fraud penalty
             without finding intent to evade payment of a tax known to be
             owed within the meaning of [§]13-703 of the Tax—General
             Article; and

          2. Whether the Tax Court erred in affirming the Comptroller’s
             assessment when the assessment was based upon inarguably
             and admittedly erroneous assumptions and other evidence that
             the Comptroller failed to preserve.

       Nick’s argues that the Tax Court erred in assessing a penalty for civil fraud. It

claims that neither the company nor its employees nor its professionals knew that the

company owed tax on payouts, and that the Tax Court found as much. It argues that this

ignorance belies any intent to evade payment of the tax, and without that intent, there can

be no finding of fraud. Nick’s also argues that the Comptroller has assessed an admittedly

erroneous amount against them—exacerbated by his failure to preserve the

motherboards—and that the Tax Court must be reversed for affirming the assessment.



                                            9
       The Comptroller counters that the Tax Court properly assessed a fraud penalty under

the holding of Genie. He further argues that substantial evidence supports the assessment,

and draws our attention to the fact that a fully accurate assessment was impossible because

Nick’s failed to maintain adequate records. The Comptroller claims that the statutory

scheme empowered him to “estimate the tax owed by Nick’s using the limited documents

and data that were available,” and he asserts that he “did [his] best to come up with a

reasonable estimate under the circumstances.” The Comptroller argues finally that he

cannot be penalized for the destruction of the motherboards because he never possessed or

even inspected them.

       We hold that the assessment was reasonable, that there were sufficient badges of

fraud to sustain the Tax Court’s fraud penalty, and that the Comptroller should not have

been sanctioned for the destruction of the motherboards.

       We undertake a “severely limited” review of Tax Court decisions. Comptroller of

the Treasury, Income Tax Division v. Diebold, Inc., 279 Md. 401, 407 (1977).8 We give

great deference to the Tax Court’s fact-finding, and “great weight to the Tax Court’s

interpretation of the tax laws, but review its application of the case law without special

deference.” State Dep’t of Ass’t & Taxation v. Andrecs, ___ Md. ___, 2015 WL 4988207

at *9 (August 21, 2015) (citations omitted).




8
 We look through the decision of the circuit court and review the decision of the Tax Court
directly. Comptroller of the Treasury v. Johns Hopkins University, 186 Md. App. 169, 181
(2009).
                                            10
       For its part, Nick’s appears to take no issue with the Tax Court’s fact-finding as

such, but instead challenges the adequacy of the record to support the Tax Court’s findings

and its legal authority to assess taxes and impose penalties in the face of evidentiary gaps.

       A.     Rossville Vending Is Controlling.

       It is rare that a claim of “tax confusion” can be refuted so thoroughly, let alone by a

reported decision of an appellate court old enough to drink alcohol or gamble in a casino.

This is just such a case. In 1993—three years before Nick’s was incorporated—we decided

Rossville Vending Machine Corp. v. Comptroller of the Treasury, 97 Md. App. 305 (1993),

a case that involved the admissions and amusement tax liability of a nearly identical

Baltimore County-based video poker business:

              Rossville owned a number of video poker machines that it
              placed in bars, restaurants, and other establishments frequented
              by the general public (collectively referred to hereafter as
              “establishments” or singularly as “establishment”). The
              machines were activated by patrons placing quarters in them.
              A player accumulated “points” or “credits” as he or she played
              and got winning poker hands. When the player accumulated
              sufficient “credits” or “points,” he or she would be paid
              winnings in cash directly by the owner, or owner’s employee,
              of the establishment (not Rossville), based on the player’s
              number of accumulated “credits” or “points.” It was conceded
              that such payouts constituted violations of Maryland’s anti-
              gambling laws.

              Rossville’s financial arrangements with each owner of an
              establishment included a fifty-fifty split of the revenues
              received from the play of the machines in that establishment,
              after reimbursement for the owner’s winnings payouts and
              deduction of expenses such as fees and taxes.



                                             11
Id. at 307. Unlike Nick’s, however, Rossville Vending received documentation of payouts

from the bar and restaurant owners, and reflected the payouts in its internal accounting. Id.

at 307-8.

       Ultimately, the County Police investigated Rossville and raided its offices and

various establishments where Rossville had installed video poker machines. Id. at

308. The County Police seized Rossville’s accounting records, and turned them over to

the Comptroller’s office. Id. And although Rossville had paid taxes on profits from the

machines, the Comptroller took the position that payouts to customers were also taxable,

and levied a deficiency assessment against Rossville. Id. at 308-9.

       Rossville appealed to the Maryland Tax Court, and the Tax Court affirmed the

assessment. Rossville, 97 Md. App. at 310. Ultimately, so did we. We explained that the

admissions and amusement tax statute has “contained the operative phrase ‘gross receipts’

as the basis for computation of the tax” since it was enacted in 1936, id. at 316, and that

the plain meaning of the statute imputed tax liability for payouts:

              [W]e conclude that the natural and ordinary significance of
              “gross receipts” as used in the context of the Maryland
              admissions and amusement tax statute, both in 1936 when it
              was enacted originally and today, provides no room for
              reasonable argument that it contemplates deductions or
              adjustments for expenses, partner/co-venturer reimbursements,
              or trade discounts before calculation of the tax due. We
              conclude further that there is no need for further investigation
              of appellant’s references to foreign authority or its arguments
              by analogy to other taxing situations. Where “there is no
              ambiguity or obscurity in the language of a statute, there is
              usually no need to look elsewhere to ascertain the intent of the
              General Assembly.”

                                             12
Id. at 318 (quoting City of Baltimore v. Hackley, 300 Md. 277, 283 (1984)).

       Nick’s concedes that illegal payouts were made on its video poker machines and

that it did not pay taxes on those payouts. Nick’s also does not dispute that Rossville is

binding here, and by implication, it does not appear to dispute that it owes some amount of

taxes. Instead, Nick’s pleads ignorance: it claims that despite Mr. Zorzit’s personal

relationship with the owners of Rossville Vending and knowledge of that business, no one

at Nick’s, nor its experienced attorney, nor its experienced accountant knew that Rossville

was on the books until the Comptroller levied this assessment. As a result, it claims, neither

Nick’s nor Mr. Zorzit had or could have formed the intention to withhold taxes. Second,

Nick’s takes issue with the Comptroller’s computation of tax liability, and argues that the

Tax Court should have adopted their much lower estimate of the amount owed.

       B.      Substantial Evidence Supports The Tax Court’s Finding
               That Nick’s Committed Fraud.

       Both the Comptroller and Nick’s argue that Genie & Co. controls the question of

whether Nick’s can properly be found to have committed fraud. Both are correct in that

regard. Genie concerned a diesel fuel distributor. Id. at 554. At the time the case was

decided, diesel fuel that was used for transportation was taxed at a higher rate than diesel

fuel used for other purposes. Id. at 555. Although the retail purchaser of the diesel fuel

usually paid the tax, the statute required distributors like Genie to collect, report, and remit

the tax. Id.



                                              13
       The Comptroller investigated Genie’s operations and determined that over the

relevant time period, Genie had failed to collect roughly half of the taxes for which it was

responsible. Id. at 557-58. The investigation demonstrated that Genie had essentially

made inappropriate, tax-free sales to five large commercial customers. Id. at 558-

59. Genie ultimately conceded as much, but argued to the Comptroller, and subsequently

at the Tax Court, that it had held a good-faith-but-mistaken belief that these customers were

tax-exempt. Genie, 107 Md. App. at 559. The Comptroller, in addition to levying an

assessment for the unpaid taxes, had imposed a penalty for fraud. Id. at 558. Genie argued

at the Tax Court, the Circuit Court, and eventually in this Court, that the penalty was

erroneous as a matter of law because Genie lacked the requisite intent to defraud the

Comptroller. Id. at 564.

       We, along with the Tax Court and Circuit Court, affirmed the fraud penalty. Noting

that “the elements of tax fraud . . . are seldom confessed by the accused party,” we held

that “[d]irect evidence that fraud was committed is not necessary; rather, it is more often

inferred by circumstantial evidence.” Id. at 567. Because of the paucity of Maryland case

law on the issue at that point, we imported the federal “badges of fraud” doctrine,9 and

identified seven factors to guide courts in assessing the circumstantial evidence of fraud:




9
  Genie cited Alexander Shokai, Inc. v. Commissioner, 34 F.3d 1480 (9th Cir. 1994), Day
v. Commissioner, 975 F.2d 534 (8th Cir. 1992), Douge v. Commissioner, 899 F.2d 164 (2d
Cir. 1990), Laurins v. Commissioner, 889 F.2d 910 (9th Cir. 1989), Scallen v.
Commissioner, 877 F.2d 1364 (8th Cir. 1989), and Korecky v. Commissioner, 781 F.2d
1566 (11th Cir. 1986). See Genie, 107 Md. App. at 568-69.
                                           14
              The badges, indicia, or factors to look for in the tax fraud
              context include:

              (1) consistent and substantial understatements of income (or
                  sales, in the sales tax arena);

              (2) failure to maintain adequate records;

              (3) implausible or inconsistent explanations of behavior,
                  including the lack of credible testimony before a tribunal;

              (4) concealment of assets;

              (5) failure to cooperate fully with tax authorities;

              (6) awareness of the obligations to file returns, report income
                  or sales, and pay taxes; and

              (7) failure to file returns.

Id. at 568. Importantly, we held that “no one badge or factor should be given excessive

weight” and that it was “not [] required that a specified number of badges be present to

invoke the statute.” Id. at 569. And on the record in that case, we held that substantial

evidence supported the Tax Court’s finding that Genie had committed at least four badges

of fraud. Id. at 570.

       We reach the same conclusion here. Not only is there substantial evidence to find

badges one, two, and four in this case, but the presence of these badges is conceded. In the

unique world of video poker devices, “in-credits” are the equivalent of sales, and every

witness for Nick’s who was asked the question testified that Nick’s kept no records of gross

revenue on the machines. Because Nick’s failed to keep records of gross revenue, it

obviously failed to report sales to the Comptroller, thereby satisfying badges one and

                                             15
two. Although Nick’s witnesses never referred explicitly to these activities as

“concealment of assets,” each testified that he knew the payouts were illegal. The logical

conclusion is obvious: payouts (and thus gross revenue) were concealed to avoid criminal

liability. If that were not enough to constitute concealment of assets, then certainly Nick’s

accounting methods—recording only the net income by location rather than breaking down

machine by machine—supports a finding that Nick’s intended to conceal revenue as it

came in.

       The Tax Court found that each of these three badges had been proven, and added

badge number six: awareness of the obligation to file returns, report income or sales, and

pay taxes.    Nick’s does not contest its awareness of its obligation to pay taxes, but

professes somehow not to have known that it owed admissions or amusement taxes on

gambling payouts. The Tax Court did not find in so many words that Nick’s witnesses

were lying, but did find their ignorance of the law to be awfully convenient, if not

purposeful:

              There was a lot of testimony about what [Nick’s] knew about
              the obligation to pay taxes on the payouts and [Mr. Zorzit’s]
              conversation, or lack of conversations with the CPA and
              internal accountant. It appeared to me that this was a subject
              that was never discussed. I did not get the impression that Mr.
              Zorzit ever specifically asked Mr. Friedman [Nick’s outside
              CPA] or his own accountant, ‘Do I owe admissions tax on these
              payouts?’ in part because they were illegal and part, I guess,
              because he never gave it a lot of thought. So neither of them
              did any explicit research into whether or not there was an
              obligation to collect and remit taxes.



                                             16
       Nick’s argues that this passage represents a finding by the Tax Court that the

company lacked intent to defraud. We disagree. At best—and this is a stretch—the Tax

Court could be read as finding that Nick’s opted not to research (or have its professionals

research) its liability for taxes on illegal gambling income. This sort of willful blindness

is close enough, especially given the deferential standard we apply to Tax Court decisions.

       In fact, Nick’s own witnesses revealed a sophisticated operation engineered to

generate uncertainty and deflect blame. Nick’s installed video poker machines at locations

that, as often as not, Mr. Zorzit owned. Nick’s facilitated the licensing process. The

company knew that bar and restaurant owners were making payouts, and Nick’s profited

directly (and handsomely) from that business. And Nick’s affirmatively failed to keep any

records of this revenue. Nick’s touts the decades of experience that its accountants and

attorney have in this field, but expected the Tax Court to believe that these seasoned

professionals had no knowledge of a twenty-plus-year-old, totally-on-point appellate

decision—and now asks us to hold as a matter of law that the Tax Court lacked substantial

evidence to reject Nick’s ignorance defense. The Tax Court didn’t need to find in so many

words that Mr. Zorzit or Nick’s or the professionals knew specifically about the Rossville

case—under Genie, it is enough that substantial circumstantial evidence supported this

fourth badge of fraud. Combined with the other three badges, we hold that the record

before the Tax Court amply supported its finding from circumstantial evidence of intent to

defraud, and we affirm the Tax Court’s penalty.



                                            17
       C.      The Tax Court Did Not Err In Adopting The Comptroller’s
               Assessment.

       The Tax General Article authorizes counties to impose admissions and amusement

taxes, TG §4-102, and requires the Comptroller to collect those taxes. TG §2-109. Parties

subject to the tax must file returns with the Comptroller, TG §4-201, and must ensure that

those returns are accurate. TG §4-202. The Tax General Article anticipates, however, that

some parties will not keep accurate records, and empowers the Comptroller to assess taxes

in these situations:

            (a) If a person or governmental unit fails to keep the records
                required under § 4-202 of this article, the Comptroller may:

                       (1) compute the admissions and amusement tax by
                       using a factor that the Comptroller develops pursuant to
                       subsection (c) of this section; and
                       (2) assess the tax due.

                                             ***

            (b) The factor utilized by the Comptroller pursuant to this section
                shall be developed by:

                       (1) a survey of the business of the person or
                       governmental unit, including any available records;
                       (2) a survey of other persons or governmental units
                       engaged in the same or similar business; or
                       (3) other means.

TG §13-403. No case has clearly addressed the limits of the phrase “other means.” But

this case does not require us to engage in an extended exercise in statutory construction.

                                              18
“If the words of the statute, construed according to their common and everyday meaning,

are clear and unambiguous and express a plain meaning, we will give effect to the statute

as it is written.” Walzer v. Osborne, 395 Md. 563, 572 (2006) (quoting Jones v. State, 336

Md. 255, 261 (1994)). It is true that the plain meaning must be considered in the context

of the statutory scheme as a whole. See generally Breitenbach v. N.B. Handy Co., 366 Md.

467 (2001) (holding the “plain meaning” of a provision was rendered ambiguous, and

ultimately, incorrect, by the purpose and context of the broader Act). But “if the plain

meaning of the statutory language is clear and unambiguous, and consistent with both the

broad purposes of the legislation, and the specific purpose of the provision being

interpreted, our inquiry is at an end.” Id. at 473.

       Plainly, use of the term “other means” suggests the legislature intended to vest broad

discretion in the Comptroller to calculate assessments against parties that have not kept

complete records. Put another way, a taxpayer that fails to fulfill its legal obligation to

keep records cannot, by doing so, hamstring the Comptroller from estimating and assessing

taxes reasonably.

       Everybody agrees, including the Comptroller himself, that his calculations were not

perfect. But in the context of this record—or, more precisely, the distinct absence of the

relevant financial records—the Comptroller’s calculations were supported by substantial

evidence. As revenue came in, Nick’s actively failed to track the sources of its revenue.

The Comptroller was left only with revenue totals, and some evidence to suggest that the

vast majority of revenue came from video poker. Indeed, the only bar owner in the Nick’s

                                              19
network to speak to the figures told County Police that video poker devices brought in

$7,000-$10,000 per week, while the pool table and jukebox brought in only $50 and $300-

$400 per week respectively. Without any concrete numbers or records, the Comptroller

was not out of line to assume that all revenue came from video poker for the sake of

assessment.

       At the same time, the County Police had seized a large number of machines from

Nick’s, and analyzed the accounting data contained in their motherboards.               The

Comptroller took this data, and calculated the amount of illegal payouts that appeared to

have taken place. Using these figures—the only records available—the Comptroller

calculated Nick’s liability as best he could.

       We share the parties’ rightful concern about the outer limits of the Comptroller’s

discretion to devise assessment methods, but this case does not present such an extreme

question. Nick’s asks us to find as a matter of law that the Comptroller was required to

rely on the uncorroborated guesstimate—his word—of a former employee and friend to

calculate the unpaid tax liability over the Comptroller’s best estimate. As imprecise as the

Comptroller’s calculation might be, Nick’s alternative would reward exactly the sort of

tax-evasive behavior the law is meant to deter and sanction.

       In his own words, here is Mr. Zorzit’s take on the illegal payouts made to his

customers, and Nick’s institutional knowledge of payouts:

              Q: Okay. So you knew from day one, even back to [your
              previous business], that illegal payouts were being made to
              customers?

                                                20
A: Absolutely.

                              ***

Q: I want you to describe for the Court why you believe the
Comptroller’s methodology for calculating tax associated with
payouts made by bar owners is incorrect or flawed?

A: Well, it’s several things . . . I’ve never seen their numbers,
but, you know, they took their numbers in account for all the
reasons why you would knock off plays. There’s probably
more. But sitting here right this minute, I’m drawing a blank.

                              ***

Q: Okay. My question to you is, did you have any records, or
data, that you could have given to the Comptroller for [2000-
2003]?

A: In 2009?

Q: Yeah.

A: If we did, we gave it to you, and I don’t think we had
anything, did we?

Q: Not that I’m aware of.

A: Well, then our office gave everything we had.

                              ***

Q: You didn’t keep track of the payouts that you made?

A: That is correct.

Q: Okay. Well, you would agree with me that if you [had] done
that, you would be creating records of a criminal enterprise,
wouldn’t you?


                               21
A: I didn’t even in my wildest dreams think that this is
criminal, [Counsel]. When the Comptroller’s Office, when the
Baltimore County Police Department, when the Baltimore City
Police Department—there is nobody hiding nothing.

Q: But Mr. Zorzit, my question is, wouldn’t you agree that if
you kept records of illegal payouts, you would be creating
evidence of a criminal enterprise?

A: I never thought of it that way.

                              ***

Q: Okay. And on paragraph c [of Nick’s plea agreement with
the federal government], under paragraph 3, the elements of
offense, paragraph C says that, “the principals of Nick’s
Amusements knew that the property was derived from criminal
activity.” And since you were the only principal of Nick’s, you
are talking about yourself, that you were aware that the
property was derived from criminal activity; is that correct?

A: That’s what it says.

                              ***

Q: Now it sounds as though Nick’s has taken the position that
not all out-credits that were recorded on some of these video
poker machines resulted in payouts. Did you keep any records
of how many out-credits would or would not result in payouts?

A: I didn’t keep any records, no.

Q: Do you know if the bar owners did?

A: No.

Q: And you didn’t require the bar owners to account for [] out-
credits and how many payments were made based on how
many out-credits?

A: No.

                              22
              Q: Okay. Now Mr. Cummings testified that . . . his estimate,
              or he called it a guesstimate, of 25 percent [of money paid in
              would be paid out in winnings] was based on his experience
              and his observations. Do you know from your own
              involvement with Mr. Cummings whether he could have based
              it on anything else, any records, or data or anything like that?

              A: Well, there’s nobody better than him to base it, because he
              works with it on a daily basis.

              Q: As far as you know, did he have any personal records that
              he could have looked back on to base that estimate on?

              A: He wouldn’t have no reference.

       To summarize:      Nick’s ran an illegal gambling operation for years, one that

consistently and by design failed to keep records of its criminal activity. Its proprietor, Mr.

Zorzit, has no idea how much taxable money was paid out, and the only basis that he offers

for changing the Comptroller’s assessment—the testimony of Ben Cummings—is

corroborated by zero documentation, recordkeeping, or even with additional interested

witness testimony. Mr. Zorzit has not even seen the Comptroller’s data, so he cannot know

what it is that he disagrees with, or by how much. And as his reward for failing to keep

adequate records for the last ten years of his business, and failing to retain any records at

all for the years 2000-2003, Mr. Zorzit asks us to find that the Tax Court erred as a matter

of law by relying on the Comptroller’s calculation instead of Mr. Cummings’s self-

described “guesstimate.” If we were to adopt this argument, no rational Maryland company

would keep records or file tax returns—instead, they would wait to be caught, and when



                                              23
the Comptroller came around for an audit, smile and refer the Comptroller to the

unverifiable memory of an employee. That cannot be what the law requires.

       D.     Nick’s Spoliation Arguments Are Unavailing.

       Finally, Nick’s argues that the Comptroller’s assessment must be set aside because

the County Police destroyed the motherboards of the seized video poker machines,

spoliation that, Nick’s claims, the Comptroller was obliged to prevent. Nick’s cites four

cases for this proposition, all inapposite. These cases all stand for the unremarkable

proposition that a party with possession or access to discoverable evidence bears the burden

of notifying its opponent before allowing the evidence to be destroyed. See Silvestri v.

GMC, 271 F.3d 583 (4th Cir. 2001) (plaintiff in a products liability case conceded that he

had had unlimited access to the product, and an ability to prevent its destruction, and

conceded that manufacturer could have and should have been given notice of his intent to

sue before vehicle was destroyed, but was not); Klupt v. Krongard, 126 Md. App. 179

(1999) (a party, who had always been in possession of discoverable evidence, first

concealed, and then intentionally destroyed that evidence); Anderson v. Litzenberg, 115

Md. App. 549 (1997) (party in possession of discoverable evidence destroyed that

evidence). But here, the Comptroller neither possessed nor had access to the motherboards.

He received a report from County Police based on their analysis of the motherboards. This

report was produced to Nick’s, and Nick’s expert relied extensively on that report. The

evidentiary advantage or gamesmanship that the spoliation rule seeks to prevent does not



                                            24
exist here—both parties had the same access to the same evidence, and there is no

misbehavior to sanction.


                                     JUDGMENT OF THE CIRCUIT COURT
                                     FOR BALTIMORE COUNTY AFFIRMED.
                                     COSTS TO BE PAID BY APPELLANTS.




                                       25
