06/11/2003 12:00AM

Court reverses Iowa ruling

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ALTOONA, Iowa - The United States Supreme Court on Monday unanimously reversed a June 2002 Iowa Supreme Court decision that struck down a higher tax rate on Prairie Meadows and the state's two greyhound tracks than on the state's riverboat casinos.

Beginning in 1997, the tracks, which all house slot machines, began paying taxes on their profits at a graduated rate. The rate began at 22 percent and increased 2 percent each year prior to last year's ruling. The rate was scheduled to be capped at 36 percent in 2004.

The state's riverboat operations have been taxed at a 20 percent rate each year. The tracks filed suit seeking to have their tax rate changed to the same as the riverboats. A Polk County District Court ruling upheld the tax-structure law before the state's Supreme Court reversed it last year.

The U. S. Supreme Court heard arguments from both sides in April. The ruling sends the case back to the Iowa Supreme Court for consideration.

Prairie Meadows has set aside funds to pay the additional tax liability that will be due the state if the law is upheld. The track has been paying the 20 percent rate since last June and would instead be taxed at 34 percent this year. The difference has been estimated at more than $25 million.

Also at stake is the more than $50 million in taxes that the state would owe the track if the differentiated tax rate is ultimately ruled unconstitutional.

Last month the tracks made a settlement offer to the state, under which they would waive any refund of back taxes owed them and agree to pay taxes at a rate of 30 percent if they would be treated equally with the state's riverboats - meaning the tracks would be able to offer table games in addition to slots.

State lawmakers have yet to respond to the offer, but a settlement with the tracks is now considered possible before the Iowa Supreme Court reconsiders the case.

Bob Farinella, general manager of Prairie Meadows, was on vacation and unavailable for comment. A track spokesman referred calls to their attorney, Tom Flynn, who did not return repeated calls.