A state Supreme Court order suggests Fayetteville will lose a lawsuit that accused the city of unconstitutionally levying extremely high taxes on video gambling businesses.
But the city attorney said she thinks the city can prove that the gambling taxes are constitutional.
The lawsuit grew out of steep taxes that Fayetteville imposed on the video sweepstakes gambling operations that have proliferated over the past 10 years.
In 2010, the city raised the annual privilege license for these businesses from $50 per year – the same as other businesses – to $2,000 per location, plus $2,500 per computer terminal.
The businesses sued, saying that the new fees violate a provision of the North Carolina constitution that says taxes must be levied “in a just and equitable manner.”
On March 8, the N.C. Supreme Court published a ruling that overturned steep taxes on the sweepstakes businesses in Lumberton, calling the taxes unjustly high.
Lumberton’s situation was similar to Fayetteville’s. City leaders had boosted a $12.50 annual privilege license fee to $5,000 per location, plus $2,500 per machine.
In the Fayetteville case, the Supreme Court this month told the Court of Appeals to review the lawsuit in light of the Lumberton ruling. It’s not clear when the lower court will revisit the case.
Lawyer Lonnie Player Jr., who represents the gambling business owners in Fayetteville, wouldn’t say he expects to win based on the Lumberton ruling, but he noted the similarity of the taxes levied.
Fayetteville City Attorney Karen McDonald, while acknowledging the similar tax rates, said she thinks the city can persuade the Court of Appeals to rule in its favor.
The Supreme Court in the Lumberton ruling specified that each tax must be reviewed on a case-by-case basis, McDonald said, and Fayetteville has evidence to justify its tax.
For example, former Police Chief Tom Bergamine said in an affidavit in 2011 that the video sweepstakes businesses generate “significantly more calls for service than are generated by other types of businesses in the city,” and as a result, “they burden law enforcement resources more than other types of businesses do.”
The businesses drew armed robberies and other property crimes, Bergamine said in the affidavit.
“Because Fayetteville has explained and substantiated its high tax on Internet cafes, Fayetteville’s privilege license tax has a higher chance of being upheld,” McDonald said.