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News State / Region Franklin increases taxation on sweepstakes

North Carolina Courts rule sweepstakes ban as unlawful

After a three judge panel on the NC Court of Appeals voted 2-1 to throw out North Carolina’s law banning video sweepstakes machines on March 5, saying the ban intruded on free speech rights of machine operators, Franklin’s Board of Alderman agreed to impose higher fees on sweepstakes machines operating within their jurisdiction. Town officials voted to increase their fee to local sweepstakes machines at their regular scheduled meeting in March. The town should get a significant amount of revenue from the policy move.

The debate over allowing sweepstakes machines in North Carolina has been an ongoing one, dating back several years. The debate will continue this year, as North Carolina’s Attorney General Roy Cooper said his office is appealing the recent Court of Appeals’ decision to lift the ban, which will push the final decision to the state Supreme Court.

The appeals court’s decision comes after the court heard arguments from both sides on the issue last fall. Gaming industry representatives believe the previous ban violated free speech rights and criminalized “arcade-style” video games. They argued that the sweepstakes machines are simply entertainment. Proponents of the 2010 ban say the video games are just another form of gamblingwhich is something the General Assembly did away with in 2007 by banning video poker machines; the state lottery may have had something to do with that particular decision.

“The General Assembly cannot, under the guise of regulating sweepstakes, categorically forbid sweepstakes operators from conveying the results of otherwise legal sweepstakes in a constitutionally protected manner,” said Judge Ann Marie Calabria while writing for the majority on the appeals court. She was joined by Judge Linda McGee. The court threw out the entire 2010 sweepstakes law.

Judge Robert Hunter was the dissenting vote on the panel. Judge Hunter said that under the 2010 law, plaintiffs were still “free to allow anyone to play their video games so long as the video games are not used to conduct or promote sweepstakes.”

In any effect, the issue over sweepstakes gambling will continue this year as the highest court in the state will have their say on the lower court’s ruling.

Consequently, counties and municipalities throughout the state could reap the benefits following the appeals court ruling. Residents who own sweepstakes machines will now have to pay more to operate their games in the town of Franklin. Town Manager Sam Greenwood told board members that local sweepstakes machines are likely to stay, and noted that the General Assembly may take a closer look at taxing gambling revenue instead.

Mardi Gras Sweepstakes on 441 South in Otto, NC is one of many businesses that can be affected by the Supreme Court’s decision. Although not within Franklin’s Town Limits, so their fees are not affected by the Alderman’s decision, Mardi Gras faces an uphill battle over the next few months to stay in business.The Board of Alderman voted unanimously to add a $1,000 fee to operate each sweepstakes machine, which machine owners will have to pay along with a $2,600 licensing fee to keep their sweepstakes privileges. Franklin recently received an application from a potential sweepstakes location that would run 25 machines, illustrating how lucrative this revenue strategy can be for a municipality during a time of substantial cutbacks.

Greenwood said that sweepstakes machines exploded throughout the town after operators discovered a loophole in the sweepstakes ban the General Assembly passed in 2010, a law the appeals court later overturned. Excluding the town’s recent application from a potential sweepstakes operator, the path on U.S. 441 to Franklin’s city limits has seen a gradual uptick in sweepstakes machines. Franklin has five operating within their borders, and three more businesses in Macon County use sweepstakes machines to lure customers as well.

The Supreme Court’s decision will ultimately determine whether or not operators can keep their machines running as is, and could determine whether or not the state can regulate the machines at all.


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