North Carolina Lottery: N.C. Lottery in court
According to N.C. constitution, games are a tax, former justice says
Just 10 days before the first scratch-off tickets go on sale in North Carolina, lawyers argued yesterday about whether legislators followed proper procedure when they adopted a state lottery last year, and they asked a judge to block the lottery's start March 30.
Ultimately, the decision could come down to whether the lottery is considered a tax.
Lottery opponents from both the left and the right filed suit last year about the way legislators approved the lottery.
When the House approved the lottery by a 61-59 vote in April and when the Senate approved it by a 25-24 vote in August, House Speaker Jim Black and Lt. Gov. Beverly Perdue immediately called for a final vote moments after the initial one to seal the lottery's approval.
Robert Orr, a former justice on the N.C. Supreme Court who heads the N.C. Institute for Constitutional Law, told Judge Henry Hight in Wake Superior Court yesterday that legislative leaders ignored a provision on "Revenue bills" that has been part of the state constitution since 1868 to prevent hasty decisions on money matters.
"No law shall be enacted to raise money on the credit of the State, or to pledge the faith of the State directly or indirectly for the payment of any debt, or to impose any tax upon the people ... unless the bill for the purpose shall have been read three several times in each house of the General Assembly and passed three several readings, which readings shall have been on three different days," says Article II, Section 23 of the constitution.
Orr argued that because 35 percent of the proceeds from the lottery must go to government education programs, that 35 percent is a tax and the lottery bill should have had a three-day vote.
"It's a revenue bill," he said. "We know from the Lottery Act that its express purpose was raising revenue for various educational programs."
"The very purpose of this act, the very purpose of that 35 percent provision, is to fund education," he said. "That's the very purpose of the legislation ... and we would submit that it constitutes a tax."
Norma Harrell, a special deputy attorney general, told Hight that the lottery is not a tax because play is voluntary.
"Your honor, there simply is no tax involved here," Harrell said. "You can buy a lottery ticket if you want. If you don't, you don't have to."
Harrell cited a textbook definition of a tax. "A tax is a forced contribution to government. No one is forced to contribute to government here," she said. "You don't have to buy a lottery ticket."
But Orr drew parallels with the state's sales tax.
"That's correct — you don't have to buy a lottery ticket. You don't have to buy a car. You don't have to buy a shirt at Belk. But if you choose to, you have to pay a tax," he said. With the lottery, "You have to pay that 35 percent."
Orr argued that the lottery also is subject to a three-day vote because it pledges the faith of the state.
"The state sells tickets — little tickets with pictures of lighthouses and cardinals on them. And money comes into the treasury," he said. "The state is going to make sure that those winners are paid."
Orr said that the debate is not about the lottery itself but about whether legislators followed the correct procedure in adopting it. He told Hight that legislators could return for a special session to approve a lottery if he rules that they didn't do it properly last year.
"Then if it's the will of the officials of this state to enact a lottery act, then so be it," he said.
"Who knows how that would play out?" Orr said after the hearing. "It's a realistic alternative. If you're looking at an appeal, it could be six months or a year.... If you're looking for a quick answer, that's the easiest way to do it."
Rep. Paul Stam, R-Wake, a plaintiff in the lawsuit who tried to object to a final vote on the lottery but says he was not recognized by Black, said he doubts that a lottery could pass the House again now, after months of controversy over appointments to the N.C. Lottery Commission.
"I think it would be defeated. I've spoken to House members who voted for it who said they would not vote for it this time (in the event of a special session). More than one," Stam said. "That's because of all the sleaze that came out. They would be embarrassed to be associated with it."
One member appointed by Black to the lottery commission, Kevin Geddings, resigned after lottery operator Scientific Games disclosed that it paid Geddings' advertising agency in Charlotte $24,500 in consulting fees last year.
With lottery officials preparing for start-up March 30 and terminals already installed at more than 4,000 convenience stores and other outlets around the state, Hight said he will issue a ruling this week.
Orr said he would expect either side to appeal.
Though the state could ask for a stay of a ruling from the judge, if Hight rules that the lottery was improperly approved, "The state has no authority to do any of the things that they're doing," Orr said.
Tom Shaheen, the lottery's executive director, sat in the audience listening to the court arguments and said that lottery officials plan to proceed.
"He's going to rule by the end of the week," he said. "We're just going to move forward until we're told differently."