220 N.C. App. 249
N.C. Ct. App.2012Background
- Plaintiffs sell internet time blocks with sweepstakes entries in Fayetteville; some computers connect to internet for games of chance with prizes.
- City enacted a privilege license tax in 2010 on electronic gaming operations: $2,000 per location and $2,500 per computer terminal.
- Tax applies to businesses offering electronic sweepstakes/games of chance; City argues it funds increased policing and regulation.
- Plaintiffs sought declaratory judgment to enjoin enforcement; a temporary injunction relieved them from paying 2010-2011 tax.
- Trial court granted City summary judgment; on appeal, court addresses whether tax is lawful, uniform, preempted, or just and equitable; remands for trial for three Plaintiffs on the just and equitable issue.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the ordinance enforceable under classifications and exemptions? | Smith/others argue unlawful classification and exemption. | City asserts valid exercise of privilege license tax authority. | No reversible error on classification/exemption. |
| Does the tax violate the rule of uniformity or federal preemption? | Tax is misapplied and preempted by federal law. | Tax is uniform and within municipal powers; no preemption. | Affirmed for the City on uniformity and preemption. |
| Is the tax | Some plaintiffs show prohibitory effect; others do not. | Presumption that tax is reasonable and not prohibitory. | As to Marion, Tran, Triumph Entertainment et al., tax not proven prohibitory; affirmed in part; reversed with remand for Smith, Marion, Crafty Corner on just-and-equitable issue. |
| Is the tax just and equitable under the North Carolina Constitution? | Specific plaintiffs provide evidence of prohibitory effect and timing issues. | Presumption of reasonableness; lack of proof of prohibitory effect for most. | Genuine issue of material fact for Smith, Marion, Crafty Corner; remand for trial. |
Key Cases Cited
- Nesbitt v. Gill, 227 N.C. 174 (1947) (common-law standard for just and equitable taxation; prohibition on excessive taxes)
- Dannenberg, 151 N.C. 718 (1909) (unreasonable tax standard; determine legality and authority first)
- Razook, 179 N.C. 708 (1920) (presumption of reasonableness; proof required to rebut prohibition)
- Clark v. Maxwell, 197 N.C. 604 (1929) (taxes may vary by profitability; reasonableness of license tax)
- E.B. Ficklen Tobacco Co. v. Maxwell, 214 N.C. 367 (1938) (purpose of license taxes to regulate and fund enforcement)
- Forbis v. Neal, 361 N.C. 519 (2007) (standard of review for de novo summary judgment; facts construed against movant)