Split-Decision Leaves N.C. Lottery in Place

Special Report - March 20, 2009
In a three-to-three split decision filed today, the North Carolina Supreme Court allowed the State Lottery to continue to operate in North Carolina. Justice Mark Martin, a potential tie-breaking vote, recused himself and did not participate in the opinion. The court’s action brings an end to a three-year legal battle challenging the controversial manner in which the North Carolina General Assembly enacted the lottery in 2005.

Plaintiffs in the case, including the North Carolina Family Policy Council, argued that the Lottery Act constitutes a tax and should have received greater scrutiny by the General Assembly. The North Carolina Constitution requires that “revenue bills” receive two separate votes on two separate days in both chambers of the legislature, and that those votes must be recorded in the House and Senate Journals. Neither party to the action disputed the fact that the House and Senate took both required votes on the lottery on the same day and that the second vote was conducted by voice, and therefore, the “ayes” and “nays” on the “third reading” were not recorded in the respective chambers’ Journals.

What was contested, however, is whether or not the lottery represents a tax. Typically, when a state collects money from its citizens and uses those funds to pay for a broad public purpose not directly related to the collection of the money, it is considered a tax. For example, when the state collects money in relation to the purchase of goods and then uses those dollars to fund a variety of public programs and services unrelated to the collection of those funds, we call it sales tax. If the state, however, implements toll roads and the tolls that are collected from those who travel upon it are used to build and maintain the toll road, that is considered a fee and not a tax.

Approximately one-third of every dollar spent on the lottery is earmarked to fund education programs and services in North Carolina. The lottery has absolutely nothing to do with education. Those who purchase lottery tickets may never participate directly in the public school system, while those who never play the lottery may send their children to public schools that are funded in part by the lottery. In short, the 30 percent of every lottery ticket that is directed to public education is an embedded tax collected by the state for a broad public purpose.

The state based much of its argument on the notion that the purchase of a lottery ticket is voluntary and thus the lottery is not a tax. This is false reasoning. While the purchase of a lottery ticket may be voluntary, the payment of the tax is not. The same is true with consumer goods, cigarettes, gas, alcohol, etc. We all have the choice of whether or not to purchase these goods, but if we do, we have no choice but to pay the tax. In the case of the lottery, the tax is simply imbedded in the cost of the lottery ticket. 

“We are extremely disappointed with this decision,” replied Tami Fitzgerald, staff attorney with the North Carolina Family Policy Council. “To lose this case on a tie vote is especially disheartening, because at least half of the voting members of the court agreed with the merits of the case. Nonetheless, we continue to believe that the lottery is a tax, and the shenanigans employed by the General Assembly to pass it were unconstitutional and not in the best interest of the citizens of North Carolina.”

Copyright © 2009. North Carolina Family Policy Council. All rights reserved.