A court ruling will see a number of businesses in Sampson County, and the jobs and tax money they bring with them, eliminated while leaving towns to find extra funds in next year’s budgets to cover the lost privilege license fee revenue — at least as it stands now.
Sweepstakes halls across North Carolina will be out of business at least temporarily, after the state’s highest court earlier this month upheld a law banning the video games run by businesses that often mimic small, electronic casinos.
That ruling, if it remains, will mean around $70,000 would have to be made up in Clinton alone. That is more than a penny on the tax rate. Other towns in Sampson would be in the same boat.
Several municipalities have regulated the gaming establishments and charged license fees for their operation for years now. Just a couple months ago, the Sampson County Board of Commissioners also amended the zoning ordinance to include electronic gaming as a special use, opening the county to the operations with no privilege license fee attached, because fees have been allowed only in incorporated towns and cities.
The court ruling renders all that moot.
The state Supreme Court ruled in two cases in which amusement machine and other companies sought to overturn a 2010 law banning sweepstakes machines as a form of gambling. Sweepstakes halls have cropped up because of what justices called a loophole since the state outlawed video poker machines in 2007.
The General Assembly determined that businesses that converted from offering video poker gaming to video sweepstakes were using “a mere pretext for the conduct of a de facto gambling scheme,” Justice Robin Hudson wrote for the court.
James Clark, manager at Sandhills Business Center at 60 E. Front St. in Garland, said he was told not to comment about the developing situation, but could not help questioning the action.
“I know people are upset about it,” said Clark.
He said the business gives a great deal back to the community and said sweepstakes operations like it have been given bad names. Clark said there are many positives.
“It’s not all bad,” Clark said. “I just don’t understand. They did it so quick, we didn’t have any time to go up there and protest or anything.”
There are a total of 10 full-time and part-time employees at Sandhills Business in Garland, which has been in operation for four years, Clark said. In that time, the business has become a quality taxpayer.
“We deal with the town and the town likes us,” he said. “I helped support the (town’s Rotary Day) parade. We were in the parade. We pay the town a whole lot of money. We give back to the public.”
Amusement machine companies, a software developer, and firms that market long-distance phone and Internet services argued in court there’s no gambling because prizewinners are predetermined. They also argued that the video gaming enjoyed free-speech protections under a U.S. Supreme Court ruling last year just like books and films.
The court ruled the state law regulates the conduct of playing the sweepstakes games, which opponents say feed the same gambling addictions as traditional video poker machines. Sweepstakes parlor patrons buy Internet or phone time that gives them the opportunity to uncover potential cash and prizes with mouse clicks on a computer screen.
Operators and the developers “will have to go back to the drawing board to see how they can run a legal business under the law,” said Brad Crone, a spokesman for the Internet Based Sweepstakes Operators.
Clark said the owners of his business were looking at ways to keep open.
“I think we’re going to put in new software,” said Clark. “We’ve got to do something.”
Shawn Purvis, assistant city manager and finance director for the City of Clinton, said the city will have tough choices to make with the loss of privilege license fees on gaming terminals.
“It won’t really affect this year,” Purvis said. “The way the privilege licenses work, there’s no pro-rata share so once you pay (before February), it’s for the whole year. When it will affect us is next budget year. If it’s not appealed or overturned, we could potentially lose $70,000, which is a pretty big chunk for us. That is a pretty significant budget impact.”
Currently, one penny on the tax rate is equal to approximately $65,000. The money taken in with the license fees have helped alleviate the mounting pressure on the budget.
“It helps offset taxes when you have other resources,” said Purvis.
Lawmakers have been trying for more than a decade to eliminate video gambling machines and sweepstakes, saying the games can’t be regulated, are addictive to players who lose hard-earned money, and lead to crime and family strife.
State lawmakers this summer tried but failed to agree on legislation that would have regulated and taxed video sweepstakes operations. The bipartisan proposal would have allowed the state to assess privilege taxes on sweepstakes establishments and terminals.
Cities already have the taxing authority.
Over the last couple years, annual privilege license fees for electronic gaming — there are such fees, often nominal, attached to every person or company conducting a business activity, trade, service or profession — have become one of the highest assessed by some local governments as the state has given discretion to municipal boards as to how and what they will charge.
About two years ago, Clinton set a fee of $1,000 per machine. Earlier this year, Garland upped its fee of $200 per gaming terminal to $500, and received a revenue boost as a result. Around the same time, a vote in Roseboro to up theirs to $1,000 per machine deadlocked, so the fee has stayed at $750 per terminal.
In total, the city is expected to generate $105,000 from privilege license fees in 2012-13, the majority of which comes from fees on electronic gaming, which brings in $74,000 a year annually.
“There has been a push to regulate them, and local governments were kind of able to do that,” said Purvis. “There may be that push when the Legislature gets in, but not being in the Legislature, who knows what they will do. It will be something we will have to monitor and look out for when we get into our budget preparations.”
Clark said Sandhills Business is very much a part of the community and not a cause of family strife and other things.
“It’s ridiculous,” said Clark, who noted the positive relationships built with members of the local community. One mother came into the establishment and Clark gave her a free dollar to play a game. She was down to her last 10 cents when she won $500, he said.
“We were excited about it,” he said. “I could tell you a thousand stories. There’s a lot of good stuff.”
That mother was receiving funding from the state when it was cut off. Now, he pointed out, “the state wants to cut us out.”
The city of Clinton will be awaiting word from the state’s Attorney General’s Office as to how it proceeds. That word, and a course of action, will likely come through the channels from the N.C. League of Municipalities or the School of Government.
“There are always some gray areas that kind of need to be interpreted,” said Purvis. “This week is kind of a lull, but next week we expect it will be busy.”
He said the city would be monitoring any further action, and any possible appeals to the Supreme Court.
“If the court ruling holds up and they are deemed illegal, it will be a legal issue at that point,” he said. “It will be up to our law enforcement to deal with those businesses.”
Neil Hoover, president of H&L Enterprises, whose Clinton location is one of the largest such businesses offering electronic gaming in Sampson, said he could not say much. He did say that H&L would do everything it could to remain open.
“I really can’t make any comment right now,” said Hoover, “Whatever we do, we will be in compliance with what the state’s laws are.”
In the past, Hoover has talked about the misconceptions about so-called “sweepstakes” businesses contributing to crime or enable irresponsible gambling. That is simply not true, he said.
Sweepstakes offered by H&L and its other International Internet Technologies (IIT) partners are promotional games with no purchase necessary, simply a way to market services. Hoover has compared the sweepstakes to that of any other business, such as fast food games, where winners are revealed with the pull of a sticker from a drink cup.
“We’re a retail business that offers products and services,” he said.
Currently, IIT operations employ 1,500 people across the state. Banning such ventures, he has noted before, would only translate into lost revenue, jobs and livelihoods.
Purvis said it would also mean scrounging for money to balance the budget.
“I’m not one who gets into the politics of it,” said Purvis, “but strictly from a budget standpoint, it’s definitely helped.”
The Associated Press contributed to this story. Chris Berendt can be reached at 910-592-8137 ext. 121 or via email at firstname.lastname@example.org.