Judge Upholds Lottery

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Judge Upholds Lottery

Special Report - March 21, 2006
Judge Henry Hight wasted no time in issuing his ruling (download pdf) on the Lottery lawsuit after hearing oral arguments on the merits of the case yesterday. He issued a ruling this morning in favor of the State on almost all counts.

On procedural issues, Judge Hight ruled that the individual plaintiffs had standing to bring the case either as citizens or as taxpayers. However, he ruled that the corporate plaintiffs, including the North Carolina Family Policy Council, failed to allege special conditions which would allow them to bring the case and he therefore dismissed them for lack of standing. He also ruled that the Plaintiffs’ claims were not barred by the doctrines of laches or sovereign immunity, two defenses that the State had raised in order to have the case dismissed without reaching the merits.

On the merits of Plaintiffs’ arguments, Judge Hight ruled that the Lottery Act was not subject to the requirements of Article II, Section 23 of the N.C. Constitution, and that the General Assembly did not violate that provision when it passed the Lottery Act by holding the two required votes on the same day and without recording the yeas and nays on the second vote. Specifically, the Judge found that the Lottery Act’s allocation of 35% net revenue to fund public education was not a tax, because there is a benefit conferred to the purchaser of a lottery ticket: the opportunity to win a prize. He also found that because purchase of a lottery ticket is voluntary, there is no forced contribution to government, which is required for a tax. Plaintiffs had argued that the 35% net revenue was a tax, because its purpose was to fund one of the general operations of state government—public education—which is totally unrelated to the cost of operating the lottery. Plaintiffs had also argued that even though the purchase of a lottery ticket is voluntary just like most other purchases, the payment of the tax is not, once the ticket is purchased.

Plaintiffs contended that the $10 million loaned to the Lottery Commission for start-up costs under the Lottery Act was not a lawful appropriation and violated Article V, Section 7 of the Constitution. However, Judge Hight rejected that argument, ruling that the $10 million loan was merely moved from the general fund in the State Treasury to the Lottery Fund in the State Treasury and does not result in drawing money from the State Treasury. Further, he ruled that the language of the Lottery Act was sufficient to constitute an appropriation by the General Assembly.

Plaintiffs in the case will likely appeal the decision to the N.C. Supreme Court. Without a stay of the Lottery Commission’s activities, it is free to continue its hurried up preparations for selling scratch-off tickets on March 30.

To learn more about this legal challenge to the lottery, download our policy paper, Lottery Lawsuit: Insuring the Integrity of the Legislative Process. And to read more about why the lottery constitutes a tax download our paper Is the Lottery a Tax? Generating Revenue through State-Sponsored Gambling.