Perdue calls for sweepstakes tax for schools

Gov. Beverly Perdue called Thursday for North Carolina to regulate and tax online sweepstakes games to generate money for public schools.

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RALEIGH, N.C. — Gov. Beverly Perdue called Thursday for North Carolina to regulate and tax online sweepstakes games to generate money for public schools.

Lawmakers have tried for years to rid the state of sweepstakes cafés, which allow people to buy Internet or phone time to play video-style games in search of potential prizes, but the North Carolina Court of Appeals ruled in March that a 2010 law outlawing the industry was unconstitutional.

Perdue said that decision, which has been appealed to the state Supreme Court, and the lack of movement in the legislature on her push for a temporary 0.75-cent sales tax increase to help offset cuts to education spending has made her desperate enough to embrace sweepstakes cafés as a source of revenue.

"I don't like sweepstakes. Everybody knows that," she said in a hastily called news conference. "There are thousands and thousands and thousands of these machines all over the state of North Carolina. ... As long as they're here and until we can outlaw them – until somehow the courts allow them to be outlawed forever – we need to tax the heck out of them and regulate them."

A 2010 study by the North Carolina Education Lottery estimated that the state could net $350 million the first year and $576 million by the fourth year by taxing the "video lottery terminals" in the cafés. The lottery has not pursued the authority needed to create those games. 

A separate legislative study suggested the state could net approximately $300 million per year from sweepstakes, a figure some in the industry say is too high. 

Some municipalities are already taxing the machines, Perdue noted.

The sweepstakes industry has urged state leaders for several years to tax and regulate the businesses instead of trying to ban them, and game operators quickly embraced Perdue's move.

“We are very pleased to have the governor announce her support for the regulation for the video sweepstakes industry across the state," Chase Brooks, president of the Internet Based Sweepstakes Organization, said in a statement. "This is a positive step forward, and we will work with her administration and the North Carolina General Assembly as this public policy issue proceeds through the legislature.”

Meanwhile, some lawmakers and a left-leaning think tank weren't as supportive of the plan.

"I think that's a ridiculous idea," said Sen. Tom Apodaca, R-Henderson. "Sweepstakes machines are a scourge."

Apodaca, who sponsored legislation to legalize table games at the casino in western North Carolina owned by the Eastern Band of the Cherokees, said sweepstakes parlors are impossible to regulate. Also, the state's hotline for problem gambling has seen a growing number of sweepstakes-related calls, he said.

Rep. Harold Brubaker, R-Randolph, the senior chairman of the House Appropriations Committee, said he would be open to Perdue's suggestion but only after the courts rule on whether North Carolina's current ban is constitutional.

Alexandra Sirota, director of the North Carolina Budget & Tax Center, called Perdue's idea "fiscally irresponsible."

"It is troubling that, once again, the governor has proposed a revenue option that will take a particularly heavy toll on low- and moderate-income communities – communities that are more likely to be marketed to by gaming companies," Sirota said in a statement.

Sen. Clark Jenkins, D-Edgecombe, said he doesn't see much difference between regulating sweepstakes games and operating a state lottery and allowing the Cherokee casino to expand.

"I think it's sort of like diving off a diving board – you're either in the pool, or you're not in the pool," Jenkins said. "We're already in the gaming business, so why not regulate it and let's get some revenue off of it?"

Rep. Bill Owens, D-Pasquotank, has filed a bill, along with two Republican co-sponsors, to legalize and tax the games. That bill goes further than Perdue's idea since she said she would ultimately like to outlaw the games.

"We need the revenue," Owens said.

Rep. Mark Hilton, R-Catawba, who opposed expanding the Cherokee casino, said that Perdue's proposal was just as problematic as Owens'.

"Once you start taking money from them, you give credence to it," Hilton said.

Yet, Rep. Stephen LaRoque, R-Lenoir, said there are already so many sweepstakes cafés operating in North Carolina that it only makes sense to regulate and tax them.

"The courts are ruling in their favor, and I think it's time to just, let's go ahead and legalize it, regulate it and tax it," LaRoque said. "They're willing to do that – the industry's supportive of that – and I think it's time to do it."

Under the budget proposal passed recently in the House, public schools would receive $7.69 billion for 2012-13. That is less than the what schools statewide had to work with in 2011-12, when many districts were forced to lay off teachers and cut back programs to make ends meet.

The Senate is expected to unveil is proposed spending plan next week.

“The number of children showing up at the schoolhouse door is increasing. The demands on teachers are growing, but legislators are cutting the funding for our schools,” Perdue said. “We need more revenue in order to rescue our schools, and so I’m calling on the General Assembly to consider this alternative.”


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