Lucrative licensing fees on sweepstakes machines may have been bad bet
Maggie Valley has become the latest town in North Carolina to face the threat of a lawsuit regarding licensing fees charged to sweepstakes parlor owners.
Last year, video gambling businesses continued to open across the state as battles over the legality of the sweepstakes machine worked their way through the court system. While they were still legal, proprietors opened shops full of sweepstakes machines or added machines to their existing business. Not wanting to miss out on the revenue potential, towns started charging any business with a video gambling machine a business license fee to operate in town limits.
The fees varied depending on the type of business, but for many stores with sweepstakes machines the fee was particularly high. It was not unheard of to pay thousands of dollars in fees for a one-year business license for each sweepstakes machine.
The video gambling machines were outlawed in North Carolina as of January, however, and now business owners who shelled out thousands to operate are coming back to the town and demanding their money back. Torry and Jo Pinter ran Vegas in the Valley in Maggie Valley for three months before the law shut them down. The Pinters paid $18,250 to the town in licensing fees in the fall of 2012 after working for months to get permission to open a sweepstakes parlor.
That doesn’t include the usual expenses incurred when starting up a new business. During the three months it was allowed to operate, the Pinters say Vegas in the Valley did not earn back what they invested.
“I’m still in the hole, way in the hole,” said Torry Pinter, who directed all other questions to his attorney, George Hyler of Asheville.
Hyler’s firm had previously been hired by sweepstakes companies to defend business owners who had been fined for operating illegal sweepstakes operations. Now, the companies are paying the Asheville law firm to go after towns to refund business license fees. While the sweepstakes parlor owners are listed as the clients, the sweepstakes companies are actually footing the legal bills.
“People are coming out of the woodwork to get them to try to help us with everything related to these sweepstakes machines,” said Steve Agan, the attorney at Hyler and Lopez who sent the letter to Maggie Valley on behalf of the Pinters.
The firm has mailed a similar letters to the town of Franklin, threatening to sue if the town doesn’t give Dowdle Mountain Pit Stop owner Mark Berry back the $13,000 he paid in business license fees. Earlier this year, Berry was found not guilt of operating an illegal sweepstakes operation after an expert witness testified that his video gambling machines required skill and dexterity to play, making them legal.
Hyler and Lopez also sent a letter to Highlands on behalf of Highlands Wine Cellar. The town quickly reimbursed the $13,000 that business owner had paid.
Because judges ruled in favor of sweepstakes parlor owners in similar court cases in the state, Highlands Town Manager Bob Frye said the town decided not to fight that legal battle.
“The fees we charged were probably too high,” Frye said.
The town of Maggie Valley is consulting with legal counsel at the N.C. League of Municipalities to get advice on how to proceed. As of Monday afternoon, the town board had not decided whether to refund the more than $18,000 or defend a potential lawsuit in court.
However, leaders in other towns have raised some questions about town’s obligation to reimburse the sweepstake business fees paid in a prior fiscal year. Waynesville Town Manager Marcy Onieal also pointed out that the town doesn’t return license fees to shop owners who go out of business for other reasons.
The threat of lawsuits over the license fees follows two court rulings in May and June. The N.C. Supreme Court ruled in May that Lumberton’s business license fees were unconstitutional. Not long after, the N.C. Court of Appeals ruled similarly on a case from Fayetteville.