Internet Cafes Topple N.C. Town’s 59,000% Tax

(CN) - A North Carolina town is not allowed to hike taxes for Internet cafes by a whopping 59,900 percent, the state Supreme Court ruled.

Businesses that run promotional sweepstakes in Lumberton, N.C., once paid a privilege license tax of $12.50 per year, but the town hiked that amount in 2010 to $7,500 - a figure combining a $5,000 charge per location plus $2,500 per computer terminal.

The town's next highest tax, covering privilege uses, is $500 for "circuses, menageries, Wild West and dog and pony shows."

IMT Inc. dba The Internet Business Center led three other businesses in a lawsuit to declare the tax unconstitutional, while the city countered with lawsuits to collect on the taxes.

Though the Robeson County Superior Court and a divided panel of the North Carolina Court of Appeals ruled for the city, the North Carolina Supreme Court reversed on March 8.

"Because the Just and Equitable Clause (of the state constitution) is a substantive constitutional protection against abuse of the taxing power, we hold that the city of Lumberton's tax increase of at least 59,900 percent exceeds constitutional bounds," Justice Mark Martin wrote for the court.

"Here, the city's 59,900 percent minimum tax increase is wholly detached from the moorings of anything resembling a just an equitable tax," he added.

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