12/26/12 — Internet cafes remain open

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Internet cafes remain open

By Ty Johnson
Published in News on December 26, 2012 1:46 PM

Just days after the state's highest court ruled their businesses were illegal, Internet sweepstakes parlors are still packed with patrons as local government and law enforcement await their next move.

The state Supreme Court ruled earlier this month that such games constitute gambling and are therefore illegal.

The General Assembly had outlawed the businesses in 2010, but a Guilford County Superior Court judge ruled a subsection of the law was unconstitutional.

Enforcement of the ban was suspended following that ruling and the parlors have multiplied across Wayne County in the years that have followed.

Goldsboro Planning Director Randy Guthrie estimates that there are 14 Internet cafes in the city, with the City Council considering another such establishment and a public hearing for a possible 16th cafe scheduled for next month.

To capitalize on the growth, municipalities across the state have levied special taxes on the businesses, with Goldsboro charging an annual $2,500 licensing fee and an additional $500 per machine tax each year.

That tax went into effect in June 2010, and in fiscal year 2011-12 seven establishments paid $80,000 in taxes.

This year, with twice as many Internet cafes, the city has collected $15,000 in license taxes and $91,000 in machine taxes.

The town of Mount Olive's budget has benefited as well.

As such, don't expect the Mount Olive Town Board to scuttle its plans to possibly regulate video sweepstakes parlors when it meets next month, said Town Manager Charles Brown.

"It will still be on the (Jan. 7) agenda, and the reason being that it is not the first time they have been ruled illegal, and it might not be the last," Brown said. "I think the board would still be wise to have something on the books.

"If they (parlors) ago away, they go away. But they have a lot of staying power."

If they do go away, Mount Olive's budget would take a hit. The town annually charges the parlors $500 per machine and $2,500 per storefront. Just this past year alone, the town received between $50,000 and $60,000 in revenue from the two parlors inside the town limits.

Other than the fees, Mount Olive currently does not regulate the parlors, and the ordinance that is being considered is a scaled-back version of the one originally recommended by its Planning Board.

Wayne County and the town of Pikeville also regulate the cafes' locations and operations. However, Pikeville commissioners decided not to require fees similar to what Goldsboro and Mount Olive charge.

Unlike municipalities, the county lacks the statutory power to charge per machine or to require a privilege license.

The county rules approved in September do not apply to any of the businesses located inside a municipality.

Goldsboro Police Chief Jeff Stewart said the Wayne County Sheriff's Office would be handling the enforcement of the ban, while Sheriff's Office Maj. Daryll Overton said there have not been any directives given yet about what steps are to be taken.

Guthrie said, from a planning perspective, the approach will be to wait and see.

There's a chance that an injunction by the courts or changes within the gaming establishment's software could allow the businesses to continue to operate.

"We suspect that the gaming industry will probably try to tweak how they operate to fall within legal conformance," he said. "It's still an evolving situation. It's very new and they've changed and adjusted how they've operated in the past, so I think we can anticipate some adjustments. That's what I suspect will happen."

The ambiguity of the games themselves is what brought about the questioning of the state law in the first place, as representatives of the gaming industry sought to prove the cafes weren't gambling operations, but "sweepstakes" which patrons were welcome to use as they browsed the Internet.

Officials with the industry insisted the winners were predetermined, just as they are with sweepstakes giveaways attached to fast food promotions and such. Consumers were paying for the Internet time, just as they would purchase a hamburger, and the games, typically with displays that mimic slot machines, were accessories to that purchase.

Proponents also sought to keep the businesses going by invoking recent judicial decisions granting video games free speech protection, but the unanimous state Supreme Court decision said the industry had attempted to "skillfully disguise conduct with a facade of speech to gain First Amendment protection," in a reference to a 1915 decision by the same court stating that the court should "look to the substance and not to the form of it."

That decision, penned by N.C. Supreme Court Justice Platt Walker, characterized the lure of "getting something for nothing, or a great deal for a very little outlay," as wrong and demoralizing.

That decision, nearly a century later, served to slam the door on the Internet cafe industry, although law enforcement officials are still holding off on enforcing the ban.

Indeed, an employee at Cyber Connect at the intersection of New Hope Road and North Berkeley Boulevard said it would be business as usual until the businesses received explicit direction and it seems that's the case with law enforcement, as well.

Staff writer John Joyce contributed to this report.