News from the Tax Foundation’s Center for Legal Reform
On May 19 the Tax Foundation filed a friend-of-the-court brief with the North Carolina Supreme Court in Heatherly v. State, urging the court to reverse a lower court ruling and hold that the North Carolina Education Lottery generates tax revenue, not “profits.” Thirty-five percent of lottery revenues is dedicated to general state spending, equivalent to a 35-percent tax on the sale of each lottery ticket. If that revenue is found to be a tax under the meaning of North Carolina law, then the lottery’s enactment in 2005 did not meet the basic state constitutional requirements for enacting tax law.
The Tax Foundation has long asserted that lottery revenue should be called tax revenue and that state lawmakers should never raise lottery revenue and simultaneously claim they “haven’t raised taxes.”
Also on May 19, the U.S. Supreme Court upheld 7-2 Kentucky’s discriminatory practice of taxing interest on non-Kentucky bonds, but not Kentucky bonds, as constitutional. The Tax Foundation had submitted a brief urging that the law be found unconstitutional as violating the Commerce Clause and other provisions of the Constitution. The brief also highlighted Tax Foundation research that federal and state municipal bond exclusions help high-tax states avoid tax competition.
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