Kentucky Can Seize Gambling Web Sites: Court

Published December 1, 2008

A Kentucky judge has ruled the state has the power to seize online gambling domain names and prohibit Kentuckians from accessing the Web sites, in order to protect tax revenue generated from the state’s sanctioned, real-world gambling operations.

Judge Thomas Wingate of Kentucky’s Franklin County Circuit Court issued the ruling in October, upholding Gov. Steve Beshear’s (D) seizure of 141 online gaming domain names. An appeal is expected in what has become one of the most significant cases of Internet censorship and government regulation of online commerce in recent history.

Opponents of the seizure argue government censorship of the Internet is bad policy and sets a dangerous precedent that reaches far beyond gambling. They also say the state does not have jurisdiction to seize Web sites that are not based in the Bluegrass State.

“This seizure is about much more than gambling. It threatens all Internet commerce and free speech worldwide,” said Michael Collins, executive director of the Internet Commerce Association.

‘Ill-Conceived, Unconstitutional’

Grover Norquist, president of Americans for Tax Reform, called the case an egregious misallocation of scarce state resources.

“Kentucky has one of the worst business tax climates in the country,” Norquist noted, “meaning that the Bluegrass State is one of the least-favorable locations for employers and entrepreneurs to invest, start businesses, and create jobs.

“Rather than implement policies that will make the state more attractive to employers and economically competitive,” Norquist continued, “Gov. Beshear has instead decided to squander taxpayer dollars and state resources on this ill-conceived and unconstitutional seizure.

“Kentucky taxpayers and those who value an Internet free of government interference should be outraged at the Commonwealth’s exercise in nanny-statism at its worst,” Norquist added.

Derek Hunter, executive director of the Media Freedom Project, agrees. “The Internet has survived and thrived because the government has thus far been forced to keep its hands off of it,” he said. “It is the last, best example of a truly free market left in this country.

“If states assert the power to block and seize one type of Web site, for whatever reason—and, God forbid they are successful—do you really believe they will stop there?” Hunter added.

‘Gambling Freedom Away’

The Bowling Green, Kentucky-based Bluegrass Institute, a free-market think tank, also strongly opposes the domain-name seizure.

“We’d better not gamble our freedom away by allowing the government to choose what Web sites we access—even for activities some find objectionable but don’t harm others,” said Jim Waters, director of policy and communications for the Bluegrass Institute.

Waters attributed the governor’s unprecedented order in part to politicians’ desire to funnel as much money as possible into state coffers. Waters said Beshear and other state officials supporting the seizure simply want “to trample on individual liberties in order to satisfy their spending addictions.”

The state’s move apparently did not stem from any antipathy for wagering. Gambling is already permitted at Kentucky’s horse tracks and bingo halls. Experts say the state could have taken a lighter touch and merely imposed regulations on the gaming Web sites.

“If the governor is truly concerned about the potential loss of state revenue from Internet poker, he should be seeking to regulate it, not ban it,” said John Pappas, executive director of the Poker Players Alliance, a nonprofit membership organization representing the more-than-13,000 Kentuckians who play poker online.

‘Drastic, Reckless Action’

Ed Leyden, president of the Interactive Media Entertainment and Gaming Association, pointed to retroactive tax collection as the governor’s ultimate goal.

“The Commonwealth is engaging in a tax seizure without even bothering to attempt to prove whether it is owed any tax at all,” Leyden said. “The danger of such a precedent, both for electronic commerce and for the general economy, cannot be overstated. All Americans, whatever their political affiliations, who agree with the principle that tax enforcement must be fair, equitable, and consistent should be shocked and appalled by this drastic and reckless action in Kentucky.”

Patrick Gleason ([email protected]) is state affairs manager for Americans for Tax Reform in Washington, DC.