Kentucky Can’t Seize Gambling Sites, Court Rules

Published June 1, 2009

The fate of online gambling in Kentucky comes to a head in June, when the state supreme court is scheduled to rule whether Gov. Steve Beshear’s (D) seizure of 141 online gambling Web sites last October is constitutional.

Experts predict the state’s high court will affirm a Kentucky Court of Appeals ruling in January striking down the seizure.

“This [would be] a tremendous victory for Internet freedom and the rights of Kentucky residents who enjoy playing online poker,” said John Pappas, executive director of the Poker Players Alliance.

Several civil liberties organizations—including the Electronic Frontier Foundation and the American Civil Liberties Union—filed friend-of-the-court briefs in April arguing Beshear’s action violates the First Amendment, the Commerce Clause, and due process rights in the U.S. Constitution.

Waste of Public Funds
“[Kentucky’s appeal to the state supreme court] is a monumental waste of taxpayer dollars and already thinly stretched state resources,” said Grover Norquist, president of Americans for Tax Reform in Washington, DC. “Making matters worse is the fact that the governor’s actions are in all likelihood unconstitutional.”

“Kentucky residents should be outraged that the commonwealth is investing another minute of time and another dollar of scarce resources on this quixotic case,” Pappas added.

Threat to Liberty
Jim Waters, director of policy and communication for the Bluegrass Institute, a Bowling Green, Kentucky-based think tank, sees the governor’s seizure of the gambling Web sites as a serious threat to liberty and laden with hypocrisy. State-sanctioned gambling takes place in Kentucky through the lottery and at horse tracks around the state.

Among the more common theories regarding Beshear’s move is that he is “trying to reduce competition facing horse racing and the lottery,” said Rich Muny, Kentucky state director for the poker alliance.

Revenue Grab Expected

Ed Leyden, chairman of the American Bar Association’s Committee on Employment Taxation, says the state will attempt a tax revenue grab after the court’s decision, whatever the court decides. That notion is supported by rumblings about the state expanding legalized gambling and taxing it to help fill increasing budget deficits.

Leyden believes the state government also will try to impose taxes on online gambling and attempt to collect them retroactively from the gambling sites—which he characterizes as a legally suspect move that would bring another round of lawsuits.

“The commonwealth has ignored basic [legal] protections and 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.”

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