The N.C. Supreme Court ruled 6-0 today that Lumberton’s privilege license tax on Internet sweepstakes operators “exceeds constitutional bounds.” The ruling reverses and remands an appellate decision upholding Lumberton’s tax.

Justice Mark Martin writes for the court (with citations omitted):

Limitations on the State‘s taxing power are necessary to protect the public from abusive tax policies. Even under the substantial deference given to legislative tax classifications at common law, our decisions acknowledged that the State could not use its taxing power to prohibit otherwise legal endeavors. Without question, this principle is even more warranted when the State has been constitutionally charged with ?the duty to tax in a just and equitable manner. Taxation often involves the weighing of social policies and the determination of the respective values to be assigned various conflicting but legitimate business enterprises; under the doctrine of the separation of powers such functions have traditionally been allocated largely to the determination of the legislative branch of government.

While these competing considerations might be difficult to reconcile in nuanced cases, the case at bar is hardly nuanced. Here, the City‘s 59,900% minimum tax increase is wholly detached from the moorings of anything reasonably resembling a just and equitable tax. If the Just and Equitable Tax Clause has any substantive force, as we hold it does, it surely renders the present tax invalid. In light of the unusual facts we confront in the present case, and cognizant of the nearly universal deference by courts to legislative tax classifications, we do not attempt to define the full parameters of the Just and Equitable Tax Clause‘s limitations on the legislative taxing power. Rather, we conclude the companies here have shown that the present tax—representing a 59,900% minimum tax increase upon conduct viewed as putatively lawful at the time of the assessment— transgressed the boundaries of permissible taxation and constituted an abuse of the City‘s tax-levying discretion. We therefore hold the City of Lumberton‘s privilege tax at issue constitutes an unconstitutional tax as a matter of law and the trial court erred in granting summary judgment for the City. Accordingly, we reverse the decision of the Court of Appeals.

Learn more about this case from Dan Way’s August 2012 report.