LUMBERTON — The city of Lumberton is arguing that the judiciary doesn’t have the authority to review legislative branch decisions for setting business privilege tax rates in a lawsuit before the state Supreme Court,

Four gaming establishments in the city — The Internet Business Center, G&M Co., Sweep-Net Internet Business Center and EZ Access of North Carolina — have filed suit against the city, saying that the city’s privilege license taxes are too high and unconstitutional and are meant to drive them out of business.

They argue that the high rates violate the Just and Equitable Tax Clause of the state constitution.

In 2010, the city raised its privilege license tax from a flat rate of $12.50 to $5,000 per business plus an additional $2,500 per gaming or computer terminal.

Adam Charnes, an attorney with the Winston-Salem firm Kilpatrick Townsend that is representing the businesses, wrote in a brief that this resulted in a tax increase of between 6,000 percent and 11,000 percent in a single year for affected businesses.

Attorneys for the businesses say that if the Supreme Court upholds the Court of Appeals ruling in the case, it will create unchecked legal framework for state and local governments to abuse their taxing authority.

“If the tax survives the challenge, it will really give government a new tool to regulate businesses that they don’t like,” Charnes told the Carolina Journal.

The business owners and the city filed for summary judgment in Robeson County Superior Court. The city won, and the Court of Appeals sided 2-1 with the city. The Supreme Court will hear the case in the fall and make a ruling early next year.

According to a brief, the city says that the Court of Appeals was correct in its decision because the Just and Equitable Tax Clause never intended to create judicial review of tax rates. The sweepstakes owners, though, contend that the trial court erred in its decision based on the law, and that the license taxes are in violation of the tax clause.

They argue that the clause, which was adopted as an amendment to the state constitution in 1936, was intended to provide “adequate protection against oppression and abuse.” In the brief, the city argues that the amendment’s purpose was to “validate the state’s existing tax scheme and strengthen it against possible attacks.”

The brief also states that the business owners failed to provide substantial evidence to support their claims.

City Attorney James Bryan could not comment on pending litigation.

If the decision is upheld again, the city could receive about $225,000 in taxes and penalties from the businesses.

“One Appellant, IME Inc., alleged the possibility of bankruptcy or foreclosure due to the tax, but provides no forecast of substantial evidence to support such a claim,” the brief states. “Further, a bankruptcy proceeding may merely result in a reorganization that would allow continuation of business.”

City Attorney James Bryan could not comment on pending litigation.

If the decision is upheld again, the city could receive about $225,000 in taxes and penalties from the businesses.