Judges in the United States have apparently made up their minds that online wagering occurs on the computers of the players instead of the servers where the games originate. Last week, a U.S. district court judge decided that the case in which Missouri Attorney General Jay Nixon is trying to prevent an online lottery based in Idaho from accepting bets from customers in Missouri will be heard in a Missouri court.
The debate over applying laws to online gambling has hinged on whether the territory where the bets are taken or the territory where the bets are made has jurisdiction over wagering activity. According to Judge Howard Sachs, it's the latter.
The battle between Nixon and the Coeur d'Alene tribe of Idaho began in 1997 when Nixon demanded that they shut down their Internet lottery because it was illegal in Missouri. That same year, a federal judge ruled that the tribe holds immunity from Missouri because of sovereignty of Indian tribes.
In January 1999, however, a panel of the 8th U.S. Circuit Court of sent the case back to federal court to determine whether the Indian Gaming Regulatory Act protects online games from state regulation. "Once a tribe leaves its own lands, nothing in the IGRA suggests that Congress intended to preempt the state's historic right to regulate this controversial class of economic activities," wrote 8th Circuit Judge James Loken.
The outcome was Sachs's September 22 ruling that the case would be heard in a Missouri court. Thus, according to the courts, the operators of the Coeur d'Alene online lottery were within Missouri's jurisdiction even though they never set foot on Missouri soil.
A similar decision was made in July in New York when a Supreme Court judge ruled that offshore online casinos cannot legally accept bets from computers located in New York.
Both rulings could heavily influence the way the way U.S. laws are applied to cross-state Internet transactions in the future. According to Nilesh Shah, head of the KPMG E.Com Tax Practice, the New York ruling could open the door to the taxation of e-commerce by states. "In essence, the court held that the State of New York has jurisdiction in this matter because it deemed the virtual casino to reside within the user's computer terminal, and thus within the state itself," Shah said. "The same logic could be extended to the taxation of Internet commerce--that e-sellers reside in the states where users purchase their goods--and thus would make out-of-state sellers subject to state tax laws."
The rulings could also clear the way for attorneys general who wish to extend their authority beyond state borders. It's safe to say, however, that operators of online wagering sites in Europe, Africa, the Caribbean and Australia will be slightly out of their reach.
Nixon's office issued the following news release September 22:
Federal judge grants Nixon's motion to send Indian Internet gambling cases back to state courts
Kansas City, Mo. -- Attorney General Jay Nixon won another round in his battle against illegal Internet gambling on Tuesday when a federal judge in Kansas City agreed that the federal Indian Gaming Regulatory Act (IGRA) does not apply in two lawsuits Nixon filed to stop an Idaho tribe's website from offering online gambling to Missourians.
By granting Nixon's motion to send the cases back to state courts in Jackson and Madison counties, District Court Judge Howard Sachs sustained the state's argument that IGRA does not apply in the cases and that the gambling occurs in Missouri where the bettor is and not on the Coeur d'Alene reservation. Congress passed IGRA in 1988; the federal act allows tribes to conduct gambling on Indian lands under limited circumstances.
Tribal officials and the operators of the website had the original lawsuits removed from state court to federal court over the objections of the state. Nixon filed lawsuits in May 1997 and January 1998 on the grounds that Internet gambling is illegal in Missouri and that the tribe misrepresented that it was legal for Missourians to participate in the online gambling offered on the website.
"After more than two years of fighting to get this matter back in a Missouri court, we now will have the opportunity to prove in a proper venue that online gambling is illegal in the state of Missouri and that the Coeur d'Alene cannot represent that it is legal in this state," Nixon said.
The Coeur d'Alene have stopped offering online gambling, pending the outcome of Nixon's suits and other legal action.