WASHINGTON -- The U.S. Supreme Court yesterday let stand a ruling by Minnesota's highest court that upheld the constitutionality of a state law imposing a graduated tax on the gross receipts of charitable gambling operations.

The case, Brainerd Area Civic Center v. Commissioner of Revenue, was brought by a number of charities that conduct lawful gaming operations such as bingo, raffles, pull tab games, and tipboards. Pull tabs and tipboards are games in which players buy tickets and remove attached seals to discover if they are winners.

Relying on the U.S. high court's ruling in a 1934 case, Stewart Dry Goods Co. v. Lewis, the charities alleged that Minnesota's use of a graduated gross receipts tax violates the U. S. Constitution's 14th Amendment.

The amendment provides that "no state shall deny any person the equal protection of the laws."

In the Stewart case, the court said graduated gross receipts taxes are defective because they bear no relation to whether a business is profitable and hence able to pay the tax. By contrast, a tax on net income does not arise unless a gain is shown above expenses and losses. The ruling struck down a Kentucky graduated gross receipts tax imposed on all retail businesses in the state.

But the Minnesota Supreme Court, in a ruling issued May 7, 1993, distinguished the Brainerd case from Stewart by noting that the state has an interest in maintaining controls over gambling.

The state court also said the tax was constitutional because of the state's interest in putting "a damper on commercialization of charitable gambling, to avoid the problems of integrity which may accompany ever-increasing gambling receipts, and to level the playing field between large and small operations."

The U.S. Supreme Court gave no reason for its refusal to hear arguments in the case. As a result, the court's action does not set a binding national precedent, though other state courts may look to the Minnesota ruling and cite it in other cases.

In other action yesterday, the court let stand without comment a federal appeals court ruling that held that civil law enforcement actions by the Securities and Exchange Commission are not subject to a statute of limitations.

The U.S. Court of Appeals for the Ninth Circuit, ruling in a case arising from alleged fraud in the sale of stock in ZZZZ Best Co., noted that the Supreme Court has imposed a statute of limitations on private suits.

But the appeals court concluded that unlike a private suit for damages, which focuses on how much the plaintiff was injured by the defendant's illegal conduct, an SEC action to enforce the federal securities laws promotes economic and social policies independent of the claims of individual investors.

In addition to issuing orders in pending cases, the justices yesterday heard oral arguments in Oregon Department of Revenue v. ACF Industries Inc., a dispute over the legality of the state's property tax system.

At issue in the case is whether states may offer property tax exemptions not available to railroads without violating the federal Railroad Revitalization and Regulatory Reform Act, which forbids discriminatory taxes against railroads.

Specifically, the law forbids assessment of rail property at a higher ratio of its true market value than the ratio at which other commercial and industrial property is assessed; forbids levy of a tax based on such a disparate assessment; and forbids higher tax rates for rail property than for other commercial and industrial property. The law also forbids states from imposing "another tax that discriminates against a rail carrier."

A majority of the justices appeared troubled by the argument of railroad interests that allowing property tax exemptions for some types of property while not offering exemptions for rail property constitutes "another tax."

Justice Antonin Scalia, Justice Sandra Day O'Connor, Justice David H. Souter, Justice Ruth Bader Ginsburg, and Chief Justice William H. Rehnquist all indicated that the plain meaning of the law's text appears to allow states the flexibility to exempt all property except rail property from taxation.

Scalia said that railroads are safeguarded from such an arrangement by the fact that states "won't cut off their nose to spite their face" and reduce their property tax revenues by exempting so much property.

Souter later noted, "If a state does cut off its nose to spite its face, Congress is the answer," an allusion to the fact that the case hinges on interpretation of a federal law, not the Constitution. When the court decides a case on constitutional grounds, its rulings generally are not subject to later tinkering by Congress.

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