SC Administrative Law Court Decisions

This matter comes before the Administrative Law Judge Division upon the Respondent's request for a contested case hearing pursuant to S.C. Code Ann. §§ 12-60-450 (Supp. 1997) & 1-23-310 et seq. (1987 & Supp. 1997). The matter was initiated on August 12, 1997, when agents of the South Carolina Law Enforcement Division ("SLED") issued a citation to the Respondent for tendering cash payouts in excess of $125 in a twenty-four hour period in violation of S.C. Code Ann. § 12-21-2791 (Supp. 1996).

After notice to the parties, a hearing was conducted on September 16, 1998. Any issues raised or presented in the proceedings or hearing of this case not specifically addressed in this Order are deemed denied. ALJD Rule 29(C).

At the hearing, the parties presented as Petitioner's Exhibit 1 stipulated facts as follows:

1. McDonald's Amusement, Inc. ("McDonald's") holds South Carolina retail/sales tax license no. 046-219634.
2. McDonald's holds Retail License No. 046-219634 for a location doing business as "Broadway" at 3606 S.C. Hwy 51, Unit #1, Fort Mill, South Carolina ("licensed location").
3. On August 12, 1997, the licensed location allowed the operation of coin-operated machines pursuant to S.C. Code Ann. Section 12-21-2720(A)(3) (Supp. 1997).
4. On August 12, 1997, South Carolina Law Enforcement Agent ("SLED") M.R. Jones conducted an inspection at the licensed location.
5. During the August 12, 1997 inspection, Agent Jones played a coin-operated machine licensed pursuant to Section 12-21-2720(A)(3). Agent Jones inserted a twenty-dollar bill into the machine and played the machine for a while. He noted the machine showed game credits of $140. He pushed the payout button and received Ticket No. 00004186 for $125. He immediately pushed the payout button a second time and received Ticket No. 00004187 for fifteen dollars from the machine. Agent Jones gave both tickets to the licensed location's room attendant and was paid the total cash amount of $140.
6. On August 12, 1997, after receiving the $140 payout, Agent Jones issued a Preliminary Findings Report for "Exceeding the $125 Payout," pursuant to S.C. Code Ann. § 12-21-2791 (Supp. 1997).
7. On November 3, 1997, the Department, Office Services Division issued an administrative violation based on the August 12, 1997 Preliminary Findings Report issued to the licensed location by Agent Jones.
8. By letter of December 3, 1997, the licensed location filed a written appeal of the August 12, 1997 violation with the Department.
9. On January 22, 1998, the Department issued the Final Department Determination regarding the violation issued to the licensed location by Agent Jones on August 12, 1997.
10. In the determination, the Department determined the licensed location had violated the provisions of Section 12-21-2791, by exceeding the payout of $125 on August 12, 1997. In this determination, the Department imposed a monetary penalty of $500 on the licensed location.
11. Respondent requested a hearing on the determination and the matter was transmitted to the Administrative Law Judge Division.

In addition to the Stipulated Facts, I make the following Findings of Fact, taking into account the burden on the parties to establish their respective cases by a preponderance of the evidence and taking into consideration the credibility of the witnesses:

12. DOR has interpreted Section 12-21-2791 to prohibit payouts in excess of $125 to any person in a twenty-four hour period, regardless of how much cash the person initially deposited into the machine, consistently since its enactment in 1993.

The primary issue for determination is whether the cash payout limit of S.C. Code Ann. § 12-21-2791 (Supp. 1996) applies only to winnings above the initial cash deposit into a Class III video game machine. S.C. Code Ann. § 12-21-2791 (Supp. 1996) provides as follows:

Any location which operates or allows the operation of coin-operated machines pursuant to Section 12-21-2720(A)(3) which provides payouts authorized pursuant to Section 16-19-60 shall limit the cash payout for credits earned for free games to two thousand five hundred credits per player per location during any twenty-four hour period. The cash value of credits for each free game shall be limited to five cents.

The South Carolina Department of Revenue (DOR) argues that the plain language of the statute prohibits payouts in excess of $125 to any person in a twenty-four hour period, regardless of how much cash the person initially deposited into the machine. The Respondent argues that the statute imposes a limit on credits earned which refers to credits in excess of the credits received upon depositing money in a machine; i.e. players may receive what they have put into the machine plus $125.00.

A cardinal rule of statutory construction is that the words used in a statute are to be given their plain and ordinary meaning. Multimedia, Inc. v. Greenville Airport Commission, 287 S.C. 521, 339 S.E.2d 884 (Ct. App. 1986); Hughes v. Edwards, 265 S.C. 529, 220 S.E.2d 231 (1975). When the terms of a statute are plain and unambiguous, the courts must apply those terms according to their literal meaning, without resort to subtle or forced construction in an attempt to limit or expand the scope of the statute. Holley v. Mount Vernon Mills, Inc., 312 S.C. 320, 440 S.E.2d 373 (1994). "If a statute's language is unambiguous and conveys a clear and definite meaning, it is unnecessary and inappropriate for the court to use rules of statutory interpretation to impose another meaning." State v. Evans, 309 S.C. 471, 474, 424 S.E.2d 512, 514 (Ct. App. 1992). The provision at issue is unambiguous. S.C. Code Ann. § 12-21-2791 limits cash payouts for "credits earned for free games" to 2,500 credits (each worth up to five cents) per player per location. "Credits earned for free games" refers to the games or credits available to a player without any additional cost to the player. In other words, "credits earned" means "the credits the player has at the conclusion of play regardless of whether they are due to money the player put in or credits later won. . . ." Johnson v. Collins Entertainment Co., Inc., 3:97-2136-17 (D.S.C. August 25, 1998). These "credits" are the same ones referred to in S.C. Code Ann. § 12-21-2772(5) (Supp. 1997):

"Machine" means an electronic video games machine that, upon insertion of cash, is available to play or simulate the play of games as authorized by the commission utilizing a video display and microprocessors in which the player may receive free games or credits that can be redeemed for cash.

Free games or credits can be redeemed for cash and are available for play "without additional cost" to the player. See Holliday v. Governor of State of South Carolina, 78 F.Supp. 918, 922 (W.D.S.C. 1948), aff'd, 335 U.S. 803 (1948).

The Respondent's assertion that the provision "clearly imposes a limit of $125.00 on credits that are earned and not credits that are automatically received upon depositing coins in the machine" is specious. In this instance, Agent Jones accumulated $140 worth of credits earned for free games. Whether those credits were earned by playing the machine or from the initial deposit of money, the games or credits were available to Agent Jones "without additional cost"; had he not redeemed them, he could have continued playing the machine "without additional cost." See Alexander Amusement Co. v. State, 246 S.C. 530, 144 S.E.2d 718, 719 (1965) (an undercover agent "played the machines by depositing coins therein, accumulating a number of free games on each").

Alternatively, if the provision were ambiguous and did not convey a clear and definite meaning, the rules of statutory interpretation would support DOR's interpretation. DOR "guidelines" set forth in "A Guide to Conducting Video Gaming Establishments in South Carolina" interprets S.C. Code Ann. § 12-21-2791 (Supp. 1996) to limit the cash payout on "credits remaining on the machine" to $125 regardless of the "amount of credit originally purchased by the player." Interpreting S.C. Code Ann. § 12-21-2791 (Supp. 1996) to apply only to winnings above the initial cash deposit into a Class III video game machine would create an absurd and unworkable result. See Johnson v. Collins Entertainment Co., Inc., 3:97-2136-17 (D.S.C. August 25, 1998) (discussion of various interpretations allowing payout in excess of $125); 1994 Op. S.C. Att'y Gen. No. 56 at 123.

If the Legislature had intended the interpretation advanced by Respondents then the adoption of language in the 1996-97 South Carolina state budget bill would not have been necessary. A portion of the budget bill adopted, but later vetoed, read in part:

I. Section 12-21-2791 of the 1976 Code, as added by Act 164 of 1993, is amended to read:

Section 12-21-2791. During a twenty-four hour period, a person is not permitted to win more than one hundred twenty-five dollars over and above the amount deposited in a coin-operated machine authorized under Section 12-21-2720(A)(3).

1996 Budget Bill, Part II §54I. This provision clearly advances the position of Respondent. If the current version of Section 12-21-2791 means a payout in excess of what is deposited into the machine, then there would be no need for the Legislature to amend the statute. The Legislature is presumed not to undertake a futile act. TNS Mills, Inc. v. S.C. Dept. of Revenue, 331 S.C. 611, 503 S.E.2d 471 (1998).

Based upon the reading of Section 12-21-2791, it is clear that Respondents violated the statutory provisions by exceeding the maximum daily limit on payouts for credits on the Class III video game machine. The penalty provisions are discussed in the Conclusions of Law.

Based upon the Findings of Fact, I conclude as a matter of law the following:

Jurisdiction, Standard of Proof, and Burden of Proof

1. Pursuant to S.C. Code Ann. § 12-4-30(D) (Supp. 1997) and S.C. Code Ann. § 1-23-600 (Supp. 1997), the Administrative Law Judge Division has jurisdiction to hear and decide this matter. See also South Carolina Administrative Procedures Act, §§ 1-23-310 et seq. (1986 & Supp. 1997) and South Carolina Revenue Procedures Act §§ 12-60-10 et seq. (Supp. 1997).

2. This tribunal has personal jurisdiction over the parties.

3. Video poker machines authorized under S.C. Code § 12-21-2720(A)(3) (Supp. 1997) are known as "Class III" video game machines.

4. The licensing, placement, and operation of video poker machines is subject to Title 12, Chapter 21, Articles 19, 20, and 21 of the S.C. Code, as amended.

5. Licenses issued by the State are not rights or property, but are rather privileges granted in the exercise of the police power of the State to be used and enjoyed only so long as the restrictions and conditions governing them are complied with. The tribunal authorized to grant the issuance of a license is also authorized, for cause, to revoke or deny it. Feldman v. South Carolina Tax Commission, 203 S.C. 49, 26 S.E.2d 22 (1943).

6. In video poker license violation cases, DOR bears the burden of proving its case by a preponderance of evidence. See National Health Corp. v. South Carolina Dep't of Health and Envtl. Control, 298 S.C. 373, 380 S.E.2d 841 (Ct. App. 1989); 29 Am. Jur 2d Evidence § 127 (1994); Sanders, Neese, and Nichols, South Carolina Trial Handbook, § 9:3 (1994).

Statutory Construction

7. "If a statute's language is unambiguous and conveys a clear and definite meaning, it is unnecessary and inappropriate for the court to use rules of statutory interpretation to impose another meaning." State v. Evans, 309 S.C. 471, 474, 424 S.E.2d 512, 514 (Ct. App. 1992). In other words, "where a statute is complete, plain and unambiguous, legislative intent must be determined from the language of the statute itself." Whitner v. State, 328 S.C. 1, 492 S.E.2d 777, 779 (1997), cert. denied, 118 S.Ct. 1857 (1998).

8. "Legislative enactments are to be construed as written. . . ." Timmons v. South Carolina Tricentennial Comm'n, 254 S.C. 378, 402, 175 S.E.2d 805, 817 (1970), cert. denied, 400 U.S. 986 (1971).

9. "The Plain Meaning Rule defies application of rules of statutory interpretation." Bauer v. State, 267 S.C. 224, 234, 227 S.E.2d 195, 198 (1976).

10. The construction of a statute by an agency charged with its administration is entitled to the most respectful consideration and should not be overruled absent compelling reasons. Faile v. South Carolina Employment Security Comm'n, 267 S.C. 536, 230 S.E.2d 219 (1976).

11. As DOR has interpreted S.C. Code Ann. § 12-21-2791 (Supp. 1996) to include credits for cash deposits into a Class III video game machine, without any compelling reason to do otherwise, that interpretation should not be overruled.

12. In construing a statutory provision, where a particular construction would create an absurd result, another reasonable construction effectuating legislative intent should prevail. Kiriakides v. United Artists Communications Inc., 312 S.C. 271, 440 S.E.2d 364 (1994).

13. Interpreting S.C. Code Ann. § 12-21-2791 (Supp. 1996) to apply only to winnings above the initial cash deposit into a Class III video game machine would create an absurd and unworkable result. See Johnson v. Collins Entertainment Co., Inc., 3:97-2136-17 (D.S.C. August 25, 1998).

14. "[T]he legislature's intent in enacting [Section 12-21-2791] is to prevent excessive gambling by limiting such cash payouts." Justice v. The Pantry, 330 S.C. 37, 45, 496 S.E.2d 871, 875 (Ct. App. 1998), reh'g denied March 19, 1998.

15. Construing the S.C. Code Ann. § 12-21-2791 (Supp. 1996) payout limitation to apply only to credits in excess of those purchased by a player does not support the purpose of the provision.

Effect of S.C. Code Ann. § 12-21-2791

16. On August 12, 1997, S.C. Code Ann. § 12-21-2791 (Supp. 1996) provided as follows:

Any location which operates or allows the operation of coin-operated machines pursuant to Section 12-21-2720(A)(3) which provides payouts authorized pursuant to Section 16-19-60 shall limit the cash payout for credits earned for free games to two thousand five hundred credits per player per location during any twenty-four hour period. The cash value of credits for each free game shall be limited to five cents.

17. S.C. Code Ann. § 12-21-2791 (Supp. 1996) uses "credits earned" to mean "the credits the player has at the conclusion of play regardless of whether they are due to money the player put in or credits later won. . . ." Johnson v. Collins Entertainment Co., Inc., 3:97-2136-17 (D.S.C. August 25, 1998).

18. "Credits earned for free games" is equivalent to "free games or credits that can be redeemed for cash."

19. S.C. Code Ann. § 12-21-2772(5) (Supp. 1997) provides as follows:

"Machine" means an electronic video games machine that, upon insertion of cash, is available to play or simulate the play of games as authorized by the commission utilizing a video display and microprocessors in which the player may receive free games or credits that can be redeemed for cash.

20. Free games are those available "without additional cost" to the player. See Holliday v. Governor of State of South Carolina, 78 F. Supp. 918, 922 (W.D.S.C. 1948), aff'd, 335 U.S. 803 (1948); Alexander Amusement Co. v. State, 246 S.C. 530, 144 S.E.2d 718, 719 (1965) (an undercover agent "played the machines by depositing coins therein, accumulating a number of free games on each").

21. The Respondent violated S.C. Code Ann. § 12-21-2791 (Supp. 1996) by tendering cash payouts exceeding $125 in a twenty-four hour period on August 12, 1997.

Penalty

22. Section 12-54-40(b)(3) (Supp. 1997) provides:

A person who is liable to obtain a license or purchase stamps for identification purposes, who fails to obtain or display the license properly, or who fails to affix the stamps properly, or fails to comply with statutory provisions, is subject to a penalty of not less than fifty dollars nor more than five hundred dollars for each failure. For failure to obtain or display a license as prescribed in Sections 12-21-2720 and 12-21-2730, the penalty is fifty dollars for each failure to comply.

23. No coin-operated machine licensed under the provisions of Section 12-21-2720(A)(3) may be operated at a location unless the location is licensed pursuant to the provisions of Chapter 36 of Title 12. S.C. Code Ann. § 12-21-2703 (Supp. 1997).

24. As the Respondent was required to obtain a retail license to allow or operate Class III machines on the licensed premises, the penalty provisions of S.C. Code Ann. § 12-21-2703 (Supp. 1997) apply to the violation at issue.

25. A penalty of $500 is appropriate under the facts and circumstances of this case.

Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby

ORDERED, that McDonald Amusements, Inc. pay a $500 penalty to the South Carolina Department of Revenue for tendering cash payouts exceeding $125 in a twenty-four hour period in violation of S.C. Code Ann. § 12-21-2791 (Supp. 1996).

AND IT IS SO ORDERED.

__________________________________

ALISON RENEE LEE

Administrative Law Judge

November 13, 1998

Columbia, South Carolina