South Carolina              
Administrative Law Court
Edgar A. Brown building 1205 Pendleton St., Suite 224 Columbia, SC 29201 Voice: (803) 734-0550

SC Administrative Law Court Decisions

CAPTION:
SCDOR vs. D.D.B., Inc., d/b/a Monte Carlo and Video Gaming Consultants, Inc., et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
D.D.B., Inc., d/b/a Monte Carlo and Video Gaming Consultants, Inc. and George D. Vinovitch
 
DOCKET NUMBER:
95-ALJ-17-0111-CC

APPEARANCES:
Malane Pike, Esquire
Attorney for the Petitioner
S.C. Department of Revenue and Taxation

H. Buck Cutts, Esquire
Attorney for the Respondents
 

ORDERS:

CONSENT ORDER

This matter comes before me pursuant to S.C. Code Ann. § 1-23-320 (Supp. 1994). Petitioner alleges that respondents violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1994) in that respondents "operated more than eight machines in a single place or premises." Respondents deny the alleged violation and, therefore, contest the citation of the South Carolina Department of Revenue and Taxation (Department), which necessitates this hearing before an Administrative Law Judge. Petitioner seeks a fine of $5,000.00 and revocation of respondents' video gaming machines licenses for six months.

After timely notice to all parties, a hearing was held at the Administrative Law Judge Division in Columbia, South Carolina. The issue before this tribunal is whether respondents violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1994) where the facts indicate: (1) a total of sixteen (16) video gaming machines were operated in one building with a portion of the interior of the building subdivided into two rooms by a lattice wall, with each room containing eight (8) video gaming machines; (2) the two rooms had separate retail tax licenses; (3) respondent, George D. Vinovitch was licensee of all video gaming machines on the premises and president of both businesses until transferring all of the stock of one business for a nominal amount of consideration; (4) respondent, George D. Vinovitch was the sole stockholder of the business which owned the machines leased to respondents, D.D.B., Inc. d/b/a Monte Carlo and Video Gaming Consultants, Inc.; and (5) patrons and employees had free access from one room of video gaming machines to the other without exiting the building.

Based upon the following Findings of Fact and Conclusions of Law, this tribunal concludes that respondents violated S.C. Code Ann.§ 12-21-2804(A) (Supp. 1994).

FINDINGS OF FACT

Having carefully considered all testimony and arguments presented at the hearing of this matter, and taking into account the credibility and accuracy of the evidence, I make the following Findings of Fact by a preponderance of the evidence:

1. The following video poker businesses are operated at 40 Palmetto Parkway, Hilton Head, South Carolina: D.D.B., Inc. d/b/a Monte Carlo (hereinafter referred to as "D.D.B., Inc." or "Monte Carlo") and Video Gaming Consultants, Inc.

2. On July 2, 1993, the day after the enactment of the Video Game Machines Act, Revenue Officers Rodney Muckenfuss and Norman Davis visited the subject location to make an inspection and to give the officers of the business a copy of the Video Game Machines Act.

3. On May 26, 1994, Revenue Officer Rodney Muckenfuss visited the premises located at 40 Palmetto Parkway, Hilton Head, South Carolina to distribute an Attorney General's Opinion dated March 24, 1994 and S.C. Information Letter #94-13(1). At this time, the manager on duty at he subject location was told to read the information and was advised that the location had until June 1, 1994 to "come into compliance."

4. On June 8, 1994, Revenue Officers Norman Davis, Bruce Owens, Ricky Kennedy, and Rodney Muckenfuss visited the premises to make an agency determination of whether the owner and operator of the subject location were in violation of the "single place or premises" requirements of the Video Games Machines Act. These revenue officers inspected the location, compiled information, and took pictures of the location.

5. At the time of inspection on June 8, 1994, the facts relating to the "single place or premises" requirements of S.C. Code Ann. § 12-21-2804(A) (Supp. 1994) were as follows:

a. Coastal Coin, Inc. leased eight (8) Class III video gaming machines to Monte Carlo and eight (8) Class III video gaming machines to Video Gaming Consultants, Inc., through separate vendor contacts.
b. George D. Vinovitch was the sole stockholder of Coastal Coin, Inc.
c. George D. Vinovitch was the licensee for the eight (8) machines located at D.D.B., Inc. and the eight (8) machines located at Video Gaming Consultants, Inc.
d. On February 12, 1993, D.D.B., Inc. leased 2000 square feet of floor space for a term of three (3) years from the Barjack Development Company for its business operation.
e. On March 11, 1994, D.D.B., Inc. subleased 1000 square feet of this building to Video Gaming Consultants, Inc.
f. George D. Vinovitch was the president of Video Gaming Consultants, Inc. and the former president of D.D.B., Inc. Previously on March 23, 1994, he transferred all of D.D.B., Inc.'s stock, made up of ten thousand (10,000) shares (par value $1.00), to Todd T. Steward for $100.00.
g. D.D.B., Inc. and Video Gaming Consultants, Inc. were located within the same building which had been subdivided into two rooms by a lattice wall with eight (8) video gaming machines in each room.
h. There was one sign outside the location which read "Monte Carlo."
i. The mailbox outside the building read "D.D.B. and Monte Carlo, Palmetto Pkwy [sic]."
j. There were two entrances into the building, one front entrance into a common area and one back entrance into a common area.
k. The front entrance to the building led to the two separate inner entrances of the subdivided building. There was a sign over the entrance to each room. One sign read "Monte Carlo" and the other read "Video Gaming Consultants, Incorporated."
l. There was one rest room, one cash register, and a common lounge area which served both Monte Carlo and Video Gaming Consultants, Inc.
m. From the rear entrance, one room was readily accessible from the other through an opening along the back end of the lattice wall.
n. Employees and patrons could move freely between the two rooms without having to exit the building.
o. Separate retail licenses were issued in the names of Video Gaming Consultants, Inc. and Monte Carlo.
p. Based on the lease agreement between D.D.B., Inc. and Video Gaming Consultants, Inc., D.D.B., Inc. provided utility services such as water, electricity, sewer, and heating and air service to Video Gaming Consultants, Inc. Also, D.D.B., Inc. maintained all insurance policies for both premises at no additional charge to Video Gaming Consultants, Inc. and provided management and employees for both businesses.

5. The information collected by revenue officers on their June 8, 1994 inspection was passed to John Taylor in the central office of the Department in Columbia, South Carolina, for a final decision on whether to issue a citation to the owner and operator of the video poker machines at the subject location.

6. On June 9, 1994, at the direction of John Taylor, Revenue Officer Rodney Muckenfuss issued a citation against the owner and the operator of the video poker machines at the subject location for violating S.C. Code Ann. § 2804(A) (Supp. 1994) which prohibited (at the time of the violation) the use or maintenance of more than eight (8) video gaming machines in a single place or premises.

MOTIONS

1. Respondents moved to dismiss or quash the citations against respondents on the following grounds:

(a) The Department's enforcement of the Act violates the Due Process Clause of the Fourteenth Amendment of the U.S. Constitution by arbitrarily and capriciously employing unpromulgated and inconsistent rules and regulations.
(b) The Department was using guidelines, Revenue Procedures, and Information Letters to enforce the law in violation of the Administrative Procedures Act.
(c) The Department has now filed proposed regulations with the State Register which, if approved will change the criteria for compliance with the Video Game Machines Act.
(d) The Department admitted it had no clear standard of judging the performance of taxpayers under the twelve factor guidelines except that if the taxpayer met fifty percent (50%) of the criteria they were looked at with less scrutiny.

Based upon the Findings of Fact and the Conclusions of Law, respondents' motions to dismiss the citation are hereby denied.

CONCLUSIONS OF LAW

1. Pursuant to S.C. Code Ann. § 12-4-30(D) (Supp. 1994) and S.C. Code Ann. § 1-23-320 (Supp. 1994), the Administrative Law Judge Division has jurisdiction to hear this matter.

2. The Video Game Machines Act ("Act"), which regulates video gaming machine activity in South Carolina, was enacted in 1993 and became effective on July 1, 1993. This Act is found at S.C. Code Ann. §12-21-2770, et seq. (Supp. 1994). The statutory provision at issue before this tribunal is S.C. Code Ann. § 12-21-2804(A) (Supp. 1994). This section provides:

No person shall apply for, receive, maintain, or permit to be used, and the commission shall not allow to be maintained, permits or licenses for the operation of more than eight machines authorized under S.C. Code Ann. §12-21-2720(A)(3) at a single place or premises for the period beginning July 1, 1993, and ending July 1, 1994 . . . . (emphasis added)

3. The Act does not define the terms "single place or premises." However, based on the ruling by the Honorable G. Ross Anderson, these terms are "sufficiently definite and susceptible of a common and ordinary meaning to provide a person of ordinary intelligence a reasonable notice of the proscribed conduct." Reyelt, et al. v. South Carolina Tax Commission, Civil Action No. 6:93-1491-3 (D.S.C. July 5, 1994 ). Thus, it is not necessary to guess at the meaning of the statute and at what conduct is prohibited. Id. By virtue of the enactment of §12-21-2804(A) alone, respondents had notice that they were prohibited from operating more than eight (8) machines at a "single place or premises." That is, this statute alone puts a person of ordinary intelligence on notice.

4. " . . . [T]he Act must be read as prohibiting more than eight gambling machines in a single structure or building. An internal room or partitioned area within a single structure or building does not constitute a discrete place or premises separate from the structure or building." S.C. Att'y Gen. Op. of March 24, 1994 at 3.

5. Monte Carlo and Video Gaming Consultants were operated in a single building with one front entrance and one rear entrance. The building was subdivided only by a lattice wall into two rooms with each room constituting a business. Patrons had access to both rooms through common areas without exiting the building. Each business operated eight (8) Class III video gaming machines, thus, violating the statutory provision that only eight (8) machines be located at a single place or premises.

6. Monte Carlo and Video Consultants, Inc. were, in effect, operated as a single place or premises. It is undisputed that George D. Vinovitch, the licensee, owned and operated all of the video gaming machines on the premises. Separate retail tax licenses were issued in the names of the two businesses, but the licensee was identified in each of these licenses as the president of the businesses until he relinquished the presidency of one of the businesses. Testimony and documentation indicate the rooms, constituting the respective businesses, within the location opened into each other; and, photographs show that the subject location is a single building. Furthermore, the businesses shared management and employees. Also, there was one cash register which was used to serve both businesses and one business supplied the other business with insurance coverage and utility service. See Stacks v. S.C. Department of Revenue and Taxation, No. 95-CP-40-0239 (Richland County Court of Common Pleas, April 17, 1995).

7. The Department issued and distributed guidelines and policy statements to aid the industry in interpreting the Video Game Machines Act. S.C. Revenue Procedure # 94-2 was issued on March 23, 1994. This Revenue Procedure was intended to advise the operator of a non-exhaustive list of flexible factors the Department used on a case-by-case basis in applying the single place or premises provisions of S.C. Code Ann. §12-21-2804(A) (Supp. 1994). On May 25, 1994, S.C. Information Letter # 94-13 was issued to clarify the Department's position and give notice to video game operators. In S.C. Information Letter # 94-13, the Department modified Revenue Procedure # 94-2 to include the related Attorney General's Opinion written to Senator Greg Gregory dated March 24, 1994. Respondents argue that these guidelines and revenue procedures should have been promulgated as regulations. However, if such guidelines and revenue procedures do not constitute a binding norm, they are not required to be promulgated, as are regulations. See Ryder Truck Lines, Inc. v. United States, et al., 716 F.2d 1369 (11th Cir. 1983); Home Health Service v. S.C. Tax Comm'n, __ S.C. ___, 440 S.E.2d 375 (1994). Accordingly, since the Department remained free to consider the individual facts of each case, and exercise its discretion on applying the factors, the guidelines and revenue procedures did not establish a binding norm. Id.

8. S.C. Code Ann. § 12-21-2804 (Supp. 1994) expressly authorizes the "commission" [Department] to enforce the provisions of this section and also authorizes the Department to revoke the license of an establishment that fails to comply with the provisions of this section. Consequently, it is readily apparent from a "facial" reading of this section that it is not necessary for the Department to promulgate regulations to execute the express provisions of S.C. Code Ann. § 12-21-2804(A) (Supp. 1994). While S.C. Code Ann. § 12-21-2798 (Supp. 1994) provides: "[t]he commission shall promulgate rules and regulations pertaining to the machines and persons licensed by it," this section does not impose a specific duty on the Department to promulgate regulations with respect to S.C. Code Ann. § 12-21-2804(A). When the legislature grants general authority to an agency to promulgate regulations, it is logically consistent that an agency would adopt or promulgate regulations as necessary to enable the agency to accomplish its objectives. See David E. Shipley, South Carolina Administrative Law, 4-4 (1989). It is equally logical, that an agency would not promulgate regulations if they are not necessary to accomplish its objectives, that is, to execute the enacted laws.

9. S.C. Code Ann. § 12-21-2804(A) (Supp.1994) provides that the penalty for exceeding the maximum number of video gaming machines permitted in a single place or premises requires the revocation of the licenses of machines located in the establishment.

10. S.C. Code Ann. § 12-21-2804(F) (Supp. 1994) provides that a person who violates S.C. Code Ann. § 12-21-2804(A) (Supp. 1994) is subject to a fine of up to $5,000.

11. The Department properly issued the citation as respondents violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1994) by using or maintaining more than eight (8) machines authorized under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1994) at a single place or premises.

ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, the Department properly issued a citation to respondents. While a violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1994) mandates the revocation of licenses of the machines in question, the imposition of a fine is discretionary pursuant to S.C. Code Ann. § 12-21-2804(F) (Supp. 1994). Mitigating circumstances exist in this case, given that the Video Game Machines Act was relatively new and that a level of confusion existed in the industry concerning the application of the Department's guidelines at the time of this violation. Accordingly, the imposition of a civil penalty in the instant case is unduly harsh.

IT IS THEREFORE ORDERED that the Department shall revoke the licenses on the video gaming machines located at Monte Carlo and Video Gaming Consultants, Inc., on June 8, 1994.

IT IS FURTHER ORDERED that the Department shall suspend the monetary fine.

AND IT IS SO ORDERED.



______________________________

JOHN D. GEATHERS

Administrative Law Judge

Edgar A. Brown Building

1205 Pendleton Street

Columbia, South Carolina 29201

July 14, 1995

_____________________

Fn. 1. In S.C. Information Letter #94-13, the Department indicated its awareness that some video game operators were using Revenue Procedure #94-2 as a litmus test to qualify their business as a single place or premises. The Department stated:

"In order to further clarify its position and to give clear notice to video game operations, the Department hereby officially modifies SC Revenue Procedure #94-2 by adopting the Attorney General's Opinion as an additional part of that revenue procedure. Therefore, the Department's interpretation of 'single place or premises' is now SC Revenue Procedure #94-2 and the Attorney General's Opinion read together."

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