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. Robert Strong d/b/a Dealer's Choice, et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Robert Strong d/b/a Dealer's Choice and Wallace Brewer d/b/a Best Bet
 
DOCKET NUMBER:
95-ALJ-17-0112-CC

APPEARANCES:
Nicholas P. Sipe, Esquire for Petitioner

David E. Belding, Esquire for Respondents
 

ORDERS:

CONSENT ORDER

This matter comes before me on the citation issued by the Department of Revenue and Taxation against the respondent Robert Strong for violating S.C. Code Ann. § 12-21-2804 (Supp. 1994) by allowing the use of more than five video poker machines in a single place or premise. Wallace Brewer is a party because he has the operator's license for the location where some of the machines are located. After notice to the parties, a hearing was conducted on April 17, 1995.

FINDINGS OF FACT

I make the following findings of fact, taking into consideration the burden on the parties to establish their cases by a preponderance of their evidence and taking into account the credibility of the witnesses:

1. A site inspection was made by a revenue officer in August 1994. He gathered information, took pictures, obtained leases and reported the information to the Department. The facts regarding the location at that time are:

a. Robert Strong leases space number 140 at Widewater Square on Broad River Road in Columbia, South Carolina for $18,000 per year.
b. There is one entrance from the outside into the leased premises. Strong subdivided the leased space with sheetrock from the floor to about four feet in height and added latticework from the sheetrock to the ceiling. The subdivided space has its own entrance with a door capable of being locked.
c. The subdivided space, cited as space 135, is leased to Wallace Brewer for $1.00 per year.
d. Upon entering from outside there is a common area foyer and separate doors into Best Bet and Dealer's Choice. Each area has eight video poker machines. There is one office and storage area, and two counters/cashiers.
e. All video poker machines were properly licensed to Strong. Strong maintains eight in Dealer's Choice and leases eight to Brewer for two-thirds of the net revenue.
f. Strong and Brewer each have the appropriate retail licenses and separate telephone lines for the businesses. The names of both businesses are on one sign located outside over the door entering into the leased space.
g. Employees and patrons moved freely between the two areas without having to exit the building. The activity occurring in one area was visible and could be heard in the other area.

2. The location was inspected again by the same revenue officer after February 1, 1995. The location had not changed since the prior visit in August 1994.

3. An auditor for the Department visited the location after August 22, 1994, but before a citation was issued. At that visit, the facts regarding the location were the same as noted on August 22, 1994 except that only one employee was at the location who covered for both businesses and made the payoffs for both businesses.

4. At one point in time during 1994, eight of the sixteen machines were removed from the leased premises. Strong later placed the machines back into the leased premises because he was losing revenue.

5. Information obtained during the August 22, 1994 site inspection was referred to the Policy Division of the Department for review. This division was responsible for reviewing all information relating to site inspections to determine compliance with the regulatory scheme established in the Video Game Machines Act.

6. The policy division established guidelines to assist in uniformity in enforcement of the regulatory scheme. These guidelines were written in Revenue Ruling 94-2. Revenue Ruling 94-2 is a statement of information of a procedural nature disseminated to the video games industry to provide information on the procedures presently followed by the Department to ensure no more than the proper number of video game machines are located in a "single place or premise".

7. Based upon the information gathered on August 22, 1994, the Department issued a citation against the respondent Strong for permitting the use of more than eight machines in a single location in violation of S.C. Code Ann. § 12-21-2804(A).

CONCLUSIONS OF LAW AND DISCUSSION

1. Pursuant to S.C. Code Ann. § 12-4-30(D) all contested cases previously heard by the three commissioners of the South Carolina Tax Commission shall be heard by an administrative law judge under the provisions of Chapter 23, Title 1. S.C. Code Ann. § 12-4-30(D) (Supp. 1994).

2. The violation was written in August 1994 when the Tax Commission was still in existence. Although Respondents may have requested a hearing before the abolition of the Tax Commission on February 1, 1995, the Commission did not schedule the case on the docket for a hearing. S.C. Code Ann. § 1-23-600 (Supp. 1994) provides that any contested case docketed for hearing before a board or commission abolished by the Government Restructuring Act shall continue to have jurisdiction until the case reaches final disposition at a hearing. Because the Commission did not docket this case before it was abolished, Section 1-23-600 does not apply and the Administrative Law Judge Division properly had jurisdiction under the provisions of Section 12-4-30(D).

2. S. C. Code Ann. § 12-21-2804(A) (Supp. 1994) states that no person shall maintain or permit to be used permits or licenses for the operation of more than eight machines authorized under Section 12-21-2720(A)(3) at a single place or premises. For licenses or permits issued after July 1, 1994, the limit is five machines.

3. Machines licensed under Section 12-21-2720(A)(3) include video games with free play feature operated by a slot in which a coin or thing of value is deposited. S.C. Code Ann. § 12-21-2720 (Supp. 1994).

4. Although the Video Game Machines Act ("Act") does not define the terms "single place or premise", the words are sufficiently definite and susceptible of a common ordinary meaning so as to provide a person of ordinary intelligence reasonable notice of what conduct is proscribed.

5. Revenue Ruling 94-2 incorporates some of the common sense factors utilized by the Department to determine whether there is one business or more than one business operating from a single premise or location. Some of the information borrows from corporate law and the doctrine of "piercing the corporate veil" to determine if the business structure is organized to evade a statute or modify its intent. If done to evade the law or modify its intent, the courts will disregard the corporate form and look to substance or reality of the matter. Sturkie v. Sifly, 280 S.C. 453, 313 S.E.2d 316 (Ct. App. 1984).

6. The evidence clearly leads a person of ordinary intelligence to conclude that the corporate structure of the two businesses are designed to evade the statutory requirements and in reality the businesses are but one entity operating in a single location. The lease is for a single space in the shopping center, the sublease is for $1.00 per year, the leases on the machines provides that two-thirds of the revenue be paid to the lessor who owns the machines and the licenses, the employees work in both businesses, and there is only one office for both businesses even though the space is subdivided. Respondents argue that the businesses are similar to shopping malls in which there is one building subdivided into spaces where separate businesses operate. This location is not like those malls. In a mall, there is a separate lease with adequate consideration given for each subdivided space in an arms-length transaction, there are separate utilities, there is no lattice dividing the businesses, there is no interaction among the businesses within a leased space, there is no sharing of employees or employees covering for another business, there is one entrance into each business with several entrances into the mall, and each business has a sign over its leased space. None of the attributes of a mall listed above are applicable in this case. The overall scheme in this case demonstrates that there is only one business operating at the leased space 140 Widewater Square. That one business is operating 16 video games licensed pursuant to Section 12-21-2720. It is therefore in violation of the provisions of the act restricting the number of machines in a single place or premise.

7. It is not necessary to determine whether Revenue Ruling 94-2 should have been promulgated as a regulation in order to reach the conclusion that the location is a single place or premise. However, the Revenue Ruling issued by the Department is not a regulation requiring promulgation under the Administrative Procedures Act. Whether a particular pronouncement of an agency is a rule or a general policy statement depends upon whether the agency action establishes a binding norm. Home Health Service, Inc. v. South Carolina Tax Commission, ___ S.C. ___, 440 S.E.2d 375 (1994). The inquiry is the extent to which the pronouncement leaves the agency free to exercise its discretion to follow or not to follow the general policy on a case by case basis, or on the other hand, whether the policy so fills out the statutory scheme that upon application one need only determine whether the case is within the rule's criteria. Ryder Truck Lines, Inc. v. United States, 716 F.2d 1369, 1377 (11th Cir. 1983). Revenue Ruling 94-2 states that the factors that the Department will consider "include, but are not limited to," the 12 items. It further states that the "foregoing list is a recommendation of factors to consider and no one factor, standing alone, is determinative of whether or not a certain area meets the requirements of a 'single place or premises'." The Revenue Ruling clearly establishes that the 12 factors are not the sole basis for making a decision and other factors may be utilized. The facts surrounding the location as a whole are used in making a decision. Therefore, the administrative pronouncement is not a binding norm upon the agency requiring only an application of the factors to a particular case.

8. S.C. Code Ann. § 12-21-2804(A) (Supp.1994) states that the penalty for failing to comply with the maximum number of machines in a single place or premise requires the revocation of the licenses of machines located in the establishment.

9. S.C. Code Ann. § 12-21-2804(F) (Supp. 1994) states that a person who violates Section 12-21-2804(A) may be fined up to five thousand dollars.

ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, the Department of Revenue and Taxation properly issued a citation against the Respondent Robert Strong. The licenses on the video poker machines located at Best Bet and Dealer's Choice on August 22, 1994 are revoked and a fine of $3000 is imposed upon the Respondent Robert Strong.

AND IT IS SO ORDERED.







_____________________________

ALISON RENEE LEE

Administrative Law Judge





May ____, 1995

Columbia, South Carolina


Brown Bldg.

 

 

 

 

 

Copyright © 2021 South Carolina Administrative Law Court