ORDERS:
CONSENT ORDER
STATEMENT OF CASE
This matter comes before me upon request for a Hearing by the Respondents after being cited for
violating S.C. Code Ann. § 12-21-2804 (A)(Supp. 1994). The South Carolina Department of
Revenue and Taxation (DOR) contends that the Respondents operated more than eight video
poker machines in a "single place or premise."
A Hearing was held before the Administrative Law Judge Division in Columbia, South Carolina,
on May 30, 1995. I find the DOR failed to provide sufficient evidence that the Respondents
violated Section 12-21-2804.
FINDINGS OF FACT
Having observed the witnesses and exhibits presented at the hearing and closely passed upon their
credibility, taking into consideration the burden of persuasion by the Parties or Protestants, I
make the following Findings of Fact by a preponderance of evidence:
1. Notice of the time, date, place and subject matter of the Hearing was given to the Petitioner
and the Respondent.
2. Michael Mims ("Mims") holds licenses for 16 poker machines that are leased to the Royal Deck
Deli ("Deli") and King of Hearts ("Hearts"). Both of these businesses are located in the same
building at 725 East Martintown Road, North Augusta, South Carolina. The Deli leases eight of
those machines and Hearts leases the remaining eight machines.
3. William Short, an investigator for the Department, visited the Deli and Hearts location in
March 1995. On June 20, 1994, after reviewing his findings, the Department issued a written
violation against Michael W. Mims, d/b/a Palmetto Games, for permitting the operation of more
than eight machines at one location. This violation was issued just one month after the
Department issued Information Letter # 94-13 See S.C. Code Ann. § 12-21-2720 (A)(3)(Supp.
1994).
4. The Department seeks the revocation of Mr. Mims 16 permits and an assessment of a $5,000
fine. The Department contends that their case is established by the following facts:
a. There is only one advertisement sign outside these businesses.
b. There is an internal doorway between the two businesses.
c. Both businesses share a common utility meter.
d. Both businesses lease their machines from Michael Mims.
5. The Department is not contending that the businesses are operated jointly. In fact, the
Department conceded that the businesses are separate and distinct and, in fact, when the
Department issued the above violation they did not know of any business relationship between the
Deli and Hearts.
6. Michael Mims owns and holds the permits for all of the machines located inside both the Deli
and Hearts. However, both the Deli and Hearts independently lease the machines from Mims.
7. Mims has never paid the utilities or salaries of any of the employees of either the Deli or
Hearts. Neither does Mims own nor lease the building in which these businesses are operated. In
fact, Mims does not have any business relationship with the Deli or Hearts other than the leasing
of the machines to them.
8. Craig Amans entered into a lease for this business location for five years from the owner, Breck
Bingham. The leased building is designed with facilities for two separate businesses. Each
business has separate entrances, exits, and bathroom facilities. A fire wall separates the two
businesses, but a French door allows passage between them. The passageway was not created
with the intent to circumvent the law. As explained above, the Department conceded that the
businesses are separate and distinct.
9. The evidence established that the French doors remained closed and were not used as a
passageway between the two businesses. Furthermore, the doors were covered so as to obscure
the view into the adjoining businesses.
10. In May 1994, Alfred J. Ramoth sub-leased the larger portion of the above building from
Amans for $1,300 a month, plus a 50-50 split of the utilities.
11. Ramouth and Amans operate their businesses completely independent of each other. They do
not share employees, profits, or any ownership in their businesses whatsoever. Furthermore,
their books and records are kept separate and distinct. In fact, after Ramouth sub-leased his
portion of the building from Amans, he obtained a separate retail license in July 1993.
Additionally, Ramouth and Amans do not share any common rest rooms or eating and drinking
facilities.
12. The single sign in front of the businesses advertises only the King of Hearts, which is the
larger business.
13. At one time the Department informed Mims that the premises, as designed, did not preclude
the operation of two video poker establishments in that building.
14. There has been confusion in the past concerning what constitutes a "single place or premise"
according to the Department.
CONCLUSIONS OF LAW
Based upon the above Findings of Fact, I conclude as a matter of law, the following:
1. The Administrative Law Judge Division has jurisdiction to hear this matter pursuant to S.C.
Code Ann. § 12-4-30 (D) (Supp. 1994) and S.C. Code Ann. § 1-23-320 (Supp. 1994).
2. The Department contends that the Respondents violated S.C. Code Ann. §
12-21-2804(A)(Supp. 1994). That section provides:
"No person shall apply for, receive, maintain, or permit to be used, and the commission
[Department] 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 premise. . . .
3. The Video Game Machines Act ("Act") regulates the video poker machines at issue in this
case. The Act does not define the term "single place or premise." The Honorable G. Ross
Anderson held that the above term is "sufficiently defined and susceptible of a common and
ordinary meaning to provide a person of ordinary intelligence a reasonable notice of the
prescribed conduct." Reyelt et al. v. SouthCarolina Tax Commission, CA No. 6: 93-1491-3
(D.S.C. July 5, 1994).
4. Machines licensed under Section 12-21-2720(A)(3) include video games with a 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).
5. 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" is the revocation of the licenses
of machines located in the establishment.
6. 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.
7. The Department issued S.C. Revenue Procedure #94-2 on March 23, 1994. This document
advised video poker operators of the factors considered by the Department in determining
whether a business is a "single place or premise" pursuant to S.C. Code Ann. § 12-28-2804(A)
(Supp. 1994). The twelve factors set forth by the Department were:
a. Is the ownership of the business establishment independent of the ownership of any other
business establishment operating video game machines? Is the ownership the same? If the
ownership is not the same, is there any relationship between the owners (i.e., common
stockholder)?
b. Does each business establishment have its own licenses, such as those required by the
State, city, county, etc.? Do they operate under the same licenses?
c. Does each business establishment keep its own books and records? Are the books and
records kept together? Does each business establishment maintain its financial accounts,
such as bank checking and investment accounts? Do they maintain joint financial accounts?
d. If the business establishment leases its location, is that lease agreement separate from any
lease agreement entered into by any other business establishment operating video game
machines? Are these business establishments operating under the same lease agreement?
e. If the business establishment does not own the video game machines in its location, is the
machine profit sharing or lease agreement with a licensed coin operator separate from any
machine profit sharing or lease agreement entered into by any other business establishment
operating video game machines? Are these business establishments operating under the
same machine profit sharing or lease agreement?
f. Does each business establishment have its own, separate and distinct, address listed
through the United States Postal Service or a 911- emergency system? Is the address for
both business establishments the same?
g. Does each business establishment have its own signs and business marquis? Do they
operate under the same signs and marquis?
h. Do the business establishments operate under different names? Do they operate under
the same name?
i. Does each business establishment have its own employees? Do the same employees work
for both establishments?
j. Does each business establishment have its own account with each of the utility companies
(i.e., telephone, water, power)? Do they operate under the same account?
k. How are the business establishments physically separated (i.e., walls, no walls, lattice
work, separate or common amenities, etc.)?
l. Does each business establishment file its own returns for any taxes that may be due (i.e.,
property tax - PT-100, admissions tax - L-511, sales and use tax - ST-3, In, etc.)? Do they
remit such taxes on the same return?
In analyzing the above factors, the evidence demonstrates that the vast majority of these favorably
reflect the conclusion that the Respondent did not violate Section 12-21-2804(A).
8. After the Department issued Revenue Procedure #94-2, the Department then issued
Information Letter #94-13 clarifying the Revenue Procedure. In that Letter, the Department
adopted an Attorney General's opinion issued March 24, 1994 that explained that "subdividing a
single building or structure with partitions to create so-called discrete 'premises' is contrary to the
legislative scheme." That situation does not exist in this case. Here, the building in which the
Deli and Hearts is located was erected by an independent party apparently to lease the premises
to two distinct businesses. The wall existing between the businesses was existing before either
business occupied the location. Therefore, the issue here is the implication of the passageway
when examined in light of the Revenue Procedure factors set forth above.
9. 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. SeeRyder 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.
10. 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: "the 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. Shirley, 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.
11. If the Department had provided the Respondents proper notice of their position concerning
this location, the Respondents may have been found to have violated § 12-21-2804 (Supp. 1994).
However, the facts of this case, when combined with the admitted confusion by the Department
concerning the enforcement of this portion of the Act, establish that the DOR failed to prove a
violation in this case.
ORDER
Based upon the Findings of Fact and Conclusions of Law, it is hereby:
ORDERED, that this case against the Respondents be dismissed.
___________________________
Ralph King Anderson, III
Administrative Law Judge
Columbia, South Carolina
September 11, 1995 |
