SC Administrative Law Court Decisions

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' fifteen (15) video poker machine licenses located at 1807 Decker Boulevard, Suites #9 and #10, Columbia, South Carolina on the date in question.

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). 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 were operated at 1807 Decker Boulevard, Suites #9 and #10, Columbia, South Carolina: D.D.B., Inc. d/b/a Jackpot Video Games, (hereinafter referred to as "D.D.B., Inc." or "Jackpot Video Games"), and Video Gaming Consultants, Inc.

2. D.D.B., Inc. was purchased by Mid-South, Inc. after the date of the alleged violation.

3. On July 8, 1994, Revenue Officer Charles Allen Pitts visited the premises located at 1807 Decker Boulevard, Suites #9 and #10, Columbia, South Carolina to draw a floor plan of the premises. Revenue Officer Lilly Livingston accompanied Revenue Officer Pitts and took pictures of the location.

4. On July 13, 1994, Revenue Officer Charles Allen Pitts made a second visit to the premises located at 1807 Decker Boulevard, Suites #9 & #10, Columbia, South Carolina to gather information to make an agency determination of whether the owners and operators of the two businesses were in violation of the "single place or premises" requirement of the Video Game Machines Act. Revenue Officer Pitts inspected the location and compiled information.

5. At the time of inspection on July 13, 1994, the facts relating to the "single place or premises" requirement 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 D.D.B., Inc. d/b/a Jackpot Video Games and seven (7) Class III video gaming machines to Video Gaming Consultants, Inc., through separate vendor contracts. All fifteen (15) machines were in operation on the date in question.

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. d/b/a Jackpot Video Games and the seven (7) machines located at Video Gaming Consultants, Inc.

d. On May 18, 1994, D.D.B., Inc. leased Suite # 10 from the owners of the shopping mall, Kam Lavchak and Paul Poon, for a term of one year beginning July 1, 1994 and ending June 31, 1995.

e. On May 18, 1994, Video Gaming Consultants leased Suite #9 from Kam Lavchak and Paul Poon for a term of one year, beginning July 1, 1994 and ending June 31, 1995. 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 side by side in two separate suites in a strip shopping mall.

h. There were two signs affixed on the facade of the mall above the respective location: "Jackpot Video Games" and "Video Gaming Consultants, Inc."

i. There were two separate entrances into the suites from the outside of the mall.

j. There was a wall separating Suite # 9 from Suite #10, however, a portion of the wall had been cut out allowing free access of employees and patrons from one suite to the other without exiting the building. Another portion of the wall was cut out and a joint service counter was installed between the two suites.

k. There were restroom facilities located within each suite.

l. There was only one attendant present inside the joint service counter for both locations on July 8, 1994 and on July 13, 1994.

m. Separate retail licenses were issued in the names of Video Gaming Consultants, Inc. and D.D.B., Inc.

n. The two businesses had separate accounts with SCE&G for electrical service.

o. D.D.B., Inc. and Video Gaming Consultants, Inc. had separate bookkeeping and separate bank accounts.

p. Based upon the Video Poker Agreement, between D.D.B., Inc. and Coastal Coin, Inc., D.D.B., Inc. provided utility services such as water, electricity, sewer, and heating and air service to Suite #10. D.D.B., Inc. also provided management and employees and was responsible for the payment of salaries.

q. Video Gaming Consultants, Inc. provided utility services such as water, electricity, sewer, and heating and air service to Suite #9. Video Gaming Consultants, Inc. also provided management and employees and was responsible for the payment of salaries.

r. Coastal Coin, Inc. retained approximately 90% of the profits from the revenue generated from the operation of the eight (8) video poker machines located in Suite #10 and D.D.B., Inc. received approximately 10% of the profits from the revenue generated by the machines located in Suite #10.

s. Coastal Coin, Inc. retained approximately 90% of the profits from the revenue generated from the operation of the seven (7) video poker machines located in Suite #9 and Video Gaming Consultants, Inc. received approximately 10% of the profits from the revenue generated by the machines located in Suite #9.

t. Both D.D.B., Inc. and Video Gaming Consultants, Inc. had been open for business approximately two weeks prior to being cited for a violation. Therefore, no tax returns had been filed.

6. The information collected during July 13, 1994 inspection was passed to Johnnie Leggette, a Tax Enforcement Officer for the Department, in the central office of the Department in Columbia, South Carolina. This information was used for a final decision on whether to issue a citation to the owner and operator of the video poker machines at the subject locations.

7. On July 14, 1994, at the direction of Johnnie Leggette, Revenue Officer Pitts issued a citation against the owner and the operator of the video poker machines at the subject locations for violating S.C. Code Ann. § 2804(A) (Supp. 1994) which prohibited (at the time of the alleged violation) the use or maintenance of more than eight (8) video gaming machines in a single place or premises. Revenue Officer Pitts delivered the citation, which was issued to George D. Vinovitch and Coastal Coin, Inc., to the subject locations on July 14, 1995.

8. Respondent, George D. Vinovitch testified that he made a business decision to create the internal access between the two locations to create an "adult entertainment atmosphere" and he understood that this was acceptable under the law. He further testified that it was "highly inconvenient for customers to walk outside" to get to access the other video poker suite.

9. 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."

CONCLUSIONS OF LAW AND DISCUSSION

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. In the instant case, the respective businesses are located in individual units in a strip mall leased from an independent lessor. While these units may not be deemed internal rooms or partitioned areas within a single structure, they are not discrete places in keeping with the apparent intent of the Act. Here, we do not have a situation where an attempt was made to convert one "place" into two "places." Rather, it is effectively a conversion of "two" units or places into one. Respondent, George D. Vinovitch testified that he made a business decision to create the internal access between the two locations to create an "adult entertainment atmosphere." He further testified that it was "highly inconvenient for customers to walk outside" to access the other video poker suite. The fact that internal openings were created between the two suites to allow free access and to provide a joint service counter compromises and defeats the physical structural integrity of the units as it relates to separateness. The phrase "single place or premises" must be construed consistently with the Act's purpose and themes, one of which is, to avoid large casino-type locations for numerous gambling machines. S.C. Att'y Gen. Op. of March 24, 1994 at 3. Thus, the question is whether a person of ordinary intelligence would believe the suites of the businesses in the instant case constitute a single place or premises. Reyelt, et al. v. South Carolina Tax Commission, Civil Action No. 6:93-1491-3 (D.S.C. July 5, 1994 ).

It should be noted that the Department issued and distributed guidelines and policy statements to aid the industry in interpreting the Video Game Machines Act.⁽¹⁾ Since these guidelines do not constitute a binding norm, they are not required to be promulgated as 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). They are only factors that may aid in the "ordinary person" assessment.⁽²⁾

Based on the facts, this tribunal believes that a person of ordinary intelligence would conclude that the subject locations represent a single place or premises. While there are certain indicia of two separate places found in this case, they are negated by the effect of the internal access between the locations and the joint service counter. See Stacks v. S.C. Department of Revenue and Taxation, No. 95-CP-40-0239 (Richland County Court of Common Pleas, April 17, 1995).

6. 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 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.

7. 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.

8. 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.

Based upon the Findings of Fact and the Conclusions of Law, respondents' motions to dismiss the citation are hereby denied. Further, according to ALJD Rule 29(B), issues raised in the proceedings but not addressed in the Order are deemed denied.

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 along with the revocation of the machine licenses, 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 D.D.B., Inc. and Video Gaming Consultants, Inc., on July 13, 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

August 17, 1995

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Fn. 1. 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.

Fn. 2. See Respondent's Exhibit # 7 for a list of the factors.