ORDERS:
ORDER AND DECISION
This matter comes before me on the citation issued by the Department of Revenue and Taxation
against Carl Custer for a violation of the Video Game Machines Act for having more than eight
video poker machines in a single place or premise. After notice to the parties, a hearing was
conducted on April 17, 1995. At the hearing, Respondent made a motion to dismiss the case on
several grounds. The motions were taken under advisement and briefs were submitted. The
hearing proceeded with the presentation of evidence and testimony.
The motion requests dismissal of the action on the basis that the Department failed and refused to
promulgate regulations as required by the Video Game Machines Act; the Revenue Rulings and
Information Letters utilized by the Department should have been promulgated as regulations by
the Department; and that the proposed regulations submitted by the Department for approval to
the General Assembly have completely changed the criteria used by the Department in
determining compliance with the Act. The motion is denied for reasons cited in the
DISCUSSION AND CONCLUSIONS OF LAW below.
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 the evidence and taking into account the credibility of
the witnesses:
1. A site inspection was made by a revenue officer in July 1994. He gathered information, took
pictures, obtained copies of leases and reported information to the Department. At the time of the
inspection the businesses had been operating for two months.
2. The facts regarding the location at 3385 Highway 9 in Little River, South Carolina at the time
of the inspection are:
a. Carl Custer is the sole owner of three businesses: Little Reno Casino, Mary's Hats and
Gifts; and CC Electronics.
b. Custer, doing business as all three above, entered into a lease agreement to lease space
number 90 at Waterway Plaza shopping center on Highway 9 in Little River for $10,500 per
year. All three business names are listed on the lease.
c. There is one entrance from the outside into the leased premises. Custer subdivided the
leased space. Little Reno Casino is located in the front room with eight video poker
machines. CC Electronics is also located in this room as a completely enclosed office with a
window opening on each side into the other businesses. A wall and door separate Little
Reno from Mary's Hats and Gift which is located in the rear of the leased space. There are
seven machines in this area as well as a storage room and bathroom. Both rooms have a
counter. There are no separate leases between any of the businesses.
d. All machines are licensed to CC Electronics. There is a lease agreement for the machines
between CC Electronics and Mary's Hats and Gifts. This agreement requires the payment
of 90 percent of the machine income on a monthly basis to CC Electronics. There is no
lease agreement for the machines located in Little Reno.
e. Each business has its own retail license. The businesses share the telephone, electric and
water services but each is responsible for the payment of one of the bills instead of splitting
the bills.
f. There are only two employees of the business, Custer and his mother. All payouts for the
machines were made by them. Employees and patrons could move freely between the areas
without exiting the building.
g. An advertising sign stating "Little Reno Casino" was located in the front area near the
door on the floor facing away from the outside.
3. The location was first visited in June 1994. At that time Custer was informed that the sign
outside the location containing the words "Little Reno Casino" had to be removed. Custer
removed the sign and placed it inside the location until he could get it removed.
4. Information obtained during the July 1994 site inspection was referred to the Department for
review. The department established guidelines to assist in uniformity of enforcement of the
regulatory scheme. These guidelines were written in Revenue Ruling 94-2. The department also
adopted a March 1994 opinion of the Attorney General interpreting the "single place or premise"
language contained in the Act. 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.
5. The facts gathered during the site inspection were reviewed by a member of the implementation
team that developed the policy for enforcement of the act and the factors listed in the revenue
ruling. Based upon his review of the information provided, a citation was issued against Custer
for violating the advertising provisions and for having more than the allowed number of machines
at a single place or premise.
6. A copy of the revenue ruling and the attorney general opinion were delivered to the business
locations.
7. The Department did not promulgate regulations to interpret the act because it had to "act
quickly to ensure businesses were complying with the new law and to ensure public confidence in
the effectiveness and fairness of the department." Exhibit 2. Instead an implementation team
addressed those issues that ultimately lead to the Revenue Ruling.
8. At the time Custer established the businesses, he had no knowledge about the regulation of the
video game industry other than his conversations with people who operated these businesses and
newspaper articles. He did not seek information from the various industry associations or from
the department.
DISCUSSION AND CONCLUSIONS OF LAW
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. 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 premise. 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.
Reyelt v. S.C. Tax Commission, No.6:93-1491-3 (D.S.C. Nov. 15, 1993).
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. It is not necessary to determine whether the revenue ruling should
have been promulgated as a regulation in order to reach the conclusion that the location is a single
place or premise. However, the document 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 factor 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.
There are numerous references within the act requiring the Department to promulgate regulations.
Custer takes the position that the Department could not enforce the act until it promulgated
regulations. There is no mandatory requirement that regulations interpreting the act be
promulgated or adopted within a limited time period. If a specific time frame was required, the
legislature would have mandated this requirement in the wording of the statute, it did not do so as
done in other legislation. The act simply provides a grant of authority to the Department to adopt
regulations. It is up to the Department to determine when to promulgate the regulations based
upon its experience in enforcing the act. Until the Department has an opportunity to analyze and
enforce the statute, it is premature to require it to promulgate regulations.
The challenged provisions have the quality of filling in the details of one aspect of a
comprehensive regulatory framework. Compulsory notice and comment procedures for all such
matters would have the potential to mire the agency in fruitless delay, expense and inefficiency.
Although the rules may have some substantive impact, that alone does not undercut the
conclusion that they are general statements of policy. The fact that the agency has now decided
to promulgate regulations which may differ from the policy statement does not require the case to
be dismissed. Even an agency regulation adopted after notice and comment is subject to the
opportunity for reconsideration and revision. Those changes do not make the previous decisions
by the agency any less effective. See Guardian Federal Savings and Loan Association v. Federal
Savings and Loan Insurance Corporation, 589 F.2d 658 (D.C. Cir. 1978).
6. S.C. Code Ann. § 12-2-1-2804(A) (Supp. 1994) states 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 the machines located in the establishment.
7. S.C. Code Ann. § 12-21-2804(F) (Supp. 1994) provides that a person who violated Section
12-21-2804(A) may be fined up to five thousand dollars.
8. Advertising in any manner for the playing of machines licensed pursuant to Section
12-21-2720(A)(3) is prohibited. S.C. Code Ann. § 12-21-2804(B) (Supp. 1994). The evidence
reveals that the sign containing the word "casino" was taken down from the outside of the
business when the revenue agent told Custer that was prohibited. When the site inspection
occurred in July, a new sign was outside that did not have the word "casino" and the offending
sign was inside on the floor turned away from the public view. The evidence reveals that Custer
planned to take the sign away and was not using it to advertise the business. Custer was not
advertising the business in a manner that was prohibited by the act.
ORDER
Based upon the foregoing findings of fact and conclusions of law, the Respondent's motion to
dismiss is DENIED. Further, it is
ORDERED, that a violation is found against Carl Custer for violating the Video Game Machines
Act for having more than eight machines in a single place or premise. The licenses issued by the
Department for the fifteen machines located in the establishment at the time of the violation are
revoked. Custer is ordered to pay a fine in the amount of $2000 within ten days of the date of
this Order in a manner required by the Department pursuant to law. It is
FURTHER ORDERED, that the citation issued against Carl Custer for violating the Video Game
Machines Act for advertising is dismissed.
AND IT IS SO ORDERED.
_________________________
ALISON RENEE LEE
Administrative Law Judge
May _____, 1995
Columbia, South Carolina |
