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Administrative Law Court
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SC Administrative Law Court Decisions

CAPTION:
SCDOR vs. Carl Custer d/b/a CC Electronics

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Carl Custer d/b/a CC Electronics
 
DOCKET NUMBER:
95-ALJ-17-0126-CC

APPEARANCES:
Malane Pike, Esquire for Petitioner

H. Buck Cutts, Esquire for Respondent
 

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


Brown Bldg.

 

 

 

 

 

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