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. Will D. Wheeler, d/b/a Hot Spot

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Will D. Wheeler, d/b/a Hot Spot,
1918 Highway 17 Bus., Surfside Beach, SC
 
DOCKET NUMBER:
95-ALJ-17-0169-CC

APPEARANCES:
William L. Todd, Esquire
Attorney for the Petitioner

Douglas L. Hinds, Esquire
Attorney for the Respondent
 

ORDERS:

ORDER AND DECISION

This matter comes before me pursuant to S.C. Code Ann. § 1-23-320 (Supp. 1994) and S.C. Code Ann. § 12-4-30(D) (Supp. 1994). Petitioner alleges that (1) on April 27, 1994, Respondent violated S.C. Code Ann. § 12-21-2804(A) by operating more than eight (8) video poker machines within a single place or premises and (2) on May 19, 1994 and May 24, 1994, Respondent violated S.C. Code Ann. § 12-21-2804(B) (Supp. 1994) by advertising for the playing of video poker machines. Respondent denies the alleged violations and, therefore, contests the citations of the South Carolina Department of Revenue and Taxation ("Department"). Petitioner seeks a $5,000 fine for the alleged violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1994) and revocation of the twenty (20) video poker machine licenses located at 1918 Highway 17 Business, Surfside Beach, South Carolina on April 27, 1994. Additionally, Petitioner seeks a fine of $500 for each of the two alleged advertising violations.

After timely notice to all parties, a hearing was held at the Administrative Law Judge Division in Columbia, South Carolina. The issues before this tribunal are whether Respondent violated S.C. Code Ann. §§ 12-21-2804(A) and 12-21-2804(B) (Supp. 1994). Based upon the following Findings of Fact and Conclusions of Law, this tribunal concludes that Respondent violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1994) on April 27, 1994 and S.C. Code Ann.§ 12-21-2804(B) (Supp. 1994) on May 19 and May 24, 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. On March 31, 1994, Respondent Will D. Wheeler leased 2675 square feet of floor space in Surfside Shopping Mall from the owner of the mall, J. Mars Sapp, for a term of two (2) years beginning April 1, 1994. The mall is located at 1918 Highway 17 Business, Surfside Beach, South Carolina.

2. On April 1, 1994, Respondent Will D. Wheeler subleased a portion of the leased premises to Jarvis Faircloth, Direct Advertising d/b/a Hot Spot Casino, for a term of two (2) years beginning April 1, 1994.

3. On May 1, 1994, Respondent Will D. Wheeler subleased another portion of the leased premises to Richard Hardee, d/b/a Video Games, for a term of two (2) years beginning April 1, 1994.

4. On or about April 4, 1994, Revenue Officer David Harold Dean visited the premises located at 1918 Highway 17 Business, Surfside Beach, South Carolina for an official inspection.

5. On April 27, 1994, Revenue Officer David Harold Dean made a second visit to the premises located at 1918 Highway 17 Business, Surfside Beach, South Carolina to inspect the location and compile information. Rick Hall accompanied Revenue Officer Dean and drew a floor plan of the premises. Photographs were also taken of the location on this date.

6. As of the time of inspection on April 27, 1994, the facts were as follows:

a. There were at least twenty (20) Class III video gaming machines located and operated on the leased premises.
b. All twenty (20) video gaming machines and licenses were purchased by Respondent Will D. Wheeler.
c. Will D. Wheeler held a Coin Operated Device Operator's C License to operate video gaming machines.
d. Richard Hardee held a retail license to operate "Video Games".
e. Respondent Will D. Wheeler held a retail license to operate "Hot Spot".
f. Jarvis Faircloth, principal of Direct Advertising d/b/a Hot Spot Casino, held a retail license to operate "Hot Spot Casino".
g. Will D. Wheeler and Jarvis Faircloth renovated the premises located at 1918 Highway 17 Business, Surfside Beach, South Carolina. Will D. Wheeler provided the funds for two-thirds (.66%) of the cost of the renovations and Jarvis Faircloth provided the funds for one-third (.33%) of the cost of the renovations.
h. Within the Respondent's leased space, walls were erected at three of the four corners to create three rooms. The walls extended upward, but stopped before meeting the ceiling. Two of the rooms encompassed the subleased space. Each of these rooms had large windows and a door. The windows allowed patrons to see from each room into the common area of the leased premises, from the common area into each room, and from one room to the other. The doors of the rooms opened into the common area Respondent reserved for his business, "Hot Spot". There was a sign on each room displaying the name of the business located on the interior of the leased premises. "Hot Spot Casino" operated in one room, addressed as 1918#D Highway 17, Surfside Beach, South Carolina, with six (6) Class III machines. "Video Games" operated in another room, addressed as 1918#F Highway 17, Surfside Beach, South Carolina, with six (6) Class III machines. Respondent operated "Hot Spot" in the common area with eight (8) Class III machines. "Hot Spot" was addressed as 1918#B Highway 17, Surfside Beach, South Carolina. In order to access the two businesses located in the subleased space, patrons must enter through the front door of Respondent's leased space or from a back entrance. There was also an entrance to the leased premises through the ice cream parlor.
i. Direct Advertising d/b/a Hot Spot Casino retained all profits generated from the operation of the six (6) video gaming machines in the room it subleased.
j. Will D. Wheeler retained all profits generated from the operation of the eight (8) video gaming machines located in the leased premises operating as "Hot Spot".
k. Will D. Wheeler retained all profits from revenue generated from the operation of the six (6) machines located in the subleased room, operating as "Video Games", with the exception of $100 per week. Upon repayment of one-third (.33%) of the cost of the machines, licenses, and renovations by Richard Hardee to Will D. Wheeler, it was contractually agreed that Richard Hardee would assume ownership of "Video Games".
l. Richard Hardee managed all three businesses and was paid a salary by Will D. Wheeler. He also received $100 per week from Will D. Wheeler out of the profits generated from the playing of video gaming machines in the room operated as "Video Games".
m. "Hot Spot Casino" was displayed on the front facade of the building in large letters and a neon sign was displayed in a window located in the left corner of the building which read "Progressive Dollar Signs". "Hot Spot Casino" was also displayed on a roadside sign along with the signs of two other businesses which were located in Surfside Shopping Mall: O'Henry's 1889 Ice cream and Buckeye Bakery. However, there were no signs indicating that "Video Games" or "Hot Spot" were located within the premises.
n. The three businesses shared employees to operate and manage the premises.
o. All employees were paid by Will D. Wheeler. There was usually one attendant for all businesses located on the premises during the day and two attendants on the premises at night. There was a total of three employees for the location.
p. All businesses located in Surfside Shopping Mall were connected to the same electric meter.
q. The three video gaming businesses collectively provided patrons with snacks and chairs for lounging, which were located in the common area of the leased premises.
r. There were two telephone lines listed for the leased premises and an application had been taken for the installation of a third telephone line.
s. Separate payout sheets were kept for each of the three businesses.

7. Additional facts relating to the "advertisement of video gaming machines" by Respondent on or about May 19, 1994 and May 24, 1994 were as follows:

a. "Hot Spot Casino" was displayed across the facade of the building in which twenty (20) Class III video gaming machines were located. Will D. Wheeler was the owner of all twenty (20) Class III video gaming machines.
b. "Hot Spot Casino" was also displayed on a roadside sign outside the location.
c. A neon sign was displayed in a window located in the left corner of the building which read "Progressive Dollar Signs".
d. Will D. Wheeler contributed monetarily towards the purchase of the roadside sign and was primarily responsible for the placement of the sign.
e. All of these signs were visible from Highway 17.
f. On or about May 19, 1994, several copies of a flyer were distributed by Will D. Wheeler to promote the playing of video game machines at the subject location. The flyer used the words "Hot Spot Casino", "Progressive Video Games", "Casino Update", and read "You're invited to stop by and check out the 3 newest Vegas Style Casino's on the Strip." It also read, "Featuring Penny & Nickel Progressive Jackpots & All new 2 in 1 machines".

8. The information collected during the April 27, 1994 inspection was submitted 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 by the Department in reaching a final decision on whether to issue a citation to Will D. Wheeler.

9. On May 24, 1994, at the direction of Johnnie Leggette, Revenue Officer Dean issued a citation against Respondent, the owner and operator of the Class III video gaming machines at the subject location, for violating S.C. Code Ann. § 2804(A) (Supp. 1994). This provision 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.

10. On May 24, 1994, a citation was also issued to Respondent for violating S.C. Code Ann. § 12-21-2804(B) by displaying its business signs.

11. On May 24, 1994, a citation was also issued to Respondent for violating S.C. Code Ann. § 12-21-2804(B) by distributing the flyers to the public.

12. Hot Spot Casino, Hot Spot, and Video Games had been open for business less than one month before the April 27, 1994 inspection.

13. The Department issued S.C. Revenue Procedure #94-2 on March 23, 1994 and this document was distributed among the video gaming industry. More specifically, Revenue Procedure #94-2 was provided to the Respondent. Revenue Procedure #94-2 advised video poker operators of an exhaustive list of flexible 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).

14. Ken Altman, accountant for Will D. Wheeler, asserted that in advising his client Will D. Wheeler on the issue of "single place or premises", he relied on telephone conversations he had with John Taylor. In those conversations, Altman asserts that John Taylor stated that as long as 50% of the requirements of Revenue Procedure #94-2 were met an operator of video gaming machines should not be cited, and should be in compliance with the Video Game Machines Act.

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). One 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 Comm'n, 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, Respondent had notice that he was prohibited from operating more than eight (8) machines at a "single place or premises" or permitting such to be done. That is, this statute alone puts a person of ordinary intelligence on notice.

While Respondent asserts that he detrimentally relied on representations by John Taylor of the Department that his business operation as it existed on or about April 27, 1994 was in statutory compliance, there was not a sufficient evidentiary showing that such official representations were in fact made. The first essential element of equitable estoppel, an official representation, is not present in this case. Oswald v. County of Aiken, 281 S.C. 298, 315 S.E.2d 146 (1984). Therefore, an exhaustive analysis of the applicability of the doctrine of equitable estoppel is unnecessary.

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. 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 businesses in the instant case constitute a single place or premises. Reyelt, et al. v. South Carolina Tax Comm'n, 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. 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.

Based on the facts, this tribunal believes that a person of ordinary intelligence would conclude that the subject location represents a single place or premises. Although there are separate business interests involved here, the businesses are, nonetheless, being conducted in a single structure or premises. That is, these internal rooms or partitioned areas do not constitute a discrete place or premises. See S.C. Att'y Gen. Op. of March 24, 1994 at 3. See also Stacks v. S.C. Dep't 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 Respondent violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1994) by using, maintaining, or permitting the use of more than eight (8) machines authorized under S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1994) at a single place or premises.

9. The second statutory provision at issue before this tribunal is S.C. Code Ann. §12-21-2804(B) (Supp. 1994), which provides:

No person who maintains a place or premises for the operation of machines licensed under Section 12-21-2720(A)(3) may advertise in any manner for the playing of the machines nor may a person offer or allow to be offered any special inducement to a person for the playing of machines permitted under Section 12-21-2720(A)(3). (emphasis added).

10. The Video Game Machines Act does not define the term "advertise." The meaning of the term may be derived from the common meaning as found in the dictionary. "Advertise" means (1) "to make something known;" (2) "to announce publicly especially by a printed notice or a broadcast;" (3) "to call public attention to especially by emphasizing so as to arouse a desire to buy or patronize." Merriam Webster's Collegiate Dictionary 18 (10th ed. 1993).

It is evident from this definition that Respondent's sign constituted advertisement. It was displayed to make his business known to the public. The next question is whether it constituted advertisement for the playing of video poker machines.

11. The nature and essence of the name "HOT SPOT CASINO" connotes gambling. At its elementary level, this term when displayed to the public would put reasonable persons on notice or call attention to the availability and opportunity for playing video poker machines at the subject location. The term "casino" means "a building or room used for social amusements; specifically one used for gambling." Merriam Webster's Collegiate Dictionary 625 (10th ed. 1993) at 177.

Even though Respondent does not hold the retail license to "Hot Spot Casino", he maintains the place or premises for the operation of video poker machines. Further, his testimony indicated that he was primarily, if not exclusively responsible for erecting the signs advertising Hot Spot Casino. The clear effect of the sign Respondent erected is an advertisement for the playing of video poker machines in contravention of the S.C. Code Ann. § 12-21-2804(B) (Supp. 1994). The Act clearly prohibits advertising in any manner. While an entity may have a possessory right to its legal business name, it does not have a right to advertise the playing of video poker machines. The argument that a business should be able to advertise its name, which connotes the playing of video poker machines, is not plausible in view of the state's substantial interest in regulating the video poker machine industry.(2) Further, if such an argument were allowed to stand, it would render S.C. Code Ann. § 12-21-2804(B) (Supp. 1994) meaningless through circumvention under the guise of the corporate veil.

In the second instance of improper advertising, Respondent distributed flyers to the public clearly aimed to announce his business and encourage patronage and the playing of video poker machines.

12. S.C. Code Ann. § 12-21-2804(F) (Supp. 1994) allows for the imposition of a fine of up to $5,000.00 for the violation of S.C. Code Ann. § 12-21-2804(B) (Supp. 1994).

ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, the Department properly issued citations to Respondent. Although 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 a relatively new enactment 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 of the twenty (20) video gaming machines located at 1918 Highway 17 Business, Surfside Beach, South Carolina on April 27, 1994; however, the Department shall suspend the monetary fine imposed for the violation of S.C. Code Ann. § 12-21-2804(A).

AND IT IS FURTHER ORDERED that within fifteen (15) days of the date of this Order, Will D. Wheeler shall pay to the Department a fine of $500.00 for each of the two violations of S.C. Code Ann. § 12-21-2804 (B) as imposed by the Department.

AND IT IS SO ORDERED.



____________________________________

JOHN D. GEATHERS

Administrative Law Judge

Edgar A. Brown Building

1205 Pendleton Street

Columbia, South Carolina 29201

January 18, 1996

___________________

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).

Fn. 2. In Reyelt, et al. v. South Carolina Tax Comm'n, the court upheld S.C. Code Ann. § 12-21-2804(B) and found that its restriction on advertising for the playing of video poker machines did not violate the First Amendment of the Constitution. Reyelt, et al. v. South Carolina Tax Comm'n, Civil Action No. 6:93-1491-3 (D.S.C. Nov. 15,1993). The statute met the test, which was used for assessing the constitutionality of restrictions on commercial speech, advanced in Central Hudson Gas & Electric Corp. vs. Public Service Comm'n of New York, 447 U.S. 557(1980).


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