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. Roadrunners Softball Association and Ronald E. Reynolds, Promoter

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Roadrunners Softball Association and Ronald E. Reynolds, Promoter
 
DOCKET NUMBER:
95-ALJ-17-0215-CC

APPEARANCES:
Nicholas P. Sipe
Attorney for the Petitioner

Mark A. Mason
Attorney for the Respondents
 

ORDERS:

ORDER AND DECISION

This matter comes before me for a hearing pursuant to S.C. Code Ann. §§ 1-23-310, etseq. (Supp. 1994) and S.C. Code Ann. § 12-4-30 (Supp. 1994) on the citation issued by the Department of Revenue and Taxation ("Department") against Roadrunners Softball Association ("Roadrunners"), and the past and present promoters of Roadrunners, Derrell Lee and Ronald E. Reynolds. Prior to the hearing of this matter, Respondent Derrell Lee was dismissed as a party to this action, by the consent of all parties, because Derrell Lee was not the promoter of Roadrunners during the period of September of 1993 to June of 1994, the time of the alleged violations.

The Department cited the Respondents with: (A) eight (8) violations of S.C. Code Ann. § 12-21-3480(C) (Supp. 1994) alleging that Respondents failed to deposit all funds derived from the conduct of bingo, less the amount awarded as prizes, into its bingo checking or savings account; (B) one (1) violation of S.C. Code Ann. § 12-21-3490(C) and (H) (Supp. 1994) alleging that Respondents commingled funds derived from the conduct of bingo with other funds of the licensed organization which were deposited in the bingo account; (C) ten (10) violations of S.C. Code Ann. § 12-21-3420(12) (Supp. 1994) alleging that Respondents failed to return a minimum of 60% of gross proceeds taken in by the house during a calendar quarter, and at least 50% taken in during a single session in the form of prizes during ten sessions; and (D) ninety-four (94) violations of S.C. Code Ann. § 12-21-3340(A) (8) (Supp. 1994) alleging that Respondents failed to supply the Department with the name, address, and social security number of all persons who worked at the proposed bingo games and received compensation for the work.

The Department assessed penalties of $1000 for each of the eight (8) alleged violations of S.C. Code Ann. § 12-21-3480(C) (failure to deposit all funds derived from the conduct of bingo, less the amount awarded out as prizes); $500 for the alleged violation of S.C. Code Ann. § 12-21-3490(C) and (H) (commingling of funds); $1000 for each of the ten (10) alleged violations of S.C. Code Ann. § 12-21-3420(12) (failure to meet the minimum payout) and revocation of Respondents' bingo license and promoter's license; and $100 for each of the ninety-four (94) alleged violations of S.C. Code Ann. § 12-21-3340(A)(8) (failure to provide employee information to the Department). The total penalties assessed by the Department are $27,900 and revocation of Respondents' bingo license and promoter's license. Respondents deny and contest the alleged violations, which necessitates this hearing before the Administrative Law Judge Division.

After timely notice to the parties, a hearing was conducted at the Administrative Law Judge Division Hearing Room, Columbia, South Carolina. Based upon the testimony and evidence presented, this tribunal concludes that the Respondents violated S.C. Code Ann. §§ 12-21-3480(C), 12-21-3490 (C) and (H), 12-21-3420(12), and 12-21-3340(A) (8).



FINDINGS OF FACT

Having carefully considered all testimony, exhibits, 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. Respondent, Roadrunners, holds a Class AA Bingo License (#000035) to conduct bingo sessions at 2729 East Palmetto Street, Florence, South Carolina which was issued by the Department. Petitioner's Exhibit #1.

2. Respondent, Roadrunners, is a non-profit charitable organization which was incorporated in South Carolina for the purpose of social development of young women through participation in amateur sporting events.

3. Respondent, Ronald E. Reynolds, held a promoter's license for Roadrunners Softball Association from September 8, 1993 to September 7, 1994. Reynolds acted as the promoter for Roadrunners at every session of bingo held between the relevant dates of September 1993 through June 1994. Reynolds turned in his promoter's license to the Department on September 5, 1994, at which time Derrell Lee made application and was granted a promoter's license for Roadrunners. Petitioner's Exhibit #2; Respondents' Exhibit #1.

4. An audit of the financial records of Roadrunners was conducted by the Department in June 1994 for the period of September 1993 to June 1994. As a result of the audit, the Department cited Respondents with: (A) eight (8) violations of S.C. Code Ann. § 12-21-3480(C) alleging that Respondents failed to deposit all funds derived from the conduct of bingo, less the amount awarded as cash prizes, into its bingo checking or savings account; (B) one (1) violation of S.C. Code Ann. § 12-21-3490(C) and (H) alleging that Respondents commingled funds derived from the conduct of bingo with other funds of the licensed organization which were deposited in the bingo account; (C) ten (10) violations of S.C. Code Ann. § 12-21-3420(12) alleging that Respondents failed to return a minimum of 60% of gross proceeds taken in by the house during a calendar quarter, and at least 50% taken in during a single session in the form of prizes during ten sessions; and (D) ninety-four (94) violations of S.C. Code Ann. § 12-21-3340(A) (8) alleging that Respondents failed to supply the Department with the name, address, and social security number of all persons who worked at the proposed bingo games and received compensation for the work. Petitioner's Exhibit #14.

5. The Department assessed penalties of $1000 for each of the eight (8) alleged violations of S.C. Code Ann. § 12-21-3480(C) (failure to deposit all funds from the conduct of bingo, less the amount awarded as cash prizes); $500 for the alleged violation of S.C. Code Ann. § 12-21-3490(C) and (H) (commingling of funds derived from the conduct of bingo with other funds of the licensed organization); $1000 for each of the thirteen (13) alleged violations of S.C. Code Ann. § 12-21-3420(12) (failure to meet the minimum payout) and revocation of Respondents' bingo license and promoter's license; and $100 for each of the ninety-four (94) alleged violations of S.C. Code Ann. § 12-21-3340(A)(8) (failure to provide employee information to the Department). By letter dated August 28, 1994 (one day prior to the hearing of this matter) and at the hearing of this matter, the Department agreed not to proceed on three of the thirteen alleged violations of S.C. Code Ann. § 12-21-3420(12). Therefore, total penalties assessed by the Department are $27,900 and revocation of Respondents' bingo license and promoter's license. Respondents' Exhibit #1; Petitioner's Exhibit #14.

6. In April of 1994, Alan Cox, an auditor with the Department, interviewed employees of Roadrunners and spoke with Gwen Reynolds and Derrell Lee. He found that from September of 1993 to April 1994, Respondents paid bus coordinators, who provided transportation for players to come to the bingo sessions, cash from funds derived from the conduct of bingo (collected from bingo card sales and entrance fees), which had not been deposited in a bingo checking or savings account.

a. Alan Cox testified that he monitored the Bingo games in June of 1994, and observed that all players of bingo paid a set amount for the programs of bingo cards. That is, players who rode buses to the bingo games and players who did not ride buses to the bingo games paid the same entrance fees and bingo card prices. Players who rode on the buses to Respondents' bingo sessions did not pay a separate fee for bus transportation.
b. Bus coordinators were paid in cash from monies collected from bingo card sales and entrance fees, as evidenced by handwritten receipts given to the bus and van coordinators by Respondents. Petitioner's Exhibit #8.
c. Roadrunners' accountant, Irene Sanjana, testified that she has prepared employee payroll since September 1993; and, that from September 1993 to April 1994, the bus coordinators were paid by cash from funds derived from the conduct of bingo by Roadrunners, which had not been deposited into the bingo account.
d. In April 1994, Respondents were informed by the Department that all monies derived from the conduct of bingo (collected from bingo card sales and entrance fees) were to be deposited in a bingo checking or savings account. From that point, bus coordinators were paid for services rendered on the same day by check. The checks were usually endorsed by the coordinators and cashed by Respondents; and, the checks were later deposited into Respondents' bingo checking account.

7. Respondent, Roadrunners, established a bingo account at South Carolina National Bank, account #100445352. Petitioner's Exhibit #1.

a. Funds loaned to Roadrunners by T & M Management were deposited into Roadrunners' bingo account on October 23, 1993, which is reflected by the financial record of Roadrunners, i.e., the auditor's schedule of bank deposits for Roadrunners. Petitioner's Exhibit #9.
b. On November 9, 1993, Roadrunners wrote a check (# 4068) to T & M Management from its bingo checking account for $32,116, which states it was for "repayment of loan on October 25, 1993." This check was signed by Gwen Reynolds, an employee of Roadrunners, as referenced by Petitioner's Exhibit #10. See also Petitioner's Exhibit #9.
c. Respondents' witness, Irene Sanjana, testified that money not derived from the conduct of bingo was placed into Roadrunners' bingo account to pay taxes owed to the Department.

8. The Department's audit of Roadrunners' financial records, concerning the funds derived from bingo which were awarded to players as prizes, revealed the following facts. SeePetitioner's Exhibits # 5 and #6; Respondents' Exhibit #15.

a. At the bingo session held in September 1993, Respondents collected $303,035 from bingo card sales and entrance fees. Respondents returned $138,976 to the players of bingo, which is a 45.86% return of gross proceeds for the month of September and a 45.86% quarterly return of gross proceeds for the third quarter, which ended with September.
b. At the bingo session held in October 1993, Respondents collected $276,751 from bingo card sales and entrance fees. Respondents returned $179,987 to the players of bingo, which is a 65.04% return of gross proceeds for the month of October.
c. At the bingo session held in November 1993, Respondents collected $437,347 from bingo card sales and entrance fees. Respondents returned $193,976 to the players of bingo, which is a 44.35% return of gross proceeds for the month of November.
d. At the bingo session held in December 1993, Respondents collected $384,500 from bingo card sales and entrance fees. Respondents returned $201,980 to the players of bingo, which is a 52.53% return of gross proceeds for the month of December. Respondents' return to the players in the form of prizes for the fourth quarter, which includes the months of October, November, and December, is 52.43% of gross proceeds.
e. At the bingo session held in January 1994, Respondents collected $299,439 from bingo card sales and entrance fees. Respondents returned $145,982 to the players of bingo, which is a 48.75% return of gross proceeds for the month of January.
f. At the bingo session held in February 1994, Respondents collected $352,805 from bingo card sales and entrance fees. Respondents returned $147,978 to the players of bingo, which is a 41.94% return of gross proceeds for the month of February.
g. At the bingo session held in March 1994, Respondents collected $327,998 from bingo card sales and entrance fees. Respondents returned $159,982 to the players of bingo, which is a 48.78% return of gross proceeds for the month of March. Respondents' return to the players in the form of prizes for the first quarter, which includes the return for the months of January, February, and March, is 46.31% of gross proceeds.
h. At the bingo session held in April 1994, Respondents collected $440,142 from bingo card sales and entrance fees. Respondents returned $223,972 to the players of bingo, which is a 50.89% return of gross proceeds for the month of April.
i. At the bingo session held in May 1994, Respondents collected $396,053 from bingo card sales and entrance fees. Respondents returned $198,982 to the players of bingo, which is a 50.24% return of gross proceeds for the month of May.
j. At the bingo session held in June 1994, Respondents collected $358,259 from bingo card sales and entrance fees. Respondents returned $177,982 to the players of bingo, which is a 49.68% return of gross proceeds for the month of June. Respondents' return to the players for the second quarter, which includes the months of April, May, and June, is 50.31% return of the gross proceeds taken in for the quarter.

9. Respondents assert that bus transportation expenses should be deducted from gross proceeds prior to computing the 60% and 50% statutory payout requirements.

10. The Department included sales tax in the calculation of whether there had been a 60% return of gross proceeds taken in by the house during a calendar quarter, and a 50% return of gross proceeds taken in during a single session. However, by letter dated August 28, 1995 (one day prior to the hearing of this matter) and testimony presented at the hearing of this matter, the Department conceded that it was wrong in including sales tax in the payout computation. The penalties were adjusted accordingly. Respondents' Exhibit #1.

11. Both parties agree that sales taxes and bingo taxes should be excluded in the computation of the 60% return of gross proceeds taken in by the house during a calendar quarter, or the 50% return of gross proceeds taken in during a single session.

12. The Department's records indicate that employee information was submitted with Roadrunners' original application of September 8, 1993 for a Class AA Bingo License, however, no updates were made until May of 1994. Petitioner's Exhibits #1, #3, #7, #9, and #12.

a. Employee information submitted to the Department in September 1993 and May 1994, payroll records submitted to the Department, and the financial records of Roadrunners submitted into the record by the Petitioner indicate that names, addresses, social security numbers, duties, and criminal background information had not been submitted to the Department, in writing, within thirty (30) days, for 94 persons who worked at Roadrunners' bingo sessions and received compensation for their work, during the months of September 1993 to June 1994. Petitioner's Exhibits #1, #3, #7, #9, and #12.
b. Department records indicate that no updates of employee information were submitted to the Department until May 3, 1994. There was no documentary evidence presented by Respondents to contradict the evidence presented by the Department.

13. Respondent, Roadrunners, does not have any outstanding tax liabilities.

CONCLUSIONS OF LAW AND DISCUSSION

Based on the foregoing Findings of Fact, I conclude, as a matter of law, the following:

Pursuant to S.C. Code Ann. §§ 1-23-310 et seq. (Supp. 1994) and S.C. Code Ann. § 12-4-30 (Supp. 1994), the South Carolina Administrative Law Judge Division has jurisdiction over this matter.

A. Violations

1. Respondents are cited with violating S.C. Code Ann. § 12-21-3480(C) (Supp. 1994). This provision, relating to depositing proceeds, provides:

The representative member of the nonprofit organization shall deposit the funds into the bingo checking or savings account as described in Section 12-21-3490.

S.C. Code Ann. § 12-21-3490 provides for the mandatory establishment and maintenance of a regular checking account by an organization licensed to conduct bingo. This section requires that the account be designated the "bingo account."

As it specifically relates to the alleged violation, S.C. Code Ann. § 12-21-3490(C) (Supp. 1994) provides in pertinent part:

. . . All funds derived from the conduct of bingo, less the amount awarded as cash prizes, must be deposited in the bingo account. . . . (emphasis added).

It is clear from the record that during the period of September 1993 to April 1993, on the occasions alleged, Respondents directly paid bus coordinators at the end of the session with cash monies from funds derived from the conduct of bingo. These monies [payments] were not first deposited into the bingo checking account. S.C. Code Ann. § 12-21-3490(C) (Supp. 1994) clearly provides that only cash awards may be paid directly from funds derived from the conduct of bingo without first being deposited into the bingo account.

2. Respondents are cited with violating S.C. Code Ann. § 12-21-3490(C) and (H) Supp. 1994). S.C. Code Ann. § 12-21-3490(C) and (H) (Supp. 1994) provide, in pertinent part: ". . . No other funds may be deposited in the bingo account." ". . . Gross proceeds derived from the conduct of bingo must not be commingled with other funds of the licensed organization." (emphasis added).

In October of 1993, Respondents deposited loan money from T & M Management into its bingo account established at South Carolina National Bank. Respondents contend that since the loan money was used to pay taxes owed to the Department, such action is not violative of the law. This tribunal disagrees. It is clear from S.C. Code Ann. §12-21-3490(C) and (H) (Supp. 1994) that no other funds of the organization should be commingled with funds derived from the conduct of bingo.

3. Respondents are cited with violating S.C. Code Ann. § 12-21-3420(12) (Supp. 1994). This provision, relating to the minimum payout in the form of prizes to the players of bingo, provides:

A minimum of sixty percent of the gross proceeds taken in by the house during a calendar quarter, but no less than fifty percent taken in by the house during a single session must be returned to the players in the form of prizes. (emphasis added).

It is clear from a reading of this provision that Respondents are required to return a minimum of 60% of gross proceeds taken in during a quarter to the players in the form of prizes. Further, Respondents are required to return at least 50% of gross proceeds taken in per session to players in the form of prizes.

Crucial to the application of S.C. Code Ann. § 12-21-3420(12) (Supp. 1994) is an understanding of the meaning of gross proceeds. ". . . Gross proceeds means the total amountreceived from the sale of bingo cards and entrance fees charged at the locations in which bingo is conducted." (emphasis added).

Thus, it is clear that Respondents must return, per quarter, at least 60% of monies collected from the sale of bingo cards and from entrance fees charged to the players in the form of prizes. The same is true for the 50% minimum, per session, prize return. On the occasions Respondents were cited for violating the law, Respondents first subtracted from gross proceeds monies it paid to bus coordinators for transporting players to its games, and then calculated the 60% and 50% requirements based on the remaining subtotal. This is in clear contravention of the law. The definition of gross proceeds leaves no doubt as to what it consists of and where such monies are derived. The law does not allow for the adjustment of the total payout in prizes required so as to account for expenses incurred in conducting bingo. Respondents assert that it could not "stay in business" if it were not allowed to compute the 60% and 50% payout without first deducting transportation costs from gross proceeds. If this logic were taken to its fullest conclusion, Respondents should be allowed to deduct utility costs, printing costs, employee payroll, rental or mortgage expenses, or any other costs associated with conducting its operation.

The law does not afford such an interpretation as asserted by Respondents. Further, the fallacy of such an argument is the contention that its organization is a business. It is obviously not a business, but is a nonprofit organization subject to the rules and regulations prescribed by the Bingo Act. "The exemption for charitable bingo operators in the general prohibition of gambling has been taken far beyond its intended purpose of giving South Carolina charities a means for additional revenue. Certainly, the operation of bingo should not be the primary purpose for the existence of the exempted groups in South Carolina." Army Navy Bingo, Garrison v. Plowden, 281 S.C. 226, 314 S.E.2d 339 (1984).

4. Respondents are cited with violating S.C. Code Ann. § 12-21-3340(A)(8) (Supp. 1994). This provision, relating to the license to conduct bingo, provides:

To conduct bingo, an applicant nonprofit organization shallfile with the commission a written application in a form prescribed by the commission, executed and notarized which must include:
. . .
(8) the name, address, and social security number of each person who will work at the proposed bingo games and receive compensation for the work, the nature of the work to be performed, and a statement as to whether or not the person has been convicted of a felony, gambling offense, criminal fraud, or a crime that has a sentence of two or more years; . . . (emphasis added).

The clear intent of this provision is that the organization file, in its initial application, the required employee information with the Department even before the prospective employee begins work, as indicated by the operative phase "each person who will work." However, subitem (D) of this section requires that the organization notify the Department in writing of any changes in the information supplied on the application. Accordingly, Respondents are required to notify the Department within thirty (30) days, in writing, of any new employees. This provision does not provide an exception to the filing requirement when it involves transient employees or employees who only work on a limited basis, but requires the filing of such information for any "employee who will work . . . and receive compensation for the work." S.C. Code Ann. § 12-21-3340(A)(8) (Supp. 1994).

The record reveals that updated employee information was forwarded to the Department on May 3, 1994, as such records are a part of its files. The evidence establishes that Roadrunners did not file the updated employee information within the statutory prescribed time period.

B. Determination on Penalties

The Department acted within its authority in imposing a $1000 fine for each violation committed by Respondents. S.C. Code Ann. § 12-21-3550 (Supp. 1994), authorizing penalties for the violation of the Bingo Act, provides in relevant part: "A violation of the provisions of this article is subject to a penalty of twenty dollars to one thousand dollars at the discretion of the commission [department]. . . ." S.C. Code Ann. § 12-21-3550 (Supp. 1994) (emphasis added).

Further, Respondents are jointly and severally liable for such fines. S.C. Code Ann. § 12-21-3380 (Supp. 1994) provides:

The promoter and the nonprofit organization are jointly and severally liable for all taxes, penalties, interest, and fines imposed by this article and Chapter 54 of Title 12. However, the promoter at all times is liable primarily. (emphasis added).

The Department also seeks to revoke Respondents' licenses pursuant to S.C. Code Ann. § 12-54-90(A) (Supp. 1994). S.C. Code Ann. §§ 12-21-3550 and 12-54-90(A) may be construed harmoniously. S.C. Code Ann. § 12-21-3380 (Supp. 1994), as referenced above, clearly indicates that Respondents are subject to penalties that may be imposed under Chapter 54 of Title 12. Revocation of a bingo license and a promoter's license is proper under S.C. Code Ann. § 12-54-90(A) (Supp. 1994). This sub-section, in pertinent part, reads as follows: "When a person fails, neglects, violates, or refuses to comply with a provision of law or regulation administered by the commission [Department], the commission [Department], in its discretion, may revoke one or more licenses held by the taxpayer. . . ." (emphasis added). The Bingo Act is administered by the Department. Upon finding a violation of the Act, it inherently follows that the Department is authorized to "revoke one or more licenses" held by the licensees/taxpayers. Further, S.C. Code Ann. § 12-21-3470 (Supp. 1994) provides "a person . . . whose promoter's license has been revoked by the commission is not permitted to manage or conduct a game or assist in any manner with the bingo operation" (emphasis added). It is further evident from a reading of this section that the General Assembly intended and expected the revocation of bingo licenses in appropriate circumstances. Also, it should be noted that Judge Anderson has previously ruled that S.C. Code Ann. § 12-54-90(A) (Supp. 1994) provides for the revocation of bingo licenses. See South Carolina Dep't of Revenue v. Army Navy Garrison #2179, and Ibrahim J. Abdin, Promoter, 95-ALJ-17-0219-CC.

1. Monetary Fines

This tribunal finds that Respondents are subject to a penalty of $1000.00 for each of the eight (8) violations of S.C. Code Ann. § 12-21-3480(C), failing to deposit gross proceeds, less the amount paid out as prizes, into its bingo account ($8,000 total); a $500 penalty for a violation of S.C. Code Ann. § 12-21-3490(C) and (H), commingling funds derived from the conduct of bingo with other funds; a $1000.00 penalty for each of the ten (10) violations of S.C. Code 12-21-3420(12), failing to return to players in the form of prizes, at least 60% of gross proceeds taken in during a calendar quarter, and not less than 50% taken in during a single session; and a $100 penalty for each of the ninety-four (94) violations of S.C. Code Ann. § 12-21-3340 (A)(8), failing to supplying updated employee information within the thirty (30) day time frame. Respondents are liable for a total fine of $27, 900 for the above-referenced violations.

2. Revocation

The Department also seeks the revocation of Respondents' bingo license and promoter's license for the violation of S.C. Code Ann. § 12-21-3420(12), failing to return the requisite percentage of gross proceeds to players as prizes. Clearly, as set out above, the Department has authority to revoke Respondents' licenses for any violation of the Bingo Act, pursuant to S.C. Code Ann. §12-54-90(A). The exercise of this discretion is triggered upon a violation. Respondents' argument that the license in question should not be revoked because the Department did not follow its own internal guidelines, is without merit. The guidelines were formulated to assist Department employees in performing audits and inspection. There was no evidence proffered to establish that the Department abused its discretion in seeking to revoke Respondents' licenses.



ORDER

IT IS THEREFORE ORDERED that Respondents pay a fine of $27,900 (total) to the Department of Revenue and Taxation for violating the laws regulating the conduct of bingo games, as set forth above.

IT IS THEREFORE ORDERED that the Department of Revenue and Taxation revoke the bingo license of Roadrunners and the promoter's license of Ronald E. Reynolds for violating the laws regulating the conduct of bingo games.

IT IS FURTHER ORDERED that any motions or issues raised in the proceedings, but not addressed in this Order are deemed denied pursuant to ALJD Rule 29(B).

IT IS FURTHER ORDERED that post-hearing briefs submitted by the parties shall be stricken from the record. These briefs were requested by this tribunal and therefore no prejudice should be suffered by the parties as a result of this motion. The briefs are being stricken from the record as certain evidentiary questions have been raised by the Department concerning





Respondents' brief. Because of time constraints, this tribunal, sua sponte, strikes the briefs rather than engage in a motion hearing to resolve these evidentiary questions. This tribunal has not relied upon either brief in issuing this Order.

AND IT IS SO ORDERED.



_____________________________________

JOHN D. GEATHERS

Administrative Law Judge

Edgar A. Brown Building

1205 Pendleton Street

Columbia, South Carolina 29201

October 19, 1995

Columbia, South Carolina


Brown Bldg.

 

 

 

 

 

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