SC Administrative Law Court Decisions

This matter comes before me upon request for a Hearing by the Respondents after being cited for violating S.C. Code Ann. § 12-21-2804 (A)(Supp. 1996). The South Carolina Department of Revenue (DOR) contends that the Respondents operated more than eight video poker machines in a "single place or premise."

A Hearing was held before the Administrative Law Judge Division on August 29, 1995. Respondents failed to appear and the hearing was held in their absence. I thereafter found the Respondents violated the Video Game Machines Act and issued an Order revoking the Respondents' video poker machine licenses and imposing a $5,000 fine on October 11, 1995. However, after that decision, Respondents made a Motion for Reconsideration. A hearing was held concerning the Respondents' Motion on June 24, 1996. Following that hearing, I vacated the August 29, 1995 Order and rescheduled this case for a hearing. The subsequent de novo hearing in this matter was held before the Administrative Law Judge Division on November 7, 1996.

I find the Respondents violated Section 12-21-2804.

Having observed the witnesses and exhibits presented at the hearing and closely passed upon their credibility, taking into consideration the burden of persuasion by the Parties, I make the following Findings of Fact by a preponderance of evidence:

1. Notice of the time, date, place and subject matter of the Hearing was given to the Petitioner and the Respondent.

2. J & W Corporation ("J & W") owns a business entitled "Flamingo." The business is located on Highway 17 in Beaufort County, three miles North of the Savannah Bridge. J & W advertised the Flamingo by a sign outside the business. That sign advertised "Flamingo" in large letters. The names of the businesses operated within the Flamingo were located at the bottom of the sign in small letters. See Petitioner's Exhibit No. 1.

3. On May 26, 1994, the Department's revenue officers, Sanders and Muckenfuss, delivered a copy of Revenue Procedure 94-2 and Information Letter 94-13 explaining the Department's interpretation of "single place or premise." At that time, the officers specifically informed the manager, Larry Cook, that the Flamingo had until June 1, 1994, to come into compliance with the Video Game Machines Act ("Act") as set forth in Revenue Procedure 94-2 and Information Letter 94-13.

4. On June 10, 1994, an inspection revealed that the Flamingo reduced the number of the Class III video poker machines located on the premises to eight machines. Thereafter, J & W sought an injunction against the Department from the enforcement of the Act. On July 21, 1994, a Consent Order was entered by Judge Kemmerlin in the case of J & W Corporation, et al. v. South Carolina Department of Revenue and Taxation, 94-CP-07-1124. That Order provided that no adverse action would be taken against J & W until "John Taylor of the South Carolina Department of Revenue and Taxation shall conduct an investigation of each of the Plaintiffs in order to determine if each of the Plaintiffs is operating a 'single place or premises' within the meaning of Section 12-21-2804(A) . . . " This investigation would be held within a reasonable time so as to decide whether J & W was in violation of the Act, Section 12-21-2804 (A).

5. On August 8, 1994, Revenue Officers Muckenfuss, Kennedy and Sanders, conducted an investigation under the oversight of John Taylor and found the following facts:

a. The Flamingo was a double-wide modular unit owned by J & W.

b. The Flamingo had one main entrance which opened into a large hallway. From that hallway, all of the business sections could be entered.

c. The sections were separated by partitions of latticework, with large openings allowing movement into and out of the sections. Each section was designated as a separate business by placards with the business' name outside each area and each section individually had eight Class III video poker machines located within the area.

6. The thirty-two (32) Class III machine licenses were owned by Hilton Head Amusement, which is a business operated by the Ingrams' Worldwide Satellite Corporation. In May 1995, all the licenses which had been at the J&W businesses expired, and the Ingrams purchased new licenses.

7. J & W leased the four sections located within the modular unit to each of the designated businesses. Those businesses were:

a. Flamingo Check Cashing;

b. Freeport Shuttle;

c. Freeport Tours; and

d. Broadcreek Transportation.

Similarly, all of the video poker machines were leased to J & W from Henry Ingram.

8. The location had one office and one snack bar. The customers went to the Flamingo's cashier's office to receive their winnings' payouts from the four businesses.

9. All of the profits from the video poker machines located within the four sections were deposited into the J & W account identified as Flamingo. Though the business sections did have separate telephone numbers which were paid by the corporation and pro-rated to the four businesses, the electrical bill for all four sections was paid entirely by J&W.

10. Each business section had separate employees, though those employees moved freely throughout the location. Moreover, all the employees were paid out of the same payroll. Additionally, the employer withholding taxes for these employees were filed on a single tax return.

11. After the Department reviewed the facts pursuant to the officers' investigation, a violation report was issued against J & W Corporation and Worldwide Satellite, Inc., d/b/a Hilton Head Amusement.

12. Subsequent to the issuance of the above violation report by the Department, the Respondents' Class III machine permits expired. The Department thereafter issued new permits to the Respondents. The Department seeks revocation of all thirty-two (32) Class III video poker machine permits subsequently issued to the Respondents and a Five Thousand ($5,000.00) fine. However, there is no language in any of the license application forms that indicate that the license applied for is a renewal of an existing license. In fact, each license issued by the Department has a new number, is not restricted to any particular machine or location and is not tied in any way to any previous license that the Department may have issued.

13. I find that the Respondents violated S.C. Code Ann. § 12-21-2804 by having more than eight machines in one location and impose a $3,000 fine.

Based upon the above Findings of Fact, I conclude as a matter of law, the following:

1. The Administrative Law Judge Division has jurisdiction to hear this matter pursuant to S.C. Code Ann. § 12-4-30 (D) (Supp. 1996) and S.C. Code Ann. § 1-23-320 (Supp. 1996).

2. The Department contends that the Respondents violated S.C. Code Ann. § 12-21-2804(A)(Supp. 1996). That section provides:

No person shall apply for, receive, maintain, or permit to be used, and the commission [Department] 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 premise. . . .

3. Machines licensed under Section 12-21-2720(A)(3) include video games with a 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. 1996).

4. S.C. Code Ann. § 12-21-2804(A) (Supp.1996) states that the penalty for failing to comply with the maximum number of machines in a "single place or premise" is the revocation of the licenses of machines located in the establishment.

5. S.C. Code Ann. § 12-21-2804(F) (Supp. 1996) states that a person who violates Section 12-21-2804(A) may be fined up to five thousand dollars.

6. The Video Game Machines Act ("Act") does not define the term "single place or premise." The Department issued S.C. Revenue Procedure #94-2 on March 23, 1994 that advised video poker operators of the 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. 1996). The twelve factors set forth by the Department were:

a. Is the ownership of the business establishment independent of the ownership of any other business establishment operating video game machines? Is the ownership the same? If the ownership is not the same, is there any relationship between the owners (i.e., common stockholder)?

b. Does each business establishment have its own licenses, such as those required by the State, city, county, etc.? Do they operate under the same licenses?

c. Does each business establishment keep its own books and records? Are the books and records kept together? Does each business establishment maintain its financial accounts, such as bank checking and investment accounts? Do they maintain joint financial accounts?

d. If the business establishment leases its location, is that lease agreement separate from any lease agreement entered into by any other business establishment operating video game machines? Are these business establishments operating under the same lease agreement?

e. If the business establishment does not own the video game machines in its location, is the machine profit sharing or lease agreement with a licensed coin operator separate from any machine profit sharing or lease agreement entered into by any other business establishment operating video game machines? Are these business establishments operating under the same machine profit sharing or lease agreement?

f. Does each business establishment have its own, separate and distinct, address listed through the United States Postal Service or a 911- emergency system? Is the address for both business establishments the same?

g. Does each business establishment have its own signs and business marquis? Do they operate under the same signs and marquis?

h. Do the business establishments operate under different names? Do they operate under the same name?

I. Does each business establishment have its own employees? Do the same employees work for both establishments?

j. Does each business establishment have its own account with each of the utility companies (i.e., telephone, water, power)? Do they operate under the same account?

k. How are the business establishments physically separated (i.e., walls, no walls, lattice work, separate or common amenities, etc.)?

l. Does each business establishment file its own returns for any taxes that may be due (i.e., property tax - PT-100, admissions tax - L-511, sales and use tax - ST-3, In, etc.)? Do they remit such taxes on the same return?

7. After the Department issued Revenue Procedure #94-2, the Department then issued Information Letter #94-13 clarifying the Revenue Procedure. In that Letter, the Department adopted an Attorney General's opinion issued March 24, 1994 that explained that "subdividing a single building or structure with partitions to create so-called discrete 'premises' is contrary to the legislative scheme."

8. The Department's guidelines and revenue procedures do not constitute a binding norm, since they are not 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).

9. The Honorable G. Ross Anderson held that the term "single place or premise" is "sufficiently defined and susceptible of a common and ordinary meaning to provide a person of ordinary intelligence a reasonable notice of the prescribed conduct." Reyelt et al. v. South Carolina Tax Commission, C/A No. 6: 93-1491-3 (D.S.C. July 5, 1994). I find that the above holding in Reyelt correctly characterizes the proper interpretation of "single place or premise." Accordingly, in making the finding that the Respondents had more than eight Class III video poker machines at this "single place or premise," this tribunal considered all the evidence presented at the hearing concerning this issue and made this determination on the weight and credibility of that evidence. Neither the Department's twelve factors nor the March 24, 1994 Attorney General's opinion were binding upon this decision in any manner.

10. The Respondents argue that the Department was required to promulgate regulations before enforcing the provisions limiting the number of video poker machines allowed in a "single place or premise." 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. While S.C. Code Ann. § 12-21-2798 (Supp. 1994) provides: "the 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 need not promulgate regulations if they are not necessary to accomplish its objectives, that is, to enforce clearly defined laws. In this case, as set forth above, a "single place or premise" is "sufficiently defined and susceptible of a common and ordinary meaning to provide a person of ordinary intelligence a reasonable notice of the prescribed conduct." Reyelt, supra.

11. The Respondents argue that the Department failed to comply with S.C. Code Ann. § 1-23-370(c) (1986) because it instituted these proceedings before giving notice by mail of the facts or conduct which would warrant the intended action and before giving the licensee an opportunity to show compliance with all lawful requirements for the retention of the license. That section provides in pertinent part:

No revocation, suspension, annulment, or withdrawal of any license is lawful unless, prior to the institution of agency proceedings, the agency gave notice by mail to the licensee of facts or conduct which warrant the intended action, and the licensee was given an opportunity to show compliance with all lawful requirements for the retention of the license.

In Garris v. Governing Bd. of S. Carolina, S.C. , 461 S.E.2d 819 (1995), the Court addressed the requirements of Section 1-23-370. The Court held that 1-23-370 requires that a licensee be "given an opportunity to show compliance with all lawful requirements for the retention of the license." The Court concluded that the statute requires the licensee be given an opportunity to show compliance existed at the time the alleged violation occurred, not to rectify any matters they failed to comply with at the time of the violation. The Court stated:

Showing compliance means showing that at the time of the alleged violation appellant was in full compliance with the law. See Hinson v. Georgia State Board of Dental Examiners, 135 Ga. App. 488, 218 S.E.2d 162 (1975). We construe Section 1-23-370 as providing an opportunity to show that no violation occurred instead of providing an opportunity to correct deficiencies.

Here, on August 8, 1994, Respondents operated 32 Class III video game machines on their "single place or premise." Therefore, they did not meet the statutory requirements for the legal operation of those machines on that date. Any attempts to meet the requirement subsequent to that date would not cure the prior violation.

12. In May 1995, the Department issued new licenses to J&W upon the expiration of the Respondents' 32 licenses in effect when the violation occurred. The Department seeks revocation of all thirty-two (32) of these subsequently issued Class III video poker machine permits. The Department relies on S.C. Code Ann. § 1-23-370 (b) (1986) which states that:

When a licensee has made timely and sufficient application for the renewal of a license or a new license with reference to any activity of a continuing nature, the existing license does not expire until the application has been finally determined by the agency, and, in case the application is denied or the terms of the new license limited, until the last day for seeking review of the agency order or a later date fixed by order of the reviewing court.

The Department contends that since 1-23-370 requires the Department to renew the original license of an ongoing business, its only alternative is to issue another license and thereafter seek to have that license revoked. However, that section does not require the issuance of a new license. In fact 1-23-370 (b) provides that if the Department opposes the renewal of a license, the existing license does not expire "until the last day for seeking review of the agency order or a later date fixed by order of the reviewing court." In other words, that section provides that the existing license will remain valid until the business has had an opportunity to present its defense to the denial of its license. It certainly does not mandate that the Department issue an entirely new license.

The Department further argued that the "new" license application is simply a renewal license issued in accordance with S.C. Code Ann. § 12-21-2720 (A) (Supp. 1996) which provides that all licenses issued pursuant to the Act are to be valid only for two (2) years. However, as noted above, each license issued by the Department has a new number, is not restricted to any particular machine or location and is not tied in any way to any previous license that the Department may have issued. S.C. Code Ann. § 12-21-2804(A) (Supp. 1996) directs the Department to "revoke the licenses of machines located in an establishment which fails to meet the requirements of this section." "To revoke means to recall, and, with reference to privileges, to annul, repeal, rescind, cancel." 37A Words and Phrases 180 (Supp. 1996). Obviously, an agency cannot recall or rescind something that has not yet been issued.

Penal statutes must be strictly construed against the state in favor of the citizen. Feldman v. S.C. Tax Commission, 203 S.C. 49, 26 S.E.2d 22 (1943). The current statutory scheme contemplates revocation of licenses in existence when a violation occurs, and makes no provision for revoking new licenses issued after the violation occurs. Since there is no nexus whatsoever between the previous license and the license the Department seeks to revoke, there simply is no authority for visiting the sins of a previous license upon a subsequently issued "new" license. Therefore, as the licenses in dispute are no longer in effect, the Department has no authority to revoke new licenses issued subsequent to the violation.

13. On June 23, 1995, S.C. Code Regs. 117-190 (Supp. 1996) became effective. It provides as follows:

The Video Game Machines Act, found in Article 20, Chapter 21 of Title 12, limits the number of machines that may be located in a "single place" or "premises."

A single place or premises must be a fixed location. It does not include moving property such as a boat or a train, unless such property is permanently affixed to a specific location.

A "single place" or "premises" means a structure surrounded by exterior walls or firewalls consistent with the requirements of the applicable building code (or where no building code is applicable, a one hour rated firewall), provided such exterior walls and firewalls may not have any windows, doors or other openings leading to another area where video game machines are located.

If a structure surrounded by exterior walls has two or more areas where video game machines are located, each surrounded by exterior walls or firewalls as defined and required above, the Department must review all the facts and circumstances to determine if each area in reality constitutes a single place or premise for video game machines. In determining whether each entity is in fact a single place or premises, the Department of Revenue will consider the following factors: (1) Does each entity have at least one separate electric utility meter? (2) Does each entity or business have at least one separate employee on the premises during business hours? (3) Does each entity or business have a separate local business license where required? (4) Does each entity or business have a separate state sales tax license? A positive answer to these four questions is required for each area to be considered a "single place or premise" for purposes of The Video Game Machines Act.

The Respondents argue that at the time of the investigation on August 8, 1994, the Department was erroneously interpreting the words "single place or premises" contained in S.C. Code Ann. §12-21-2804. The Respondents contend the legislative intent is found in Regulation 117-190 because that is the only interpretation which has been approved by the General Assembly. However, where the language of a statute is plain and unambiguous and conveys a clear and definite meaning, there is no occasion for employing rules of statutory interpretation and a court has no right to look for or impose another meaning. Miller v. Doe, 312 S.C. 444, 441 S.E.2d 319 (1994). In this case, the term "single place or premise" as used in Section 12-21-2804(A) is "sufficiently defined and susceptible of a common and ordinary meaning to provide a person of ordinary intelligence a reasonable notice of the prescribed conduct." Reyelt, supra. Accordingly, it is inappropriate to attempt to interpret Section 12-21-2804(A) by resorting to rules of statutory construction. Moreover, even if Respondent's argument were correct and the legislative intent behind Section

12-21-2804(A) could only be determined by referring to Regs. 117-190, it is clear that Respondents would still be guilty of a violation. One of the determining factors in whether a given establishment constitutes a discrete "place or premise" pursuant to Regs. 117-190 is whether each individual establishment is surrounded by exterior walls or firewalls. In this case, the undisputed evidence indicates that the game rooms were not surrounded by firewalls, but were merely partitioned off with latticework. Therefore, Respondents' argument is without merit.

14. It is a generally recognized principle of administrative law that the fact finder has the authority to impose an administrative penalty after the parties have had an opportunity to have a hearing and be heard on the issues. See Ohio Real Estate Comm'n v. Aqua Sun Investments, 655 N.E. 2d 266 (Ohio 1995); Shadow Lake of Noel, Inc. v. Supervisor of Liquor Control, 893 S.W. 2d 835 (Mo. App. S.D. 1995); Matter of Henry Youth Hockey Ass'n, 511 N.W. 2d 452 (Minn. App. 1994); Vermont Agency of Natural Resources v. Duranleau, 617 A.2d 143 (Vt. 1992); City of Louisville v. Milligan, 798 S.W. 2d 454 (Ky. 1990); Com., Dept. of Transp. v. Slipp, 550 A.2d 838 (Pa. 1988); Dept. of Transp. v. Miller, 528 A.2d 1030 (Pa. 1987); State Police v. Cantina Gloria's, 639 A. 2d 14 (Pa. 1994).

Prior to governmental restructuring, a commission sitting in its adjudicatory capacity imposed penalties for violations of statutory provisions its agency administered. In its capacity as the fact-finder, the Tax Commission would conduct an adjudicatory hearing in all contested cases arising under Title 12 of the South Carolina Code, and would render an order containing findings of fact and conclusions of law. As the fact-finder, it was the commission's prerogative "to impose the appropriate penalty based on the facts presented." Walker v. South Carolina ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633, 634 (1991). With the advent of restructuring and the abolition of the Tax Commission, however, the Administrative Law Judge Division was given the authority to hear "all contested cases, as defined by Section 1-23-310 and as previously considered by the three [Tax] commissioners. . . ." S.C. Code Ann. §12-4-30(D) (Supp. 1996). The Administrative Law Judge, as the current fact-finder, must also impose a penalty based on the facts presented at the contested case hearing. As parties are entitled to present evidence on all issues arising out of the contested agency action, it follows that the tribunal responsible for conducting the contested case proceedings as mandated by the legislature must have the authority to decide the issues based on the facts presented and make the final decisions on all the issues, including the appropriate penalty.

Based upon the Findings of Fact and Conclusions of Law, it is hereby:

ORDERED that a fine of $3,000 is imposed upon the Respondent World Wide Satellite Inc.

Columbia, South Carolina

April 28, 1997