ORDERS:
DECISION AND ORDER
STATEMENT OF CASE
This matter comes before the Court upon request for a hearing by Respondent after being cited
for violating S.C. Code Ann. § 12-21-2720(c) (Supp. 1994). The South Carolina Department of
Revenue and Taxation (Petitioner or Department) contends that Rosemary Coin Machines, Inc.
(Respondent) owned a multi-player station machine and failed to purchase a license for each
multi-player station.
A hearing was held before the Administrative Law Judge Division (ALJD) in Columbia, South
Carolina, on October 9, 1995. The Court finds Petitioner failed to provide sufficient evidence that
Respondent violated section 12-21-2720(c).
Any issues raised in the proceeding or hearing of this case but not addressed by this Order are
deemed denied. ALJD Rule 29(B). Further, the filing of a motion for reconsideration is not a
prerequisite to any party filing a notice of appeal of this Order. ALJD Rule 29(C).
FINDINGS OF FACT
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 the evidence:
1. This Court has subject matter jurisdiction in this case.
2. Notice of the date, time, place and nature of the hearing was given to all parties.
3. On July 5, 1995, Rick Hall, a revenue officer with Petitioner, entered Gerald's Convenience
Store in Conway, South Carolina, where he observed a multi-player, five station blackjack
machine with three stations currently in use by players. The other two stations were available for
play, and were capable of being used.
4. This blackjack machine was owned by Rosemary Coin Machines, Inc., was exempt from S.C.
Code Ann. §16-19-60 (Supp. 1994), was subject to licensing under section 12-21-2720(a)(3)
(Supp. 1994), and had posted thereon one license issued pursuant to that section.
5. As of May 31, 1995, this blackjack machine had one license and was lawfully licensed; no
citations had been issued regarding this machine for any licensing violations.
6. As of May 31, 1995, no violations had been written by the Department for any multi-player
machine operating with only one license.
7. On Friday, June 30, 1995, an agent of Petitioner in Myrtle Beach called on an agent of
Respondent at the location at approximately 4:00 p.m. to inform him of an impending change in
the licensing scheme, and to notify him that Respondent needed to obtain additional licenses on its
multi-player machines before July 1, 1995.
CONCLUSIONS OF LAW
Based upon the above Findings of Fact, the Court concludes as a matter of law, the following:
1. S.C. Code Ann. § 1-23-600 (Supp. 1994) grants jurisdiction to the ALJD to hear contested
cases under the Administrative Procedures Act.
2. S.C. Code Ann. § 12-4-30(D) (Supp. 1994) grants to the ALJD the authority to hear contested
cases previously considered by the commissioners of the South Carolina Department of Revenue
and Taxation.
3 In this action, the Department contends that Respondent violated section 12-21-2720(c)
(amended June 29, 1995, by Section 67 of the 1995-1996 General Appropriations Act).
4. As a threshold matter, the Court first considers whether Respondent was in compliance with
the licensing requirements existing prior to the amendment of section 12-21-2720(c).
5. Petitioner asserts that the amendment to section 12-21-2720(c) simply clarified an existing
multi-license requirement, and that Respondent was in violation of this section even prior to its
amendment. However, "[a] basic presumption exists that the legislature has knowledge of
previous legislation when later statutes are passed on related subjects." Berkebile v. Outen, 311
S.C. 50, 426 S.E.2d 760 (1993). Accordingly, because the General Assembly is presumed to
have had knowledge of the existing licensing framework when it amended section 12-21-2720(c),
and because the Court must construe legislative enactments so as to give meaning to such
legislation, the Court holds that the amendment to this section, requiring a license for each station
on a multi-player machine, changed what was previously a single-license requirement. See State
ex rel. McLeod v. Montgomery, 244 S.C. 308, 136 S.E.2d 778 (1964) (holding that South
Carolina courts must presume that in passing new legislation the legislature intended to
accomplish something and not to do a futile or redundant thing); Purvis v. State Farm Mut. Auto.
Ins. Co., 304 S.C. 283, 403 S.E.2d 662 (Ct. App. 1991).
6. Petitioner has also recognized that prior to July 1, 1995, only one license was required on a
multi-player machine. At best, it is apparent that while the issue remained in controversy within
the Department, it required only one license. See Resp. Ex. 4, Letter from D. John Taylor, with
the Department, to Craig Bullis, the Director of Compliance at Innovative Gaming Corporation of
America. (defining the position of the Department of Revenue as requiring only one license for a
multi-player machine); See also Resp. Ex. 1, Revenue Ruling on "Multi-Player Machines" dated
August 1994 (Draft #2) (reviewing two multi-player machines and concluding that "each only
requires one license under S.C. Code Ann. § 12-21-2720(a)(3)").
7. Therefore, it is concluded that Respondent was in full compliance with all statutory licensing
requirements as of May 31, 1995, given that: (1) there was no clearly defined and ascertainable
position by the Department regarding the number of licenses required under the statute prior to
June 1, 1995; (2) the Department previously indicated that only one license would be required;
and (3) no fines or citations had been issued by the Department for multi-player machines with
one license prior to June 1, 1995; and, (4) section 12-21-2720(c) is a penal statute and, therefore,
it must be strictly construed against the State and all benefit of the doubt must be given to the
taxpayer. See State v. Blackmon, 304 S.C. 270, 403 S.E.2d 660 (1991); South Carolina Nat.
Bank v. South Carolina Tax Comm'n, 297 S.C. 279, 376 S.E.2d 512 (1989).
8. Turning to Respondent's compliance with section 12-21-2720(c), as amended, it is concluded
that Petitioner has failed to meet its burden of showing that Respondent violated this section. In
reaching this conclusion, the Court considers Petitioner's burden of proof, the applicable rules of
statutory construction, the relevant case law, and the general licensing framework established by
the legislature regarding the licensing of video game machines.
9. The Supreme Court of South Carolina has made clear that statutory enactments are presumed
to be prospective rather than retrospective in their enactment. Neel v. Sheely, 261 S.C. 266, 199
S.E.2d 542 (1973) ["This principle has long been settled in South Carolina law." Hercules, Inc. v.
South Carolina Tax Comm'n, 274 S.C. 137, 262 S.E.2d 45 (1980)]. Indeed, most jurisdictions
are in accord with South Carolina and require that "[i]n every case of doubt, the doubt must be
resolved against retrospective effect and in favor of prospective construction only." 82 C.J.S.
Statutes§ 414; Hyder v. Jones, 271 S.C. 85, 245 S.E.2d 123 (1978).
10. Petitioner urges upon the Court what can only be considered under the existing licensing
scheme as a retroactive application of this amendment. Under the common law in South Carolina,
Petitioner has the burden in seeking retroactive application of this statute. The South Carolina
Supreme Court has made clear that this burden is significant in mandating that "no statute will be
applied retroactively unless that result is so clearly compelled as to leave no room for reasonable
doubt." Hyder, 245 S.E.2d at 125. As the Hyder court explained
'the party who affirms such retroactive operation must show in the statute such evidence of
a corresponding intention on the part of the Legislature as shall leave no room for
reasonable doubt. It is not necessary that the Court shall be satisfied that the Legislature
did not intend a retroactive effect. It is enough, if it is not satisfied that the Legislature did
intend such effect.'
Id. (quoting Ex Parte Graham, 47 S.C. Law (13 Rich. Law) 53 at 55-56 (1864)).
11. In interpreting the amendment to section 12-21-2720(c), the Court's fundamental focus must
be to ascertain the intent of the legislature. First South Sav. Bank, Inc. v. Gold Coast Assocs.,
301 S.C. 158, 390 S.E.2d 486 (Ct. App. 1990).
12. In ascertaining the legislative intent, the Court recognizes that section 12-21-2720(c) is a
penal statute and, therefore, it must be strictly construed against the State and all benefit of the
doubt must be given to the taxpayer. See State v. Blackmon, 304 S.C. 270, 403 S.E.2d 660
(1991); South Carolina Nat. Bank v. South Carolina Tax Comm'n, 297 S.C. 279, 376 S.E.2d 512
(1989).
13. In ascertaining the intent of the legislature in amending section 12-21-2720(c), the Court is
governed by the well-established rule of statutory construction requiring the Court to look to the
plain and ordinary meaning of the statutory language. Adkins v. Varn, 312 S.C. 188, 439 S.E.2d
822 (1993); Greenwood Mills, Inc. v. Second Injury Fund, 433 S.E.2d 846 (1993) ("It is well
established that 'in construing a statute, its words must be given their plain and ordinary meaning
without resorting to subtle or forced construction to limit or expand the statute's operation.'")
(quoting First Baptist Church v. City of Mauldin, 308 S.C. 226, 417 S.E.2d 592 (1992)).
14. The amendment to section 12-21-2720(c) provides in pertinent part as follows:
The owner or operator of any coin-operated device which is exempt from Section 16-19-60
and is subject to licensing under Section 12-21-2720(A)(3) and which has multi-players
stations shall purchase a separate license for each such station . . . .
S.C. Code Ann. § 12-21-2720(c) (amended June 29, 1995).
15. Notably, the only expression of a date is found at the end of Section 67 of the 1995 General
Appropriations Act, which states that the effective date of the Section is July 1, 1995. The South
Carolina Supreme Court has held, however, that the effective date of a statute is not evidence that
the statute is to be applied retroactively. SeeSchall v. Sturm Ruger Co., 278 S.C. 646, 300
S.E.2d 735 (1983) ("Finding nothing in this enactment beyond a statement of its 'effective date,'
we must follow the well-settled rule that a statute may not be applied retroactively in the absence
of a specific provision or clear legislative intent to the contrary.") (emphasis added).
16. Considering the plain and ordinary language of the amendment, in light of the above authority,
the Court is not satisfied that the legislature intended this section to apply to machines licensed
prior to June 1, 1995 for the current biennial period. See Hyderat 125, supra.
17. An additional rule of statutory construction which similarly directs the Court towards the
prospective application of this amendment, requires individual statutes comprising the framework
of the legislature's statutory scheme in a particular area to be read in paria materia. Powell v.
Red Carpet Lounge, 280 S.C. 142, 311 S.E.2d 719 (1984); Searcy v. South Carolina Dep't of
Educ., Transp. Div., 303 S.C. 544, 402 S.E.2d 486 (Ct. App. 1991) ("Statutes which are parts of
the same general scheme or plan, or are aimed at the accomplishment of the same results . . . [are]
considered as in pari materia.") (quoting 73 Am. Jur. 2d Statutes § 189 at 388 (1974)).
18. Reviewing section 12-21-2720(c), as amended, and the related statutes governing the
licensing of the coin-operated machines in question in pari materia, as it must, the Court finds a
well-defined licensing framework which delineates the licensing requirements for each type of
machine, and makes clear that the licenses are to be issued on a biennial basis and must be
purchased prior to June 1st of each year. See S.C. Code Ann. § 12-21-2719 (Supp. 1994)
(licenses "must be issued for two years;" "licenses expire May thirty-first of the year designated
on the license"); S.C. Code Ann. § 12-21-2720(a) (Supp. 1994) (owners shall apply for and
procure "a license effective for two years"); S.C. Code Ann. § 12-21-2734 (Supp. 1994) ("All
licenses expire May thirty-first the second year of which the license is valid following the date of
issue."). As such, it is apparent that under the established licensing framework, the current
biennial licensing period for the machine at issue began on May 31, 1995, and will expire on May
31, 1997.
19. Given that the General Assembly is presumed to have had knowledge of the existing licensing
framework when it amended section 12-21-2720(c), and was aware of the fiscal impact of this
amendment, the Court finds that if the legislature had elected to change the well-defined licensing
framework it would have made it clear. The existing licensing framework, when read together as
it must be, makes clear that had the legislature intended the amendment to section 12-21-2720(c)
to apply to this machine which was licensed prior to June 1, 1995 under the current biennial
period, it would have changed the existing licensing period, or specifically indicated its intent
to have the amendment apply to the prior licensing periods. The legislature did not do so.
20. Therefore, based on the licensing framework evident from reviewing the statutes in paria
materia, the Court finds that the amended section 12-21-2720(c) was intended to be applied
prospectively to machines licensed on or after June 1, 1995.
21. The Court finds that Petitioner's reliance on Easterby-Thackston, Inc. v. Chrysler Corp., 477
F. Supp. 954 (D.S.C. 1979), for the proposition that a statute is not deemed retroactive unless it
impairs a vested contractual right, is misplaced and out of context. The Easterby decision does
not stand for the proposition that the application of the statute in issue can not be deemed
retroactive. Rather, the court in Easterby first recognizes the general rule that statutes are
presumed to be prospective in operation. Id. at 956. In South Carolina, there is a recognized
exception to this general rule if the statute in question is remedial or procedural. Howard v.
Allen, 368 F. Supp. 310 (D.S.C. 1973), aff'd 487 F.2d 1397 (4th Cir. 1973), cert. denied, 417
U.S. 912 (1974). The Easterby decision recognizes a limitation on this exception, and holds that
even if the statute is considered remedial, it still must not be given retroactive application if to do
so would impair vested contractual rights. Easterby-Thackston, 477 F. Supp. at 956-957 (citing
Superior Motors, Inc. v. Winnebago Indus., Inc., 359 F. Supp. 773 (D.S.C. 1973) ("But even
remedial statutes are not given retrospective operation if to do so would impair contract
obligations or disturb vested rights.")). The Court, therefore, concludes that the limited rule
enunciated in the Easterby decision is wholly inapplicable in the present case given that the statute
before the Court is not a remedial statute, since it creates substantive duties, obligations, and
penalties, and therefore must be applied prospectively. See Kilbreath v. Rudy, 242 N.E.2d 658
(Ohio 1968).(1)
22. Petitioner's assertion that the prospective application of section 12-21-2720(c) involves an
attempt to enforce an exception to the statutory amendment through a non-existent grandfather
clause is also misplaced. Indeed, Respondent does not seek an exemption from this statute, but
rather simply seeks the proper application of the statute.
23. Additionally, the Department previously issued a technical advice memorandum on this issue
addressing a similar increase in licensing fees resulting from the amendment of S.C. Code Ann. §
12-19-120 (Supp. 1994). Corporation Annual Reports and License Fee, 1989 WL 385132,
TAM-89-6 (S.C. Tax. Com.).(2) Here, the Department recognized that an increase in a licensing
fee creates an obligation for the taxpayer to pay more and, therefore, it is substantive and must be
applied prospectively. Id. (citing Kilbreath, 242 N.E.2d 658.). Further, the Department conceded
that to apply a licensing fee increase prospectively, the fee increase must be applied only to the
nextlicensing period beginning on or after the effective date of the statutory amendment. Id.
24. The policy rationales supporting the Court's conclusions, which are dictated by the above
rules of statutory construction and rules of common law, are evident in light of the facts in this
case which strongly direct the Court towards prospective application of this amendment to the
Respondent. The Court takes judicial notice of the fact that July 1, 1995, the effective date of the
statute, fell on a Saturday. The Court similarly takes notice that July 3, 1995 fell on the Monday
between the preceding weekend and the July 4th holiday. On July 5, 1995, the first practical day
the Respondent could have obtained the licenses necessary to remain in compliance with the
changing licensing laws as urged by the Department, Respondent purchased the licenses. That
same day, however, the Department proceeded to issue it a violation report seeking $ 21,000
from it for failing to have these licenses.(3) Considering the application of these facts in light of the
licensing framework, the Court is not persuaded that the legislature intended for the amendment
to apply to machines licensed prior to May 31, 1995, thereby subjecting taxpayers to such penal
measures.
25. Having concluded that the amendment to section 12-21-2720(c) must be applied
prospectively, the Court holds, as the Department recognized in its technical advice
memorandum, that to apply a licensing fee increase prospectively, the fee increase must be applied
only to the next licensing period beginning on or after the effective date of the statutory
amendment. See Corporation Annual Reports and License Fee, 1989 WL 385132, TAM-89-6
(S.C. Tax. Com.). Therefore, under the proper application of this amendment, it applies to
machines licensed on or after June 1, 1995. Respondent, therefore, was not required to purchase
additional licenses for this machine.
26. Based on the above rules of statutory construction, the general licensing scheme outlined by
the legislature, the relevant common law, the general policy considerations, and construing this
penal statute for the benefit of the taxpayer, the Court finds Petitioner has not met its burden in
establishing that Respondent has violated section 12-21-2720(c) as amended.
ORDER
Based upon the Findings of Fact and Conclusions of Law, it is hereby
ORDERED, that this case against the Respondent be dismissed and that upon Respondent's
request, Petitioner shall issue to Respondent a refund.
AND IT IS SO ORDERED.
______________________________
Marvin F. Kittrell
Chief Judge
Columbia, South Carolina
December 27, 1995
______________________
Fn. 1. The conclusion that Petitioner's citation is misplaced is further made clear in reviewing the
original citation in C.J.S. which served as the foundation for the decision in Superior Motors,
which is relied upon in Easterby. It provides that "[t]he general rule that statutes are to be
construed as prospective only, unless the language employed conclusively negatives that
construction, applies to remedial statutes, and such statutes will not be given retrospective or
retroactive effect if to do so would impair or destroy contracts, disturb vested rights, or create
new obligations." 82 C.J.S. Statutes§ 416 (1953).
Fn. 2. While a technical advice memorandum is not binding on this Court, it is indicative of the
Department's recognition that like other statutes, licensing statutes are presumptively given
prospective application.
Fn. 3. The Department has subsequently elected not to pursue the $ 11,500 of the $ 21,500
which represents the costs of the licenses Respondent purchased on July 5, 1995. |
