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. AAA Entertainment Corporation, et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
AAA Entertainment Corporation, William Blalock d/b/a Northridge Driftwood, McNickel's Inc., and Nick Santeramo
 
DOCKET NUMBER:
96-ALJ-17-0122-CC

APPEARANCES:
Carol I. McMahan, Esquire, for Petitioner

H. Fred Kuhn, Jr., Esquire, for Respondents AAA Entertainment Corporation, McNickel's Inc., and Nick Santeramo
 

ORDERS:

ORDER AND DECISION

STATEMENT OF THE CASE

This matter came before me pursuant to a citation issued by the Department of Revenue and Taxation against the respondent AAA Entertainment Corporation for violating S.C. Code Ann. § 12-21-2804 (Supp. 1995), by allowing the use of more than five video poker machines in a "single place or premises" as defined in 27 S.C. Code Regs. 117-190 (Supp.1995). The Respondents William Blalock d/b/a Northridge Driftwood, McNickel's Inc., and Nick Santeramo were added as parties by Order dated April 18, 1996, because they are the current business license holders and/or leaseholders at the premises in question. After notice to the parties, a hearing was conducted on August 7, 1996. William Blalock failed to appear at the hearing.

STIPULATED FACTS

Prior to the hearing the parties stipulated to the following facts:

1. The ten Class III video game machines at the location are machines owned by AAA Entertainment Corporation and bear the following license numbers: In "Back Burner Cafe": #026074, 026075, 026077, 026076, and 026079. In "Treasures Revived": #026238, 026078, 026073, 026080, and 026237.

2. The retailers in existence at the location on July 25, 1995 were "Treasures Revived" and "Back Burner Cafe". The current retailers at the location are McNickel's, AAA Entertainment Corp., and William Blalock d/b/a Northridge Driftwood. "Back Burner Cafe" is now a restaurant called "Tapas."

FINDINGS OF FACT

I make the following findings of fact, taking into consideration the burden on the Petitioner to establish its case by a preponderance of the evidence and taking into account the credibility of the witnesses:

1. A site inspection was made by two revenue officers on the morning of July 25, 1995. They gathered information, took pictures, obtained relevant documentation and reported the information to the Department. The facts regarding the location at that time are:

a. The businesses known as "Back Burner Cafe" and "Treasures Revived" were located in Northridge Plaza, a strip shopping center on Hilton Head Island, South Carolina. "Back Burner Cafe" occupied the space known as #11 Northridge Plaza and "Treasures Revived" occupied #13 Northridge Plaza.
b. Both businesses were accessible through a single entrance which led into a common area. Upon entering the common area from the outside, a counter was located to the right and a wall with two separate sets of sliding glass doors, leading to the two businesses, was located to the left. The two businesses were subdivided from the common area and from each other by paneled walls.
c. "Back Burner Cafe" was located closest to the front entrance into the common area, and it also had its own separate outside entrance. It contained five Class III video game (video poker) machines. It had a business license and a state sales tax license.
d. "Treasures Revived", which was also known as "Northridge Driftwood," was accessible only through the common area. In addition to the sliding glass doors, "Treasures Revived" also had a door opening or door casing which was open to the common area at all times. "Treasures Revived" contained five Class III video game machines, and had a business license and a state sales tax license.
e. No Class III video game machines were located in the common area, and there was no doorway which led directly from "Back Burner Cafe" to "Treasures Revived."
f. At the time of the inspection, all the video poker machines in the two businesses were turned on and available for play.

2. The revenue officers informed Mr. Santeramo, who was on the premises at the time, that the location was in violation of the "single place or premises" requirement because of the open door casing leading from "Treasures Revived" into the common area.

3. The revenue officers returned to the subject premises around 4:00 p.m. on July 25, 1995, to serve the violation. At that time, the physical layout of the premises was exactly as it had been earlier in the day. All the machines in both businesses were running, and the doors were open. 4. At the time of the second inspection, there was one employee on the premises. She was behind the counter in the common area. No employees were in either "Back Burner Cafe" or "Treasures Revived."

5. Based upon the information gathered on July 25, 1995, the Department issued a citation against the respondent AAA Entertainment Corporation for permitting the use of more than five machines in a single place or premises in violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1995) and 27 S.C. Code Regs. 117-190 (Supp. 1995), by having an opening in the wall leading from one video game room into another, and for failure to have employees present in the game rooms. The Department seeks revocation of the ten (10) Class III video game licenses for the machines in both "Back Burner Cafe" and "Treasures Revived," and the imposition of a $5,000 fine.

6. Subsequent to July 25, 1995, one or more of the Respondents made physical alterations to the premises in question. However, these alterations are not relevant for purposes of determining whether the Respondent AAA Entertainment Corporation violated Section 12-21-2804(A) on July 25, 1995.

CONCLUSIONS OF LAW

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

A. Violation of the Statute

1. Pursuant to S.C. Code Ann. § 12-4-30 (D) (Supp. 1995) and Chapter 23 of Title I of the 1976 Code, as amended, the South Carolina Administrative Law Judge Division has jurisdiction in this matter.

2. S.C. Code Ann. § 12-21-2804(A) (Supp. 1995) prohibits the operation of more than five machines authorized under Section 12-21-2720(A)(3) at a single place or premises.

3. Machines licensed under Section 12-21-2720(A)(3) include video games with free play feature operated by a slot in which a coin or thing of value is deposited. S.C. Code Ann. § 12-21-2720 (Supp. 1995).

4. Pursuant to S.C. Code Ann. § 12-21-2798 (Supp. 1995), the Department is authorized to promulgate regulations to assist in the administration and enforcement of the Video Game Machines Act.

5. 27 S.C. Code Regs. 117-190 (Supp. 1995) defines "single place or premises" for purposes of interpreting the Video Game Machines Act, including Section 12-21-2804(A). It provides:

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 or business have a 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 separate sales tax licenses? 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.

6. The only criteria at issue in this case are whether either location had any windows, doors, or other openings leading to another area where video game machines are located, and whether each entity or business had at least one separate employee on the premises during business hours.

7. The only evidence concerning the door openings indicated that "Treasures Revived" had an unobstructed door opening or door casing which led into the common area. There was no evidence that the common area contained any video game machines, nor was there any evidence that any opening led directly from "Treasures Revived" into "Back Burner Cafe." Accordingly, I conclude that the subject location was not in violation of that portion of Regs. 117-190 which requires that one area where video game machines are located may not have any openings leading into another area where machines are located.

8. With respect to the employee requirement, the regulation requires that each individual game room have a separate employee working in that room at all times during business hours. If a game room is accessible to customers and no employee is present in that room, the room is being operated in violation of Section 12-21-2804(A). An employee working in a common area or anywhere else outside the game rooms is not considered to be "on the premises" of the game room. See South Carolina Department of Revenue and Taxation v. Mickey Stacks, 95-ALJ-17-0742-CC (March 8, 1996). In this case, the uncontroverted evidence indicates that there was only one employee in the common area at the time of the inspection, and no employees were working in the game rooms. Furthermore, the evidence indicates that the premises were open for business at the time of the inspection. The machines were plugged in and available for play, and the doors to the game rooms were open. Therefore, I conclude that the Respondent, AAA Entertainment Corporation, violated S.C. Code Ann. §12-21-2804(A) by failing to have an employee present in each game room during business hours.

B. Validity of the Regulation

9. S.C. Code Ann. § 12-21-2798 (Supp. 1995) gives the Department the authority to promulgate rules and regulations pertaining to video game machines and the persons licensed by the Department.

10. Pursuant to this statutory authority, the Department proposed and the General Assembly approved Regs. 117-190 in order to clarify the phrase "single place or premises" contained in S.C. Code Ann. §12-21-2804(A). "Administrative agencies may be authorized 'to fill up the details' by prescribing rules and regulations for the complete operation and enforcement of the law with its expressed general purpose." Young v. S.C. Department of Highways & Public Transportation, 287 S.C. 108, 336 S.E.2d 879, 882 (Ct. App. 1985).

11. An administrative regulation is valid so long as it is reasonably related to the purpose of the enabling legislation. Hunter & Walden Co. v. S.C. State Licensing Bd. for Contractors, 272 S.C. 211, 251 S.E.2d 186 (1978); Young v. S.C. Dep't of Highways and Public Transportation, supra. However, a regulation may only implement the law; it may not alter or add to a statute. Society of Professional Journalists v. Sexton, 283 S.C. 563, 324 S.E.2d 313 (1984).

12. The purpose of the Video Game Machines Act is to prevent large-scale casino type gambling operations in the State of South Carolina. See 1994 Op. Atty. Gen. No. 94-21 at 51; Reyelt v. S.C. Tax Comm'n, No. 6:93-1491-3 and 6:93-1493-3 (U.S. Dist. Ct., Greenville, S.C., Nov. 15, 1993).

13. The requirements of Regs. 117-190, including the requirement that each business have an employee on the premises at all times during business hours, do not constitute an impermissible alteration or addition to Section 12-21-2804(A). Instead, the regulation merely clarifies the phrase "single place or premises" in order to allow for uniform enforcement of the law. Furthermore, the regulation is reasonably related to and is designed to further the purpose of the Video Game Machines Act in that it creates an impediment to the establishment of large-scale gambling operations. Accordingly, the Department acted within its authority when it promulgated Regs. 117-190.

C. Penalty

14. S.C. Code Ann. § 12-21-2804(A) (Supp. 1995) states that the penalty for failure to comply with the limitation on the number of machines permitted within a "single place or premises" is the mandatory revocation of the licenses of machines located in the establishment. In addition, no license may be issued for a machine in an establishment in which a license has been revoked for a period of six months from the date of revocation.

15. S.C. Code Ann. § 12-21-2804(F) (Supp. 1995) states that a person who violates Section 12-21-2804(A) may be fined up to five thousand dollars.

16. As the finder of fact, it is the administrative law judge's prerogative "to impose the appropriate penalty based on the facts presented." Walker v. S.C. ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633, 634 (1991). In the present case, the administrative law judge has the authority to establish the monetary fine within the allowable range provided for by S.C. Code Ann. § 12-21-2804(F) (Supp. 1995). S.C. Code Ann. § 12-4-30(D) (Supp. 1995).

ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, the Department of Revenue and Taxation properly issued a citation against the Respondent AAA Entertainment Corporation. The licenses of the video poker machines located in "Back Burner Cafe" and "Treasures Revived" on July 25, 1995 are hereby revoked and a fine of $2000 is imposed upon the Respondent AAA Entertainment Corporation.

IT IS FURTHER ORDERED that no licenses shall be issued for any machine to be operated in the subject premises for a period of six (6) months from the date of this Order.

AND IT IS SO ORDERED.







___________________________________

ALISON RENEE LEE

Administrative Law Judge

September ______, 1996

Columbia, South Carolina


Brown Bldg.

 

 

 

 

 

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