ORDERS:
FINAL DECISION
STATEMENT OF CASE
This matter comes before me upon request for a hearing by the Respondent after being cited
for violating S.C. Code Ann. § 12-21-2804 (A)(Supp. 1996). The South Carolina Department of
Revenue (Department) contends that the Respondent operated more than five video poker machines
in a "single place or premises." A hearing was held before the Administrative Law Judge Division
on May 20, 1997.
I find the Respondents violated Section 12-21-2804.
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 evidence:
1. Notice of the time, date, place and subject matter of the Hearing was given to the Petitioner
and the Respondents.
2. The Department issued a Violation Report against McNickel's Inc. and AAA Entertainment
Corp. on June 13, 1996, charging McNickel's Inc. with having more than five machines in a "single
place or premises." The Department later amended the violation to include AAA Entertainment
Corp. The Department offered no evidence as to whether each business had a separate electric meter
or local sales tax license. Rather the sole issue for determination is whether the Respondents
violated
S.C. Code Regs. § 117-190 (Supp. 1996) by failing to have "at least one separate employee on the
premises during business hours."
3. On June 13, 1996, Revenue Officer Bruce Owens, conducted an investigation of the business
located at 13 Northridge Plaza, Hilton Head, South Carolina. This structure is located in a strip mall.
The structure contains the following rooms doing business as: Heritage Driftwood, McNickel's Inc.,
d/b/a McNickel's Sales and Service, AAA Entertainment Corp., d/b/a AAA Amusement, and
Tropics, Inc.
4. Heritage Driftwood contained five Class III machines. When the Department's officers
arrived at the location, Joe Marsili, who identified himself as an employee for that game room, stood
in the doorway. Officer Owens then inspected the Heritage Driftwood location and found it to be
in compliance.
5. McNickel's contained the following Class III licenses:
Machine License Number Licensee
026474 McNickel's Inc.
026475 "
026476 "
026477 "
026072 AAA Entertainment Corp.
6. The Department contends that the fact that the door to the location was open with the
machines and lights on proves that McNickel's was open. However, the Department's witness
testified that Joe Marsili said to him that McNickel's was closed and that he had failed to attach the
chain back across the doorway because he was interrupted by the telephone. The Department's
witness observed a chain hanging at the side of the entrance to McNickel's. Also, a telephone was
located on the wall of McNickel's. Additionally, no customers were in this room at any time during
the inspection. In fact, of the four rooms in this structure that contained Class III machines, this was
the only room in which customers were not playing. The Respondent did not call Mr. Marsili as a
witness or offer any evidence to show that McNickel's was closed.
The Respondent's argument that this evidence proves the game room was closed has merit.
However, the Department established a prima facie case that the room was open. I find that the
above evidence did not overcome the Department's prima facie case. Therefore, I find that this room
was open.
7. AAA Amusements contained 5 Class III machines with the following Class III licenses:
Machine License Number Licensee
026078 AAA Entertainment Corp.
026238 "
026075 "
026080 "
026237 "
Customers were playing the machines in this room though no employee was present. After the initial
inspection of AAA Entertainment Corp. an employee came into this room. However, the Respondent
did not offer any evidence as to where this employee was, or how long they had been absent from
the room.
8. The Department seeks a Five Thousand ($5,000.00) dollar assessment against each
Respondent, AAA Entertainment, Corp. and McNickel's Inc.
9. I find that since the Respondent's video poker businesses did not have employees specifically
assigned to each game room, the above two game rooms were not single places or premises.
Therefore, I find that the Respondent violated S.C. Code Ann. § 12-21-2804 by having more than
five machines in one location. The Department offered no evidence that the Respondent has
previously violated the Video Game Machines Act. However, the Respondent had four game rooms
operating with customers present in one of those rooms and only two employees on the premises.
Therefore, I impose a $2,000 fine each upon McNickel's Inc and AAA Entertainment, Corp.
CONCLUSIONS OF LAW
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 Respondent violated S.C. Code Ann. § 12-21-2804(A)(Supp. 1996). That section provides:
After July 1, 1994, the commission [Department] may not issue nor
authorize to be maintained any licenses or permits for 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 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 Department contends that the Respondents violated S.C. Code Ann. § 12-21-2804(A)(Supp. 1996). Section 2804(A) prohibits the operation of more than five video game
machines authorized under S.C. Code Ann. § 12-21-2720(A)(3) at a "single place or premises."
However, the Video Game Machines Act does not define the term "single place or premises." On
June 23, 1995, 27 S.C. Code Regs. 117-190 (Supp. 1996) became effective. It 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 fire walls
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 fire walls 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.
7. Regulation 117-190 requires that each business must have a separate employee on the
premises while the business is open. The cardinal rule of statutory interpretation is to ascertain and
effectuate the legislative intent wherever possible. Bankers Trust of South Carolina v. Bruce, 275
S.C. 35, 267 S.E.2d 424 (1980). "Full effect must be given to each section of a statute, giving words
their plain meaning, and, in the absence of ambiguity, words must not be added or taken away."
Hartford Accident and Indem. Co. v. Lindsay, 273 S.C. 79, 254 S.E.2d 301, 304 (S.C. 1979). Thus,
the phrase "on the premise" presumptively must have meaning. Therefore, the employees of a video
poker business must be sufficiently connected to an open video game room as to indicate that each
game room that is open for business has a specific employee assigned to work solely in that room.
In this case, the Respondent provided no testimony as to the employees assigned to
McNickel's Inc. and AAA Entertainment, Inc. other than what the Department's agent testified he
was told at the time of the violation. Respondent failed to offer any testimony whatsoever in this
regard. In considering all the facts and circumstances of a particular case, failure to call a witness
may create the inference that the witness's testimony would be unfavorable to that party's case.
State v. Batson, 261 S.C. 128, 198 S.E.2d 517 (1973). This is especially true where an employer-employee relationship exits. Duckworth v. First National Bank, 254 S.C. 562, 176 S.E.2d 297
(1970). I find that such an inference is created in this case and it is compelling because here,
Respondent called no witnesses at all.
8. The Department contends that the Respondent violated Regulation 117-190 by failing to
maintain an employee in each business. The Department asserts that if an employee is not within
the four walls of the business at the time of an inspection, the business is not a single place or
premise as defined in Regulation 117-190. Therefore, the Department insists that the mere absence
of an employee from the business constitutes conclusive proof that the owner violated the statute.
The Respondent contends that the Department interpretation of "premises" is "so rigid,
narrow, impractical and nonsensical that it furthers neither the literal interpretation nor the presumed
intent of the legislature." To the contrary, ;the Department argues that this criterion is necessary to
curtail casino type operations in South Carolina. However, the Department cannot curtail such
operations by violating the Respondent's due process rights or by applying fundamentally flawed
reasoning. Furthermore, the Department's approval of multiple video game businesses under one
roof created the very quagmire they seek to rectify by requiring that an employee remain within the
four walls of each game room at all times.
In order to meet constitutional due process standards, a stature and therefore a regulation
must give sufficient notice to enable a reasonable person to comprehend what is prohibited. State
v. Crenshaw, 274 S.C. 475, 266 S.E.2d 661, cert. denied, 449 U.S. 883, 101 S.Ct. 236, 66 L.Ed.2d
108 (1980); Toussaint v. State Board of Medical Examiners, 303 S.C. 316, 400 S.E.2d 488 (1991)
(the constitutional standard for vagueness is the practical criterion of fair notice to those to whom
the law applies). Furthermore, 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). In that regard,
Regulation 117-190 does not specifically state that, if an employee is not on the premises at all times,
then a violation is presumed.
The Department's interpretation that an employee must physically remain within the four
walls of each video game room at all times is based upon the presumption that all businesses
maintain employees on the premises at all times, otherwise, the business is closed.(1) Therefore, the
Respondent's business should have been closed, as each game room did not have an employee on
the premises. Pursuant to that conclusion, the Department applies an irrebuttable or conclusive
presumption that once the Department shows that an employee is not on the premises, that business
does not qualify as a single place or premise.
Application of the proposition that the businesses should be closed whenever an employee
leaves the premises creates a bright line standard to follow in future cases. A bright line test
certainly creates both clarity and a straightforward method of dealing with this issue. However, if
the bright line standard is not clearly supported by unassailable facts it becomes a standard of
convenience that is simply not supported by due process. "This court has no legislative powers. In
the interpretation of statutes our sole function is to determine and, within constitutional limits, give
effect to the intention of the legislature, not interpret. The responsibility of the justice or wisdom
of legislation rests exclusively with the legislature, whether or not we agree with the laws it enacts."
Busby v. State Farm Mut. Auto. Ins. Co., 280 S.C. 330, 312 S.E.2d 716 (S.C. App. 1984).
To declare the existence of a presumption of fact, the court must determine that "the result
presumed must be one which a reasonable person would draw from certain facts which have been
proven to him. Its basis is logic [sic], its source is probability, and it rests on the observed
connection between facts." Lawrence v. Southern Ry., 169 S.C. 1, 167 S.E. 839 (1933). I do not
find support in the general knowledge of how businesses are conducted that all businesses, especially
those in a "mall type" setting, close every time an employee steps out of the business. It is
foreseeable that an employee of a business in a mall setting could step out of the business
momentarily to service a customer's needs or for some business or personal reason.
The Department's inspection revealed that no employee was working within the four walls
of two of Respondents' businesses. That evidence establishes a prima facie case or a rebuttable
presumption that the business is not a single place or premise. The rebuttable presumption is
supported by the general knowledge that businesses do not operate for any extended period of time
without their employees present. Additionally, an employee's role and on-the-job conduct is within
the Respondent's control. Therefore, once the Department establishes a prima facie case, the burden
shifts to the Respondent to produce evidence that the business actually had a separate employee
specifically assigned to that business. See, Stanley Smith& sons v. D.M R., Inc., 307 S.C. 413, 415
S.E.2d 428 (Ct. App. 1992). Furthermore, the Respondent must demonstrate that the employee's
absence from the game room was of short duration and reasonable under the circumstances. A
violation of Reg. 117-190 will still occur whenever an employee is absent from the premises for a
prolonged period of time, or the reasons for the absence do not involve a reasonable business or
personal need. Such determinations will depend greatly on the specific factual circumstances, and
must be evaluated on a case-by-case basis.
9. Respondent argues that Regs. 117-190 is beyond the Department's authority to promulgate
rules and regulations as it alters or amends the statute. 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 B. For Contractors, 272 S.C. 211, 251 S.E.2d 186 (1978). In Young v. South
Carolina Dept. Of Highways and Public Transp., 287 S.C. 108, 336 S.E.2d 879 (S.C. App. 1985) the
Court upheld a Highway Department's regulation which defined the term "transient or temporary."
The Court held:
While the General Assembly did not define "transient or temporary" by statute, it has
implicitly authorized the Department to interpret, clarify and explain the statute hy
authorizing the Department to promulgate regulations governing outdoor sign
permits. Administrative agencies may be authorized " 'to fill up the details' by
prescribing rules and regulations for the complete operation and enforcement of the
law within its expressed general purpose." Heyward v. South Carolina Tax
Commission, 240 S.C. 347, 355, 126 S.E.2d 15, 19-20 (1962); 73 C.J.S. Public
Administrative Law and Procedure Section 67 (1983) (in the first instance, defining
a particular statutory term is an administrative function). We hold the Department's
definition is not overly restrictive and further the definition provides specific time
limitations which will assure that the statute will be applied in a consistent manner.
See Boucher Outdoor Advertising Co. V. Minnesota Department of Transportation,
347 N.W.2d 88, 91 (Minn. App. 1984).
In this case the General Assembly did not define the term "single place or premises." However, S.C.
Code Ann. § 12-21-2798 (Supp. 1996) provides that "[the commission shall promulgate rules and
regulations pertaining to the machines and persons licensed by it." Therefore, the Department was
authorized to clarify the phrase "single place or premises" contained in Section 12-21-2804(A).
Furthermore, Regulation 117-190, as applied above, is not an overly restrictive definition of that
term and merely clarifies the terms set forth in Section 12-21-2804(A).
10. 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 administered by the Commission's
subordinate agency. 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, 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. Parties are entitled to present evidence on all
issues arising out of the contested agency action and the tribunal responsible for conducting the
contested case proceedings has the authority to decide the issues based on the facts presented, and
make the final decisions on all the issues, including the appropriate penalty.
ORDER
Based upon the Findings of Fact and Conclusions of Law, it is hereby:
ORDERED that the licenses listed in Findings of Fact paragraphs five and seven are
revoked, and a fine of $2,000.00 each is imposed upon McNickel's Inc. and AAA Entertainment
Corp, resulting in a total fine of Four Thousand ($4,000.00) Dollars.
IT ITS FURTHER ORDERED that no permits shall be issued for any Class III machine
to be operated in any of the above game rooms for a period of six (6) months from the date of this
Final Decision.
___________________________
Ralph King Anderson, III
Administrative Law Judge
Columbia, South Carolina
July 18, 1997
1. If the Department's reasoning is not based upon the premise that all businesses maintain employees on
the premises at all times, otherwise the business is closed, then their reasoning is flawed, If all businesses do not
close when an employee leaves the premises, their conclusion is based upon the premise that some or most
businesses maintain employees on the premises at all times, otherwise the business is closed. Creation of an
irrebuttable presumption based upon historical facts that sustain the presumption only under some , but not all of the
possible circumstances would be fundamentally unfair. |