South Carolina              
Administrative Law Court
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SC Administrative Law Court Decisions

CAPTION:
SCDOR vs. Ace Music Company of Spartanburg, Inc., et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Ace Music Company of Spartanburg, Inc., Sabrina Worthy, d/b/a Eastside Vending, and Kerry Cromer, d/b/a Ace Game Room #1 and Ace Game Room #3
 
DOCKET NUMBER:
97-ALJ-17-0309-CC

APPEARANCES:
For the Petitioner: Carol I. McMahan, Esquire

For the Respondent: James M. Griffin, Esquire
 

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 September 11, 1997.



I find the Respondents violated Section 12-21-2804(A).



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 Ace Music Company of Spartanburg, Inc. on June 13, 1996, charging them with having more than five machines in a "single place or premises." The Department later amended the violation to include Sabrina Worthy, d/b/a Eastside Vending, and Kerry Comer, d/b/a Ace Game Room. 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 Mary Littlejohn conducted an investigation of the business located at 2601 E. Main Street, Spartanburg, South Carolina. The Respondents' location was a mall-type arrangement housing three video game rooms - Eastside News, Ace Game Room #1 and Ace Game Room #3. Each room contained five (5) or fewer Class III video game machines.



4. All of the rooms were open for business. The rooms Ace Game Room #3 and Ace Game Room #1 contained the following Class III licenses:



Machine License Number Location Licensee



041521 Ace Game Room #3 Ace Music

041522 " "

041487 " "

041426 " Sabrina Worthy



041488 Ace Game Room #1 Ace Music

041489 " "



5. The Department contends that Ace Game Room #1 and Ace Game Room #3 were open without an employee on the premises. The Respondents contend that Ace Game Room #3 was in full compliance with Reg. 117-190 as there was an employee assigned to this business who had briefly stepped away from the game room for a personal and/or business related purpose. Respondents admit that Ace Game Room #1 was in violation of Reg. 117-190, but explained that the two Class III machines located in that room were mistakenly left in the room.



6. When the Department's agents arrived, they entered the Eastside News game room and began speaking to Ginny Stroud, an employee of Eastside News. Ms. Stroud informed them that the employee of Ace Game Room #3 had temporarily stepped out of the location. Therefore, when the Department's agents entered the Respondent's location, there were no employees within the four corners of Ace Game Room #3 or Ace Game Room #1. During the initial conversation with Ginny Stroud, which lasted between two and five minutes, an employee of Ace Game Room #3 entered Eastside News from the parking lot. However, the evidence did not establish that the absence of the employee from Ace Game Room #3 was sufficiently brief or for a reasonable business or personal need.



7. The Department seeks a Five Thousand ($5,000.00) dollar assessment against each Respondent; Ace Music Company of Spartanburg, Inc., Sabrina Worthy, and Kerry Cromer. However, though the evidence established that there were no employees upon the premises of Ace Game Room #1 and #3 when the Department's agents arrived at the location, the Respondent had an employee at the location to service Ace Game Room #3. Furthermore, there was no showing by the Department that the Respondents have previously violated the Video Game Machines Act. I, therefore, find that the appropriate penalty in this case is a Two Thousand Three Hundred ($2,300.00)Dollar fine -- Seven Hundred Fifty ($750.00) Dollars per machine in Ace Game Room #1 and Two Hundred ($200.00) Dollars per machine in Ace Game Room #3) as to the Respondent Kerry Comer.



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 Respondents 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 premises" 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 ($5,000.00) Dollars.



6. The Video Game Machines Act ("Act") does not define the term "single place or premises."



7. The Honorable G. Ross Anderson held that the term "single place or premises" 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, CA No. 6: 93-1491-3 (D.S.C. July 5, 1994). 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 premises" for purposes of The Video Game Machines Act.



8. 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. 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. 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.



In order to meet constitutional due process standards, a statute 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 reason for the absence does 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. Here, one employee momentarily left Game Room #3 and later returned to it during the course of the inspection. However, the evidence did not establish that the absence of the employee from Ace Game Room #3 was sufficiently brief or for a reasonable business or personal need. Furthermore, Game Room #1 had no employee at all. I find this is clearly a violation of Section 12-21-2804(A).



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 Bd. 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 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 "[t]he 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, 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. 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 paragraph four are revoked, and a fine of Two Thousand Three Hundred ($2,300.00) Dollars is imposed upon Kerry Comer.



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

October 19, 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.


Brown Bldg.

 

 

 

 

 

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