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. Beauty Pageant & Talent Judges Society of America, Inc.

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Beauty Pageant & Talent Judges Society of America, Inc.

Respondent-Intervenor:
Will Darwin Wheeler
 
DOCKET NUMBER:
97-ALJ-17-0420-CC

APPEARANCES:
Geoffrey R. Bonham, Attorney for Petitioner

J. Richard Cox, Attorney for Respondent

Douglas L. Hinds, Attorney for Respondent-Intervenor
 

ORDERS:

ORDER AND DECISION

This matter comes before me pursuant to S.C. Code Ann. § 1-23-310, et seq. (Supp. 1997), upon Respondent Beauty Pageant & Talent Judges Society of America, Inc.'s ("Beauty Pageant") request for a contested case hearing. Petitioner South Carolina Department of Revenue ("DOR") has cited Beauty Pageant for various violations of the Bingo Act of 1989 ("the Act"). DOR seeks imposition of penalties totaling $34,500. Respondent-Intervenor Will Darwin Wheeler's ("Wheeler") motion to intervene was granted by Consent Order filed on January 19, 1998. Respondents seek a finding that they have complied with the applicable statutes, or in the alternative, an abatement of penalties. After notice to all parties, a hearing was conducted on February 27, 1998. Based upon relevant and probative evidence and applicable law, I find and conclude that Respondents have committed two (2) violations of S.C. Code Ann. § 12-21-3500(B) (Supp. 1997). As a penalty for the two (2) violations, Respondents are ordered to pay DOR fines totaling $2,000. I find and conclude that Respondents did not violate S.C. Code Ann. §§ 12-21-3490(C) and -3490(D) (Supp. 1997).

DISCUSSION

In a 1996 audit, DOR cited Beauty Pageant for various violations of the Bingo Act of 1989. Although this Act was repealed by the Bingo Tax Act of 1996, it is undisputed that the alleged violations took place prior to the effective date of the 1996 Act. DOR found sixty-five (65) violations of S.C. Code Ann. § 12-21-3500(B)(Supp. 1997) for failure to maintain records, one (1) violation of S.C. Code Ann. § 12-21-3490(C)(Supp. 1997), for failure to deposit bingo proceeds into the bingo account, and one (1) violation of S.C. Code Ann. § 12-21-3490(D) (Supp.1997), for improper distribution of bingo proceeds. DOR seeks imposition of a $500 penalty for each of the alleged sixty-five (65) violations of S.C. Code Ann. § 12-21-3500(B) (Supp. 1997), totaling $32,500. DOR also seeks imposition of two (2) $1000 penalties for alleged violations of S.C. Code Ann. §§ 12-21-3490(C) and -3490(D) (Supp. 1997).

CASHIER'S CHECK

During the audit, DOR auditors found a copy of a cashier's check dated May 5, 1994, payable to Carl Johnson in the amount of $3,000, in a Beauty Pageant file located in Kenneth Altman's office. Assuming that the funds used to purchase the cashier's check came from bingo sales, DOR auditors cited Beauty Pageant with violation of S.C. Code Ann. §§ 12-21-3490(C) (Supp. 1997), requiring the deposit of all funds derived from the conduct of bingo into a checking account designated as the "bingo account." DOR auditors also cited Beauty Pageant with violation of S.C. Code Ann. §§ 12-21-3490(D) (Supp. 1997), setting forth certain requirements for withdrawal of funds from the bingo account. Beauty Pageant asserted that the funds used to purchase the cashier's check did not come from bingo sales, but came from a refund of a security deposit on a building previously housing the bingo operation.

DOR contends that funds used to purchase the cashier's check must have come from bingo proceeds because: (1) auditors found the cashier's check in Beauty Pageant's files, and (2) Beauty Pageant failed to submit any documentation proving that the funds came from another source. DOR failed to carry its burden of proving that the cashier's check was purchased with funds generated by bingo sales. Therefore, I find that Beauty Pageant and Wheeler did not violate S.C. Code Ann. §§ 12-21-3490(C) and -3490(D).

FAILURE TO MAINTAIN RECORDS

South Carolina Code Ann. § 12-21-3500 (Supp. 1997) reads, in pertinent part, as follows:

(A) Each licensee conducting bingo games shall submit quarterly to the commission a report under oath containing the following information:

(1) the amount of the gross proceeds derived from the games;

(2) each item of expense incurred or paid;

(3) each item of expenditure made or to be made, with a detailed description of the merchandise purchased or the services rendered;

(4) the net proceeds derived from the games;

(5) the use to which the proceeds have been or are to be applied;

(6) a list of prizes offered and given, with their respective values.

(B) Each licensee shall maintain records to substantiate the contents of each report.

In its "Report of Field Audit," DOR provided the following explanation for penalties assessed for failure to maintain proper records:

In accordance with S.C. Code of Laws section 12-21-3500(B) states [sic] that each licensee shall maintain records to substantiate the contents of the bingo quarterly reports. These records would include the daily session sheets, which should be maintained on the proper bingo accounting forms. Failure to keep such records is in violation of the S.C. Bingo Tax Law.

DOR auditor Cherri Dix ("Dix") testified that the session sheets, completed at the end of each bingo session, typically contain the following information for each session: gross bingo proceeds, names of games played, beginning and ending ticket numbers for admission tickets sold, amounts of prize payouts and the bank deposit amount. Both Dix and DOR auditor Duncan Rogers ("Rogers") testified that the session sheets are the primary source document for the information contained in the quarterly report required by S.C. Code Ann. § 12-21-3500(A) (Supp. 1997).

Beauty Pageant and Wheeler argue that there is no statute or regulation specifically requiring bingo operations to maintain session sheets. They further argue that a violation of S.C. Code Ann. § 12-21-3500(B) (Supp. 1997) should not be assessed where the taxpayer has other records from which a quarterly report "can be reconstructed," such as monthly reports. Monthly reports, however, or similar records that may be sufficient for purposes of reconstructing a quarterly report are not necessarily sufficient to satisfy the specific language in the statute, which requires records to substantiate the contents of each quarterly report. S.C. Code Ann. § 12-21-3500(B) (Supp. 1997)(emphasis added). This requires a showing of authentic documentation of the daily transactions covered by the report.

Furthermore, while nothing in the statute precludes the taxpayer from satisfying this requirement by presenting records equivalent in authenticity to the session sheet, DOR auditors found no such equivalent records for Beauty Pageant for the period of January, 1993 through May, 1993. Dix testified that during the audit, she found no records to substantiate the contents of quarterly reports covering this period. Rogers testified that he did see bank deposit records for that period, but he never saw any source documentation for ticket sales or payouts per session. Therefore, I find that Beauty Pageant and Wheeler have violated S.C. Code Ann. § 12-21-3500(B) (Supp. 1997) for failure to maintain proper records.







NUMBER OF VIOLATIONS

DOR bases the imposition of penalties for sixty-five (65) records violations on the reasoning that Beauty Pageant held thirteen (13) sessions per month for those five (5) months for which session sheets were missing. In the "Report of Field Audit," DOR itemized a $500 penalty per session for each session sheet missing, arriving at a total penalty of $32,500 for violations of S.C. Code Ann. § 12-21-3500(B) (Supp. 1997). DOR's reasoning is based on an incorrect interpretation of this statute as well as S.C. Code Ann. § 12-21-3550 (Supp. 1997).

"The primary rule of statutory construction is to ascertain and give effect to the legislature's intention or purpose as expressed in the statute." Scholtec v. Estate of Reeves, --- S.C. ---, 490 S.E.2d 603, 606 (Ct. App. 1997). The language used should be given its plain and ordinary meaning without resort to subtle or forced construction to expand or limit the scope of a statute. Berkebile v. Outen, 311 S.C. 50, 426 S.E.2d 760 (1993). Additionally, a tribunal should not focus on any single section or provision but should consider the language of the statute as a whole. Mid-State Auto Auction of Lexington, Inc. v. Altman, 324 S.C. 65, 476 S.E.2d 690, 692 (1996). "'A statutory provision should be given a reasonable and practical construction consistent with the purpose and policy expressed in the statute.'" Town of Mount Pleasant v. Shaw, 315 S.C. 111, 432 S.E.2d 450, 451 (1993) quoting Hay v. South Carolina Tax Commission, 273 S.C. 269, 255 S.E.2d 837, 840 (1979); see also Scholtec, 490 S.E.2d at 607 (Ct. App. 1997)("Although there is no single, invariable rule for determining legislative intent, the language must be read in a sense which harmonizes with its subject matter and accords with its general purpose.").

S.C. Code Ann. § 12-21-3550 (Supp. 1997) provides that "[e]ach violation and each day in violation of a provision of this article constitutes a separate offense." This provision must be read together with § 12-21-3500 (Supp. 1997) in its entirety. Franklin v. Devore, --- S.C. ---, 489 S.E.2d 651, 653 (Ct. App. 1997)("In ascertaining the legislature's intent, statutes that are part of the same act must be read together."). A logical reading of these statutes requires a finding of one (1) violation for each quarterly report that is not substantiated with adequate records. S.C. Code Ann. § 12-21-3500(B) (Supp. 1997)("Each licensee shall maintain records to substantiate the contents of each report.")(emphasis added).

While maintenance of session sheets may be required, as a practical matter, to satisfy § 12-21-3500(B), nothing in the statute affirmatively states that each licensee must prepare and keep session sheets for each session. The focus of the language in the statute is on the substantiation of the contents of the quarterly report. In the absence of an independent statute requiring session sheets for each bingo session, there is no authority for the conclusion that each missing session sheet constitutes a separate violation of the Bingo Act. See Scholtec, 490 S.E.2d at 607 (Ct. App. 1997)(stating the long-standing rule of statutory construction that affirmative words imply a negative of that which is not affirmed).

Because Beauty Pageant failed to produce records for January, 1993 through May, 1993, only two (2) quarterly reports from the audit period are unsubstantiated. Therefore, a finding of two (2) violations of S.C. Code Ann. § 12-21-3500(B) (Supp. 1997), not sixty-five (65), is justified under the Act.

PENALTIES

As the finder of fact, it is the administrative law judge's prerogative to impose an appropriate penalty based on the facts presented. See Walker v. S.C. Alcoholic Beverage Control Commission, 305 S.C. 209, 407 S.E.2d 633, 634 (1991). South Carolina Code Ann. § 12-21-3550 (Supp. 1997) provides for a penalty range from $20 to $1,000 for each violation. Because of the total lack of source documentation to substantiate the contents of the two quarterly reports in question, the maximum penalty of $1,000 for each violation is appropriate, for a total penalty of $2,000 for two (2) violations of S.C. Code Ann. § 12-21-3500(B) (Supp. 1997).

WAIVER OF PENALTIES

Beauty Pageant and Wheeler argue in the alternative that the penalties for failure to maintain records should be waived pursuant to S.C. Code Ann. § 12-54-160 (Supp. 1997), which reads as follows:

The Commission, unless prohibited within a specific section, may waive, dismiss, or reduce penalties provided for in this chapter; interest may not be waived, dismissed, or reduced.

Beauty Pageant and Wheeler assert that waiver of penalties is appropriate in this case because the session sheets for the period from January, 1993 through May, 1993 were destroyed in a flood.

Beauty Pageant and Wheeler did present evidence that a flood occurred at the Bingo location on or about December 23, 1994, and that certain unidentified contents were destroyed and subsequently thrown out by a cleaning crew. Neither Beauty Pageant nor Wheeler, however, presented any direct evidence confirming that the missing session sheets were destroyed. Therefore, I find that a discretionary waiver of penalties is not appropriate in this case.



FINDINGS OF FACT

By a preponderance of the evidence, I make the following findings of fact:

1. Notice of the time, place, date and subject matter of the contested case hearing was given to all parties.

2. Beauty Pageant is a non-profit corporation holding a bingo license.

3. Carl Johnson is President of Beauty Pageant.

4. Kenneth Altman has served as Beauty Pageant's accountant since June, 1994.

5. For all or part of the audit period, Wheeler was the promoter for Beauty Pageant's bingo operations.

6. From February 20, 1996 through June 4, 1996, DOR conducted an audit of the financial records of Beauty Pageant for the period of January 1, 1993 through December 31, 1995.

7. During the audit, DOR auditors found no session sheets or any other records for the period of January 1 through March 31, 1993 that would substantiate a quarterly report for that period.

8. During the audit, DOR auditors found no session sheets or any other records for the period of April 1 through May 31, 1993 that would substantiate a quarterly report for the period of April 1 through June 30, 1993.

9. A quarterly report for the period of January 1 through March 31, 1993 was filed by Beauty Pageant.

10. A quarterly report for the period of April 1 through June 30, 1993 was filed by Beauty Pageant.

11. All of Beauty Pageant's session sheets and other records for the remainder of the audit period were available for inspection by DOR.

12. During the audit, DOR auditors found a copy of a cashier's check dated May 5, 1994, payable to Carl Johnson in the amount of $3,000, in a Beauty Pageant file located in Kenneth Altman's office.

13. The funds used to purchase the cashier's check were not generated by bingo sales.

14. The funds used to purchase the cashier's check did not come from the bingo account.



CONCLUSIONS OF LAW

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

1. The Administrative Law Judge Division has subject matter jurisdiction of this case pursuant to S.C. Code Ann. § 1-23-310 et seq. (Supp. 1997) and S.C. Code Ann. § 12-4-30(D) (Supp. 1997).

2. The Bingo Act of 1989, S.C. Code Ann. §§ 12-21-3310 et seq. (Supp. 1997), is controlling in this case.

3. In bingo cases, DOR has the burden of proving its case by the preponderance of the evidence. See Anonymous v. State Board of Medical Examiners, Op. No. 24754 (S.C.Sup.Ct. filed January 26, 1998)(Davis Adv.Sh. No. 5 at 11)(The standard of proof in administrative proceedings is a preponderance of the evidence, absent an allegation of fraud, or a statute or court rule requiring a higher standard.).

4. As the finder of fact, the administrative law judge has the authority to weigh the evidence presented and determine the credibility of witnesses. See Doe v. Doe, 324 S.C. 492, 478 S.E.2d 854 (Ct. App. 1996); Rogers v. Kunja Knitting Mills, Inc., 312 S.C. 377, 440 S.E.2d 401 (Ct. App. 1994), cert. dismissed, 318 S.C. 187, 456 S.E.2d 918 (1995).

5. "The primary rule of statutory construction is to ascertain and give effect to the legislature's intention or purpose as expressed in the statute." Scholtec v. Estate of Reeves, --- S.C. ---, 490 S.E.2d 603, 606 (Ct. App. 1997). The language used should be given its plain and ordinary meaning without resort to subtle or forced construction to expand or limit the scope of a statute. See Berkebile v. Outen, 311 S.C. 50, 426 S.E.2d 760 (1993). Additionally, a tribunal should not focus on any single section or provision but should consider the language of the statute as a whole. Mid-State Auto Auction of Lexington, Inc. v. Altman, 324 S.C. 65, 476 S.E.2d 690, 692 (1996). Further, statutes that are part of the same act must be read together. Franklin v. Devore, --- S.C. ---, 489 S.E.2d 651, 653 (Ct. App. 1997).

6. "'A statutory provision should be given a reasonable and practical construction consistent with the purpose and policy expressed in the statute.'" Town of Mount Pleasant v. Shaw, 315 S.C. 111, 432 S.E.2d 450, 451 (1993) quoting Hay v. South Carolina Tax Commission, 273 S.C. 269, 255 S.E.2d 837, 840 (1979). The language must be read in a sense which harmonizes with its subject matter and accords with its general purpose. Scholtec, 490 S.E.2d at 607 (Ct. App. 1997).

7. Nothing in § 12-21-3500(B) affirmatively states that each licensee must prepare and keep session sheets for each session. In the absence of an independent statute requiring session sheets for each bingo session, there is no authority for the conclusion that each missing session sheet constitutes a separate violation of the Bingo Act. See Scholtec, 490 S.E.2d at 607 (Ct. App. 1997)(affirmative words imply a negative of that which is not affirmed).

8. A logical reading of S.C. Code Ann. §§ 12-21-3500 and 12-21-3550 (Supp. 1997) requires a finding of one (1) violation for each quarterly report that is not substantiated with adequate records.

9. Respondents have violated S.C. Code Ann. § 12-21-3500(B) (Supp. 1997) by failing to maintain records to substantiate the quarterly report for the period of January 1 through March 31, 1993.

10. Respondents have violated S.C. Code Ann. § 12-21-3500(B) (Supp. 1997) by failing to maintain records to substantiate the quarterly report for the period of April 1 through June 30, 1993.

11. As the finder of fact, it is the administrative law judge's prerogative to impose an appropriate penalty based on the facts presented. See Walker v. S.C. Alcoholic Beverage Control Commission, 305 S.C. 209, 407 S.E.2d 633, 634 (1991).

12. In this case, the administrative law judge has the authority to establish the penalty within the allowable range provided in S.C. Code Ann. § 12-21-3550 (Supp. 1997). Section 12-21-3550 provides for a penalty range from $20 to $1,000 for each violation.

13. The appropriate penalty for each violation of S.C. Code Ann. § 12-21-3500(B) (Supp. 1997) in this case is $1,000.

14. S.C. Code Ann. § 12-21-3380 (Supp. 1997) provides that a promoter and a non-profit organization are both jointly and severally liable for the penalties imposed on each of the parties.

15. A discretionary waiver of penalties pursuant to S.C. Code Ann. § 12-54-160 (Supp. 1997) is not appropriate in this case.

16. Petitioner has failed to carry its burden of proving that the $3,000 cashier's check was purchased with funds generated by bingo sales.

17. Petitioner has failed to carry its burden of proving that funds used to purchase the $3,000 cashier's check came from the bingo account.

18. Respondents did not violate S.C. Code Ann. §§ 12-21-3490(C) and -3490(D) (Supp. 1997).

19. Any motions or issues raised in the proceedings, but not addressed in this Order are deemed denied pursuant to ALJD Rule 29(B).







ORDER

IT IS THEREFORE ORDERED that Respondents pay a total penalty of $2,000 for violations of S.C. Code Ann. § 12-21-3500(B) (Supp. 1997).

IT IS FURTHER ORDERED that the citations and penalties issued by Petitioner for violations of S.C. Code Ann. §§ 12-21-3490(C) and -3490(D) (Supp. 1997) are dismissed.



____________________________________

STEPHEN P. BATES

ADMINISTRATIVE LAW JUDGE

March 11, 1998

Columbia, South Carolina


Brown Bldg.

 

 

 

 

 

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