SC Administrative Law Court Decisions

The South Carolina Department of Revenue (DOR) seeks the revocation of licenses for five Class III video poker machines, a six month prohibition on the use of Class III machines at the offending location, and fines of $5,000 on the machine owner, American Amusement of Aiken, Inc. (American) and $5,000 on the location owner, Baird & Calvacante, Inc. (Baird). DOR asserts that American and Baird violated S.C. Code Ann. § 12-21-2804 (Supp. 1997). Both American and Baird oppose DOR's position by asserting no violation occurred.⁽¹⁾ The hearing in this matter was held June 3, 1998 at the Administrative Law Judge Division, Columbia, South Carolina.

Based upon the evidence and the arguments presented by the parties, the citation issued by DOR is dismissed since no violation of S.C. Code Ann. § 12-21-2804 occurred on October 22, 1996.

1. Did a violation of the single place or premises requirement of § 12-21-2804(A) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1997) occur by the failure to have at least one separate employee on the premises during business hours?

2. If a violation occurred, are all five of American's licenses subject to revocation despite American's lack of intention or knowledge relative to the failure to have at least one separate employee on the premises during business hours?

3. If a violation occurred, are American and Baird denied the use of any Class III machines at the location for a period of six months from the time the revocation becomes final or are American and Baird denied the privilege of using the five machines for a period of six months from the time the revocation becomes final?

4. If a violation occurred, what monetary fine, if any, should be imposed on American and Baird?

1. Positions of Parties

DOR asserts two game rooms were operational at the time of its inspection but only one employee was in the building. Accordingly, in DOR's view, only one game room had an employee physically present within the room. DOR argues that the lack of an employee physically within each game room is a violation of the single place or premises requirement of Regs. 117-190.

Baird and American disagree on the facts as represented by DOR. While Baird and American agree that an employee was physically present within one game, they argue the second game room was closed and thus did not require the presence of a second employee. Hence, from their point of view, no violation occurred.

2. Findings of Fact

Based on the preponderance of the evidence, the following findings of fact are entered:

a. General Background

American holds several licenses for Class III video game machines with five of those licenses utilized at 1367 Martintown Road, Edgefield, South Carolina. The building at the Edgefield address contains a video game business in a mall-type structure housing two video game rooms. Baird holds two retail sales tax licenses for the two video game rooms which operate under the names of Royal Flush Movie Sales and Royal Flush Movie Sales II. The license numbers utilized at the location are as follows: 3800089, 3800088, 3800087, 3800086, and 3800085 for the Royal Flush Movie Sales, and 3800080, 3800081, 3800082, 3800083, and 3800084 for the Royal Flush Movie Sales II.

On October 22, 1996, SLED Agents conducted an inspection at the Edgefield address. The inspection included walking into each area, listing the license numbers for machines located in the two game rooms, taking photographs of the location, examining the business licenses, retail tax licenses, and utility meters for the location, and talking to an employee at the location.

As a result of the inspection, the SLED Agents issued a citation against American and Baird for violating S.C. Code Ann. § 12-21-2804(A) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1997) by operating more than five machines in a single place or premise. Copies of the Violation Report were left with the employee on duty. In addition to revocation and a six month prohibition on the use of Class III machines, DOR also seeks a $5,000 fine against American as the owner and licensee of the machines and a $5,000 fine against Baird as the owner of the location.

b. Disputed Facts of Game Room One Open or Closed

Of the two game rooms, no dispute exists that the Royal Flush Movie Sales II was open, contained five operational machines, and had an employee on the premises. However, the dispute concerns the five machines in the game room identified as room one, the Royal Flush Movie Sales. Baird and American assert game room one was closed and needed no employee in that room. DOR argues game room one was open and the lack of an employee in that room created the violation of Regs. 117-190. In this case, the events of the day establish the fact that the Royal Flush Movie Sales was closed at the time of the inspection.

The two game rooms are housed in a building having two front entrances with each entrance leading directly into a separate game room. Each front entrance has two large glass windows on either side. Near the back of each game room is an approximately five foot long common area providing access between the two game rooms via a door on each end of the common area. A telephone in game room one is utilized by both game rooms with the common area used to access the phone.

At approximately 8:00 a.m., two employees of Baird opened and prepared the game rooms of room one, the Royal Flush Movie Sales, and room two, the Royal Flush Movie Sales II, for business. The employees unlocked the front entrances, turned on the lights in each room, and placed an "open" sign on the glass of each front door. Additionally, lights surrounding each of the front windows were turned on, and the doors on each end of the common area joining the two game rooms were opened. Each employee took their separate stations within the physical confines of each game room. Both game room one and game room two were open for business.

As the day wore on, the employee within game room one became ill. The employee called her employer, reported her illness, and requested permission to leave. The employer instructed the employee to close game room one before leaving the premises. In compliance, the employee locked the front door to game room one, turned off the lights surrounding the front windows, and placed a closed sign on the front door. Additionally, two notices, one above each of the two doors to the common area, stated the game room was closed. The ill employee left the premises prior to the SLED Agents' inspection.

At approximately 1:25 p.m, two SLED Agents pulled into the parking lot at the front of the building housing the two game rooms. The SLED Agents were not able to gain entrance to Royal Flush Movie Sales, game room one, through the front entrance since the entrance was locked. The SLED Agents entered the building through the entrance door on the right which led them into Royal Flush Movie Sales II, game room two.

The SLED Agents found no players in game room two but did find an employee on the right near the back of the room. A SLED Agent began playing a machine in that room while the second agent, Agent Pope, proceeded toward the back of the room toward the entrance to the common area.

Agent Pope entered the common area by passing under a sign indicating game room one was closed. Likewise, upon exiting the common area and entering game room one, Agent Pope passed under a second sign indicating game room one was closed. Game room one was devoid of any activity.

Immediately upon entering game room one, Agent Pope placed money into one of the machines and began playing. Within forty-five seconds of Agent Pope's entering game room one, the employee from game room two entered and was followed into the room by the first SLED Agent. At that point the employee was notified that a violation of the single place or premises requirement had occurred.

3. Conclusions of Law

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

A. Statutory and Regulatory Requirements for Single Place or Premises

For machines authorized under § 12-21-2720(A)(3), i.e. Class III machines, no person may maintain licenses or permits for more than five Class III machines at a single place or premises. S.C. Code Ann. § 12-21-2804 (Supp. 1997). The statute does not explain what constitutes a single place or premise. However, a definition is supplied by Regulation 117-190.

Regulation 117-190 concentrates its analysis of a single place or premises by examining the physical characteristics of the structure enclosing the Class III machines and gives particular attention to exterior walls surrounding two or more video game areas. If at least two interior structures exist (i.e., each having a proper four wall configuration) and if Class III video games are located within each interior structure, then each interior structure is a video game area. Under such circumstances, the inquiry becomes whether each video game area is a single place or premises allowing five machines within each area.

The answer is reached by a facts and circumstances methodology imposed by Regs. 117-190. Under the regulation, DOR "must review all the facts and circumstances to determine if each area in reality constitutes a single place or premise for video game machines." While a facts and circumstances review is normally very general, the regulation requires the existence of at least four facts. Indeed, a failure to meet any one of the four facts results in the video game area not being a separate place or premise. The four factors are: (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 a separate state sales tax license? In this case, the only dispute is whether a separate employee was on the premises during business hours.

B. Law Addressing Employee On the Premises

DOR bears the burden of proving that the rooms were without separate employees on the premises "during business hours." Regs. 117-190; see 29 Am. Jur. 2d Evidence § 127 (1994) (burden of proof generally rests with the party who asserts the affirmative of an issue). Under the facts of this case, DOR has not meet that burden since the facts establish that Royal Flush Movie Sales, game room one, was closed at the time of the inspection.

Business hours begin at the moment the location opens for the transacting of its business. See Jolly v. Marion Nat. Bank, 267 S.C. 681, 231 S.E.2d 206, (1976) (a shareholder's access to records during business hours is allowed as long as the access is for those hours of those days during which business could be transacted). However, after opening, deciding whether a facility has closed for business requires determining a factual issue based upon the totality of the circumstances for the time period in dispute. See Dym v. Merit Oil Corporation, 36 A.2d 276 (Conn. 1944) (even for a facility which appeared to be closed for the night, a weighing of the facts can find a facility open where no closed sign is conspicuously displayed at the entrance to the premises and where doors at the facility are unlocked.). In this case, when considered as a whole, the evidence demonstrates that Royal Flush Movie Sales, game room one, was closed for business at the time of the SLED Agents' inspection.

Here, the employer told the employee to close the room, and the employee complied as completely as was necessary to end the business hours of the Royal Flush Movie Sales, game room one. The front door was locked. The sign on the front door notified the public of the room being closed. The lights visible to the public, i.e., the lights around the window, were unplugged. The common area accessing the room had two signs telling the public the room was closed, and no activity of any kind, by players or by employees, was occurring in game room one. In addition, a mere forty-five seconds after the Agent entered game room one, the remaining employee entered the closed game room to address the individual playing the machines. All of these factors persuade me that the room was closed and business hours had ended.

It is true that closing the common area doors could have been added as an additional step signifying that business hours were over. However, given all of the other factors, the failure to close the common area doors is insufficient to establish that business hours were still continuing at 1:25 p.m.,. In short, the evidence demonstrates that Royal Flush Movie Sales, game room one, was closed at the time of the inspection. Accordingly, no violation of the single place or premises requirement of Regs. 117-190 occurred.

Based upon the Findings of Fact and Conclusions of Law, it is hereby ordered:

DOR's citation seeking revocation of American's five licenses utilized at 1367 Martintown Road, Edgefield, South Carolina, seeking the prohibition of the use of Class III machines at this location, and seeking a fine of $5,000 each against Baird and American, is dismissed since no violation of S.C. Code Ann. § 12-21-2804 occurred on October 22, 1996.

AND IT IS SO ORDERED.

RAY N. STEVENS

Administrative Law Judge

Dated: August 20, 1998

Columbia, South Carolina

1. The disagreement with DOR's determination places jurisdiction in the Administrative Law Judge Division (ALJD). S.C. Code Ann. §§ 12-60-1310, 12-60-1320, 1-23-600 (Supp. 1997).

2. Given the disposition of issue one, issues two, three, and four are not required to be addressed.