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. Coastal Coin, Inc., and Mid-South, Inc.

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Coastal Coin, Inc., and Mid-South, Inc.
 
DOCKET NUMBER:
98-ALJ-17-0049-CC

APPEARANCES:
Carol I. McMahan, Esquire, for Petitioner

H. Buck Cutts, Esquire, for Respondents
 

ORDERS:

FINAL ORDER AND DECISION

STATEMENT OF THE CASE

This matter is before the Administrative Law Judge Division pursuant to S.C. Code Ann. §§ 1-23-310 et seq. (1986 and Supp. 1997) and S.C. Code Ann. § 12-60-460 (Supp. 1997) upon Respondents' request for a contested case hearing. Petitioner South Carolina Department of Revenue ("DOR") seeks revocation of forty-three (43) Class III video poker machine licenses and a $5,000 penalty against each Respondent for alleged violations of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997), for failure to have at least one separate employee on the premises during business hours. DOR also seeks a $2,500 penalty against Respondent Coastal Coin, Inc. ("Coastal Coin") for failure to attach owner identification information on a Class III video poker machine pursuant to S.C. Code Ann. § 12-21-2748 (Supp. 1997). DOR's citations for these violations resulted from a July 17, 1997 inspection of the establishment at 2000 Highway 17 North, Surfside Beach, South Carolina. Respondents oppose the license revocations and penalties.

On or about April 28, 1998, Respondents filed a motion to dismiss DOR's additional citation for unlawful advertising resulting from the July 17, 1997 inspection. After notice to all parties, a hearing was conducted on May 11, 1998. Based on the evidence presented and the applicable law, I find that Respondents' motion to dismiss the unlawful advertising citation is not properly before this Administrative Law Judge in this case. On that basis, the motion is denied without prejudice. I further find that both Respondents violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) and that Coastal Coin violated S.C. Code Ann. § 12-21-2748 (Supp. 1997). The forty-three (43) machine licenses in the subject rooms are hereby revoked, no Class III machines may be operated in any of the game rooms at Sand Dollars for a period of six months, a penalty of $5,000 is imposed against each Respondent for violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997), and an additional penalty of $2,500 is imposed against Respondent Coastal Coin for violation of S.C. Code Ann. § 12-21-2748 (Supp. 1997). Any motions or issues raised in the proceedings, but not addressed in this Order are deemed denied pursuant to ALJD Rule 29(C) (1998).

DISCUSSION

Motion to Dismiss - Citation for Advertising

On October 7, 1997, DOR issued three separate formal citations against Respondents resulting from SLED's July 17, 1997 inspection: failure to have at least one employee on the premises during business hours, failure to attach owner identification information on a Class III video poker machine, and unlawful advertising. On December 19, 1997, DOR issued two separate Final Agency Determinations on the citations for failure to have at least one employee on the premises during business hours and failure to attach owner identification information on a Class III video poker machine. Respondents requested a contested case hearing on each Final Agency Determination.

After transmittal of this case to the Administrative Law Judge Division, DOR issued its April 10, 1998 Final Agency Determination on its citation against Respondents for unlawful advertising in violation of S.C. Code Ann. § 12-21-2804(B) (Supp. 1997). Respondents requested a contested case hearing on this Final Agency Determination, and the case was transmitted to the Administrative Law Judge Division on April 27, 1998. That case is now pending before the Honorable Stephen P. Bates as Docket No. 98-ALJ-17-0254-CC.

On or about April 28, 1998, Respondents filed, in this case, a motion to dismiss DOR's citation for unlawful advertising on the ground that DOR failed to include all three citations in one case, violating Respondents' due process rights by requiring them to defend at multiple hearings.

Under the South Carolina Revenue Procedures Act, "a taxpayer may seek relief from the department's determination by requesting a contested case hearing before the Administrative Law Judge Division ... within thirty days after the date the department's determination was sent by first class mail or delivered to the taxpayer." S.C. Code Ann. § 12-60-460 (Supp. 1997)(emphasis added). "Department determination" means the final determination within DOR from which an individual can request a contested case hearing before the Administrative Law Judge Division. S.C. Code Ann. § 12-60-30(10) (Supp. 1997)(emphasis added). Therefore, the Administrative Law Judge Division did not acquire jurisdiction over the citation for unlawful advertising until the hearing request on the April 10, 1998 Final Agency Determination was transmitted from DOR and assigned to the Honorable Stephen P. Bates for review.

Because the issue of the unlawful advertising is not before me in this case, I find that the motion to dismiss the citation for that violation is not properly before me and should be filed in case no. 98-ALJ-17-0254-CC. On that basis, the motion is denied without prejudice to Respondents' right to have their motion to dismiss heard by Judge Bates upon proper filing in case no. 98-ALJ-17-0254-CC.

Other Citations

On July 17, 1997, SLED agents Pamela Williamson and Rhett Holden, Jr. inspected "Sand Dollars," located at 2000 Highway 17 North, Surfside Beach, South Carolina and operated by Respondent Mid-South, Inc. The eyewitness testimony of Agent Williamson is in substantive agreement with her Preliminary Findings Report. Agents Williamson and Holden entered the facility and found that the doors to all eleven rooms were open and video poker machines were turned on. Agent Williamson played the machines in rooms 1, 3, 4, 7, 9, 10 and 11. No employees or owners were located in any of the eleven open game rooms. Additionally, one multi-player machine did not have an owner or operator identification affixed to it.

Upon completion of the inspection, Agent Williamson completed a Preliminary Findings Report for each game room and spoke to an employee stationed in the office. The employee called George D. Vinovich, the owner of Mid-South, Inc. and Coastal Coin, Inc., who later appeared and spoke with agent Williamson. Mr. Vinovich refused to sign the Preliminary Findings Reports. The reports cited Respondents with violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) and S.C. Code Ann. § 12-21-2748 (Supp. 1997).

In its December 19, 1997 Final Agency Determination, DOR revoked licenses for the forty-three machines in rooms operating without an employee present and assessed a $5,000 penalty against each Respondent for violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997). DOR issued a separate Final Agency Determination on the same date for three violations of S.C. Code Ann. § 12-21-2748 (Supp. 1997), assessing a $7,500 penalty against Coastal Coin. During the May 11, 1998 hearing, DOR changed its position on the violation of S.C. Code Ann. § 12-21-2748 (Supp. 1997), asserting that despite the three separate license numbers, the violation related to only one multi-player machine for purposes of the owner identification requirement.(1) Accordingly, DOR moved to reduce the penalty from $7,500 to $2,500.

The purpose of the Video Game Machines Act ("the Act") is to prevent large-scale casino type gambling operations in the State of South Carolina. See Reyelt v. S.C. Tax Comm'n, 6:93-1491-3 and 6:93-1493-3 (U.S. Dist. Ct., Greenville, S.C., Nov. 15, 1993); see also 94 Op. S.C. Att'y Gen. 21 (1994). Under the Act, no person shall apply for, receive, maintain, or permit to be used, licenses for the operation of more than five Class III machines at a single place or premises. S.C. Code Ann. § 12-21-2804(A) (Supp. 1997).

DOR has the authority to promulgate regulations pertaining to video poker machines and persons licensed by DOR. S.C. Code Ann. § 12-21-2798 (Supp. 1997). Pursuant to this statutory authority, DOR promulgated Regulation 117-190 to clarify the phrase "single place or premises" contained in section 12-21-2804(A), and the General Assembly approved this regulation. Regulations authorized by the Legislature have the force of law. Norton v. Opening Break, 313 S.C. 508. 443 S.E.2d 406 (Ct. App. 1994), affirmed 319 S.C. 469, 462 S.E.2d 861 (1995).

Regulation 117-190 clearly requires at least one separate employee on the premises during business hours. Further, in a mall-type setting such as Sand Dollars, 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 Dep't of Revenue & Taxation v. Mickey Stacks, 95-ALJ-17-0742-CC (March 8, 1996), aff'd Court of Common Pleas, Richland County, Civil Action No. 96-CP-40-0889 (March 21, 1997).

Failure to meet any of the requirements of the "single place or premises" criteria set forth in 27 S.C. Code Ann. Regs. 117-190 (Supp. 1997) is grounds for revocation of licenses for machines in the establishment pursuant to S.C. Code Ann. § 12-21-2804(A) (Supp. 1997). Additionally, section 12-21-2804(A) provides that no machine license may be issued for, nor a machine operated at, an establishment in which a license has been revoked for a period of six months from the date of revocation. Further, a person who violates S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) is subject to a fine of up to $5,000.

The testimony presented at the hearing is sufficient to establish that the eleven game rooms in question were open for business and lacked the requisite employees at the time of inspection. Therefore, these rooms were operated in violation of S.C. Code Ann. 12-21-2804(A) (Supp. 1997), and the licenses for machines in the establishment must be revoked. Further, based on the history of Respondents' prior violations, I find and conclude that imposition of a $5,000 fine against each Respondent is reasonable under the circumstances.

Respondents argue that because the majority of machine licenses expired in May, 1998, this tribunal does not have jurisdiction to revoke the nonexistent licenses. The license, however, merely represents the privilege granted by statute to operate a video poker machine for profit, and that privilege may be revoked regardless of whether the duration of the representative license has expired. Cf. Patel v. Kansas State Board of Healing Arts, 22 Kan.App.2d 712, 920 P.2d 477 (1996). The revocation affects the machine, not the license number, which merely identifies the machine. Should the machine owner apply for and receive a new license for a machine to keep it in operation after the old license expires, such action will not circumvent the effect of the revocation of the privilege to operate that machine.

Further, one of the purposes of the Video Game Machines Act is to protect the public. To further that purpose, the legislature has provided in section 12-21-2804(A) for the six month prohibition of any video poker machines operating in an establishment in which the privilege of operating a particular machine has been revoked. Without the implicit authority to order cessation of a machine's operation, regardless of the license number currently assigned to the machine, the six month prohibition in section 2804(A) would be rendered meaningless. Although the word "license" is used in the statute, the legislature could not have intended section 12-21-2804(A) to be rendered useless by the mere expiration of a license pending an enforcement proceeding. See Kiriakides v. United Artists Communications, 312 S.C. 271, 440 S.E.2d 364 (1994)(however plain the ordinary meaning of the words used in a statute may be, the courts will reject that meaning if to accept it would lead to a result so plainly absurd that it could not possibly have been intended by the legislature or would defeat the plain legislative intention).

In any event, jurisdiction is determined at the initiation of a contested case. See Patel v. Kansas State Board of Healing Arts, 22 Kan.App.2d 712, 920 P.2d 477 (1996). The licenses in question were in existence when this case was transmitted to this tribunal. Therefore, I find Respondents' argument on the expiration of licenses to be without merit.

Finally, licensed Class III video poker machines must have information identifying the owner or operator of the machine attached on an area of the machine visible for inspection purposes. S.C. Code Ann. § 12-21-2748 (Supp. 1997). Coastal Coin violated S.C. Code Ann. § 12-21-2748 by failing to have identifying information on one of its machines attached on an area visible for inspection purposes. The penalty for violation of the owner identification statute is $2,500. S.C. Code Ann. § 12-21-2738 (Supp. 1997).

FINDINGS OF FACT

Based on the evidence presented, I make the following findings of fact, taking into consideration the burden on the parties to establish their respective cases, and taking into account the credibility of the witnesses:

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

2. Sand Dollars, located at 2000 Highway 17 North, Surfside Beach, South Carolina, is a video gaming business in a mall-type structure containing eleven video gaming rooms, an office and a common area.

3. The licensed retail operator of all game rooms at Sand Dollars is Mid-South, Inc. 4. George D. Vinovich is the owner of Mid-South, Inc.

5. The owner of all licensed machines at Sand Dollars is Coastal Coin, Inc.

6. George D. Vinovich is the owner of Coastal Coin, Inc.

7. On July 17, 1997, SLED agents Pamela Williamson and Rhett Holden, Jr. conducted an undercover inspection of the gaming rooms at Sand Dollars.

8. The inspection included walking into the game rooms, playing some of the machines, taking photographs of the location, preparing a diagram of the location and speaking with customers and Respondents' employees.

9. All eleven gaming rooms were operating, with the doors open and video poker machines turned on, at the time of the inspection.

10. The following video game machine licenses were affixed to machines located in the respective game rooms:

Unit A Unit B Unit C Unit D

3806554 3806551 0630117 0630118

3806555 3806552 3806559 0630119

3806581 3806553 3806560 0630120

3806582 3806571

3806583

Unit E Unit F Unit G Unit H

0630121 0630123 3806577 3806572

0630122 0630124 3806578 3806573

3806548 3806550 3806579 3806574

3806549 3806576 3806575

Unit I Unit J Unit K

0630125 3806561 3806566

3806556 3806562 3806567

3806557 3806563 3806569

3806558 3806564 3806570

3806565

11. One multi-player machine, with three separate license numbers (0630117, 3806559 and 3806560), did not have an owner or operator identification affixed to it in an area visible for inspection purposes.

12. Agent Williamson played the machines in rooms 1, 3, 4, 7, 9, 10 and 11.

13. No employees or owners were located in any of the eleven open game rooms.

14. At the time of the inspection, one employee was in the office and another employee was in the common area.

15. Upon completion of the inspection, agent Williamson completed a Preliminary Findings Report for each game room and spoke to an employee stationed in the office.

16. The employee called Mr. Vinovich, who later appeared and spoke with agent Williamson.

17. Mr. Vinovich refused to sign the Preliminary Findings Reports.

18. The Preliminary Findings Reports cited Respondents with violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) and S.C. Code Ann. § 12-21-2748 (Supp. 1997).

19. On October 7, 1997, DOR issued three separate formal citations against Respondents resulting from the July 17, 1997 inspection: failure to have at least one employee on the premises during business hours, failure to attach owner identification information on a Class III video poker machine, and unlawful advertising.

20. On December 19, 1997, DOR issued two separate Final Agency Determinations on the citations for failure to have at least one employee on the premises during business hours and failure to attach owner identification information on a Class III video poker machine.

21. In its December 19, 1997 Final Agency Determination, DOR revoked licenses for the forty-three machines in rooms operating without an employee present and assessed a $5,000 penalty against each Respondent for violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) and a $7,500 penalty against Coastal Coin for three violations of S.C. Code Ann. § 12-21-2748 (Supp. 1997).

22. Respondents requested a contested case hearing on each Final Agency Determination.

23. Respondents Mid-South, Inc. and Coastal Coin, Inc., both owned by George Vinovich, have violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1997) and have been fined five times in the following cases:

Date of Violation Case Number Violating Party

June 8, 1994 95-ALJ-17-0111-CC Coastal Coin(2)

July 13, 1994 95-ALJ-17-0123-CC Mid-South and Coastal Coin

June 13, 1996 97-ALJ-17-0060-CC Mid-South

June 13, 1996 97-ALJ-17-0250-CC Mid-South and Coastal Coin

June 13, 1996 97-ALJ-17-0294-CC Mid-South and Coastal Coin

24. By July 17, 1997, Respondents had been notified of five prior violations of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) and 27 S.C. Code Ann. Regs. 117-190 (Supp. 1997).

CONCLUSIONS OF LAW

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

1. The Administrative Law Judge Division has subject matter jurisdiction of this case pursuant to S.C. Code Ann. §§ 1-23-310 et seq. (1986 and Supp. 1997) and S.C. Code Ann. § 12-60-460 (Supp. 1997).

2. 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. 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).

3. The trier of fact must weigh and pass upon the credibility of evidence presented. See S.C. Cable Television Ass'n v. Southern Bell Tel. and Tel. Co., 308 S.C. 216, 417 S.E.2d 586 (1992). The trial judge who observes a witness is in the best position to judge the witness's demeanor and veracity and evaluate their testimony. See, e.g., McAlister v. Patterson, 278 S.C. 481, 299 S.E.2d 322 (1982).

4. Under the Video Game Machines Act, no person shall apply for, receive, maintain, or permit to be used, licenses for the operation of more than five Class III machines at a single place or premises. S.C. Code Ann. § 12-21-2804(A) (Supp. 1997).

5. The purpose of the Video Game Machines Act is to prevent large-scale casino type gambling operations in the State of South Carolina. See Reyelt v. S.C. Tax Comm'n, 6:93-1491-3 and 6:93-1493-3 (U.S. Dist. Ct., Greenville, S.C., Nov. 15, 1993); see also 94 Op. S.C. Att'y Gen. 21 (1994).

6. Under the Act, DOR has the authority to promulgate regulations pertaining to video poker machines and persons licensed by DOR. S.C. Code Ann. § 12-21-2798 (Supp. 1997).

7. Pursuant to this statutory authority, DOR promulgated Regulation 117-190 to clarify the phrase "single place or premises" contained in section 12-21-2804(A) and the General Assembly approved these regulations.

8. Regulations authorized by the Legislature have the force of law. Norton v. Opening Break, 313 S.C. 508. 443 S.E.2d 406 (Ct. App. 1994), affirmed 319 S.C. 469, 462 S.E.2d 861 (1995).

9. Regulation 117-190 provides in relevant part:

A "single place" or "premises" means a structure surrounded by exterior walls or fire walls 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 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 premise" for purposes of the Video Game Machines Act.

(emphasis added).

10. Regulation 117-190 clearly requires at least one separate employee on the premises during business hours.

11. In a mall-type setting such as Sand Dollars, 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 Dep't of Revenue & Taxation v. Mickey Stacks, 95-ALJ-17-0742-CC (March 8, 1996), aff'd Court of Common Pleas, Richland County, Civil Action No. 96-CP-40-0889 (March 21, 1997).

12. S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) expressly authorizes DOR to enforce the provisions of this section and also provides that the penalty for exceeding the maximum number of video game machines permitted in a single place or premises requires the revocation of the licenses of machines located in the establishment.

13. Failure to meet any of the requirements of the "single place or premises" criteria set forth in 27 S.C. Code Ann. Regs. 117-190 (Supp. 1997) is grounds for revocation of each machine license in the establishment pursuant to S.C. Code Ann. § 12-21-2804(A) (Supp. 1997). Additionally, section 12-21-2804(A) provides that no machine license may be issued for, nor a machine operated at, an establishment in which a license has been revoked for a period of six months from the date of revocation.

14. A person who violates S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) is subject to a fine of up to $5,000. S.C. Code Ann. § 12-21-2804(F) (Supp. 1997).

15. 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. South Carolina ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633, 634 (1991).

16. All eleven gaming rooms at Sand Dollars were operated in violation of S.C. Code Ann. 12-21-2804(A) (Supp. 1997) by Respondents' failure to have at least one separate employee in each gaming room during business hours.

17. Based on the history of Respondents' prior violations, imposition of a $5,000 fine against each Respondent is reasonable under the circumstances.

18. A video game machine license merely represents the privilege granted by statute to operate a video poker machine for profit, which may be revoked regardless of whether the duration of the representative license has expired. Cf. Patel v. Kansas State Board of Healing Arts, 22 Kan.App.2d 712, 920 P.2d 477 (1996).

19. Class III video game machines must have information identifying the owner or operator of the machine attached on an area of the machine visible for inspection purposes. S.C. Code Ann. § 12-21-2748 (Supp. 1997).

20. Coastal Coin violated S.C. Code Ann. § 12-21-2748 by failing to have identifying information on one of its machines attached on an area visible for inspection purposes.

21. The penalty for violation of the owner identification statute is $2,500. S.C. Code Ann. § 12-21-2738 (Supp. 1997).

ORDER

IT IS THEREFORE ORDERED that Respondents' motion to dismiss is denied without prejudice to their right to have the motion heard by The Honorable Stephen P. Bates upon proper filing in case no. 98-ALJ-17-0254-CC.

IT IS FURTHER ORDERED that the following forty-three (43) machine licenses in the subject rooms at 2000 Highway 17 North, Surfside Beach, South Carolina are hereby revoked:

Unit A Unit B Unit C Unit D

3806554 3806551 0630117 0630118

3806555 3806552 3806559 0630119

3806581 3806553 3806560 0630120

3806582 3806571

3806583

Unit E Unit F Unit G Unit H

0630121 0630123 3806577 3806572

0630122 0630124 3806578 3806573

3806548 3806550 3806579 3806574

3806549 3806576 3806575

Unit I Unit J Unit K

0630125 3806561 3806566

3806556 3806562 3806567

3806557 3806563 3806569

3806558 3806564 3806570

3806565

IT IS FURTHER ORDERED that no Class III machines may be operated in any of the eleven game rooms at Sand Dollars for a period of six months from the date of revocation of the licenses.

IT IS FURTHER ORDERED that Respondent Mid-South, Inc. shall pay a penalty of $5,000 to the South Carolina Department of Revenue for violation of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997), and Respondent Coastal Coin, Inc. shall pay a total penalty of $7,500 to the South Carolina Department of Revenue for violations of S.C. Code Ann. § 12-21-2804(A) (Supp. 1997) and S.C. Code Ann. § 12-21-2748 (Supp. 1997).

AND IT IS SO ORDERED.



____________________________________

ALISON RENEE LEE

Administrative Law Judge

July 21, 1998

Columbia, South Carolina

1. Pursuant to S.C. Code Ann. § 12-21-2720(C) (Supp. 1997), a separate license is required for each station of a multi-player machine. For purposes of the number of machines allowed in a single place or premise under section 12-21-2804(A), each station counts as a separate machine.

2. This case has been appealed and is currently pending in Circuit Court.


Brown Bldg.

 

 

 

 

 

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