SC Administrative Law Court Decisions

The South Carolina Department of Revenue (DOR) seeks to impose a fine of $2,500 against Kenneth Connor (Connor). Connor opposes DOR's position and asserts no fine is due. This disagreement places jurisdiction in the Administrative Law Judge Division (ALJD). S.C. Code Ann. §§ 12-60-1310, 12-60-1320, 1-23-600 (Supp. 1997). The hearing in this matter was held August 13, 1998 at the Edgar Brown Building, Columbia, South Carolina. Based upon the evidence and the arguments presented by the parties, the fine of $2,500 is imposed.

Did Connor violate S.C. Code Ann. § 12-21-2720(A) (Supp. 1997) by failing to procure from DOR a license for the privilege of making use of a Class III machine as defined in S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1997), [i.e., a video game with free play feature operated by a slot in which a coin or thing of value is deposited] and, if so, what is the applicable penalty?

1. Positions of Parties

Connor asserts no violation occurred since he relied upon the City of Charleston who told him that the license obtained from the city was all that was required. DOR argues that Connor did not seek a license from the State of South Carolina and that he unjustifiably relied upon information obtained from the City of Charleston.

2. Findings of Fact

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

a. General

Connor owns one Class III video game machine which he maintains for use at his place of business located at 171 Line Street, Charleston, South Carolina. At that address on January 22, 1997, SLED Agents conducted an inspection of Connor's video machine. The inspection included walking into the location and searching for the license number on the machine.

During the inspection, the SLED Agents identified one unlicensed machine. The lack of a license was determined after a through examination of the machine. The unlicensed machine was in an establishment that was open for business and was between two other machines that did have the proper state license. Connor's machine was turned on and was operational. As the result of the lack of a license, the SLED Agents issued a citation against Connor for a violation of S.C. Code Ann. § 12-21-2720(A) (Supp. 1997) for maintaining for use an unlicensed Class III machine. Further, DOR established a fine of $2,500.

b. Presence of License

Only three Class III machines were at the 171 Line Street location at the time of the inspection. One of the machines belonged to Connor with the two other machines owned by an unrelated third party. The two machines owned by the third party had state licenses. The facts are undisputed that Connor had no license from the State of South Carolina on his Class III machine. Rather, Connor had only a license from the City of Charleston.

3. Conclusions of Law

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

A person who maintains for use on a place or premises occupied by him, a Class III machine, i.e., a video game machine (other than a flipper machine) that has a free play feature and that is operated by a slot into which a coin or thing of value is deposited, must obtain a license from DOR. S.C. Code Ann. § 12-21-2720(A) (3) (Supp. 1997). That license must be displayed conspicuously on the front of the machine. S.C. Code Ann. § 12-21-2726 (Supp. 1997). Further, in addition to being conspicuous, the license must be "attached to a permanent, nontransferable part of the machine." S.C. Code Ann. § 12-21-2732 (Supp. 1997). Finally, the license must be attached to the Class III machine "before placement or operation" of the machine on the premises. S.C. Code Ann. § 12-21-2778 (Supp. 1997); see also S.C. Code Ann. § 12-21- 2732 (Supp. 1997) (license must be attached to the machine "before its operation is commenced.").

The failure to attach the state license before placing the machine in operation results in a fine of $2,500. See S.C. Code Ann. § 12-21-2738 (Supp. 1997) ("applicable penalty amount is $2,500.").

Here, the facts establish no Class III license was attached to Connor's machine. Further, two other Class III machines owned by a third party were immediately to the right and left of Connor's machine and those third party machines had the required state license. The requirement to hold a state license is a basic duty fundamental to the highly regulated nature of video poker. The failure to obtain a license is a serious violation of the regulatory scheme and must be addressed with an appropriate and significant penalty. Accordingly, Connor is liable for a fine of $2,500.

Finally, the reliance upon information from a city official of Charleston that no state license was required is an insufficient basis to avoid the penalty. While in some instances the State may be subject to an estoppel argument, "[t]he public cannot be estopped ... by the unauthorized or erroneous conduct or statements of its officers or agents which have been relied on by a third party to his detriment." South Carolina Coastal Council v. Vogel, 292 S.C. 449, 453, 357 S.E.2d 187, 189 (Ct.App.1987); See also Oswald v. County of Aiken, 281 S.C. 298, 315 S.E.2d 146 (Ct.App.1984). Here, the employee of the City of Charleston whom Connor consulted had no duty or authority to issue the State license required by S.C. Code Ann. § 12-21-2720 (Supp. 1997). Thus, the reliance upon the city official's unauthorized conduct defeats any estoppel argument by Connor. See Patterson v. Goldsmith, 288 S.C. 551, 343 S.E.2d 661 (Ct.App.1986) ("Because the County had neither a duty nor authority to notify a delinquent taxpayer of the approaching end of the redemption period, the Tax Collector's notification to Goldsmith and the Jacksons that they had 30 days from May 31, 1983, within which to redeem the property was clearly an [unauthorized] act" preventing the application of an estoppel argument).

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

DOR shall impose a fine of $2,500 as levied by S.C. Code Ann. § 12-21-2738 (Supp. 1997) against Kenneth Conner for failing to obtain a license as required by S.C. Code Ann. § 12-21-2720(3) (Supp. 1997).

AND IT IS SO ORDERED.

____________________________

RAY N. STEVENS

Administrative Law Judge

Dated: August 25, 1998

Columbia, South Carolina