SC Administrative Law Court Decisions

This matter comes before the Administrative Law Judge Division on a citation issued by the South Carolina Department of Revenue (DOR) against the Respondents for failure to timely remit 16.5% of the value of bingo cards they had received, a violation of the Bingo Tax Act of 1996, S.C. Code Ann. §§ 12-21-3910 et seq. (Supp. 1997). For the violations, DOR seeks a $5,000 fine against Greenville Lodge No. 858, The Benevolent and Protective Order of Elks of the United States of America, and Ramon Ashy, Jr., and a $5,000 fine against Anderson County Lodge #10, Fraternal Order of Police, and Ashy International, Inc.

The Respondents sought review of the DOR determination, arguing that the fines are excessive given the circumstances. After notice to the parties, this matter was heard at the Division on February 23, 1999. Any issues raised or presented in the proceedings or hearing of this case not specifically addressed in this Order are deemed denied. ALJD Rule 29(C).

I make the following Findings of Fact, taking into account the burden on the parties to establish their respective cases by a preponderance of the evidence and taking into consideration the credibility of the witnesses:

1. Ramon Ashy, Jr. managed and supervised the day-to-day operations of bingo games for Greenville Lodge No. 858, The Benevolent and Protective Order of Elks of the United States of America ("Elks' Lodge").
2. On October 1, 1997, a representative of Ramon Ashy, Jr. applied for and received a bingo card purchase voucher for $155,000 worth of cards.
3. Ramon Ashy, Jr. and the Elks' Lodge did not remit $25,575 (16.5% of the value of bingo cards purchased on October 1, 1997) to DOR until November 4, 1997.
4. On January 28, 1998, DOR issued a Regulatory Violation and Proposed Assessment Report charging Ramon Ashy, Jr. and the Elks' Lodge $5,000 for failure to for failure to timely remit 16.5% of the value of bingo cards received.
5. On February 27, 1998, Ramon Ashy, Jr. filed a protest of the Regulatory Violation and Proposed Assessment Report.
6. On July 15, 1998, DOR upheld its initial assessment of a $5,000 fine in its Final Determination.
7. On July 30, 1998, Ramon Ashy, Jr. and the Elks' Lodge requested a hearing to contest DOR's Final Determination.
8. Ashy International, Inc. managed and supervised the day-to-day operations of bingo games on behalf of Anderson County Lodge #10, Fraternal Order of Police ("Police Lodge").
9. On October 1, 1997, a representative of Ashy International, Inc. applied for and received a bingo card purchase voucher for $137,500 worth of bingo cards.
10. Ashy International, Inc. and the Police Lodge failed to remit $22,687.50 (16.5% of the total face value of the cards purchased on October 1, 1997) by October 16, 1997 but instead paid the amount on October 21, 1997.
11. On February 15, 1998, DOR issued a Regulatory Violation and Proposed Assessment Report charging Ashy International, Inc. and the Police Lodge $5,000 for failure to for failure to timely remit 16.5% of the value of bingo cards received.
12. On March 13, 1998, Ashy International, Inc. and the Police Lodge filed a protest of the Regulatory Violation and Proposed Assessment Report.
13. On July 15, 1998, DOR upheld its initial assessment of a $5,000 fine in its Final Determination.
14. On July 30, 1998, Ashy International, Inc. and the Police Lodge requested a hearing to contest DOR's Final Determination.
15. The Bingo Tax Act of 1996 became effective October 1, 1997, the same day the Respondents purchased the subject bingo paper.
16. The Bingo Tax Act of 1996 changed the mechanism by which promoters acquire bingo paper. Under the act, as amended, upon receipt of the application for bingo cards, DOR notifies a licensed distributor that it may release the face value of the bingo cards requested to the licensed organization or promoter.
17. The Bingo Tax Act of 1996 effectively raised the cost of purchasing bingo, and, therefore, negatively affected bingo players' demand to participate in bingo games.
18. The Respondents underestimated the negative effects the Bingo Tax Act of 1996 would have on the demand for bingo when they ordered bingo paper on October 1, 1997; accordingly, they purchased an amount of bingo paper in excess of that required for operation of bingo games.
19. As a result of their purchasing more bingo paper than required, the Respondents lacked funds to pay the required 16.5% charge in a timely manner.
20. DOR officials in the Greenville District uniformly initially assess a $5,000 penalty for failure to timely remit 16.5% of the value of bingo cards received, regardless of the circumstances of individual violations.

The Respondents do not dispute their failure to remit the 16.5% charge to DOR in a timely manner. Rather, the Respondents claim the violation resulted from a decrease in the demand for bingo and confusion caused by the implementation of bingo legislation on the day the cards were purchased, and argue that the fines sought by DOR are grossly excessive given the circumstances. The Respondents argue, further, that DOR's policy of penalizing bingo promoters and charities uniformly, regardless of the individual circumstances, is arbitrary. The Respondents also allege that DOR is biased against bingo charities and promoters and that DOR has failed to pay charities their portion of the 16.5% charge.

DOR argues that the fines are reasonable, given the purposes of the Bingo Tax Act and that, since the fines are within DOR's statutory discretion, they are reasonable as a matter of law. DOR also contends that the seriousness of the violations warrants substantial fines, given the history of bingo enforcement in this state.

The Respondents have not established that the fine imposed by DOR is unreasonable given the circumstances. They have not adequately explained why the circumstances mitigate their failure to pay the 16.5% fee on time, nor have they established that such a failure outweighs the State's interest in strict compliance with the Bingo Tax Act. Whether DOR has failed to distribute to charities their portion of the 16.5% charge is immaterial because, inter alia, the Respondents have not established that failure by DOR to do so caused them to fail to pay the charge related to the subject games or that such a failure would excuse their own duty to comply with the act.

The circumstances of the Respondents parallel those in a recent case before the ALJD. In South Carolina Dep't of Revenue v. Lexington Co. Voiture No. 1211, 98-ALJ-0492-CC (December 14, 1998), a promoter remitted most of the 16.5% charge on time. However, based on confusion over the workings of the Bingo Tax Act of 1996 and based on their overestimation of the demand for bingo cards, the promoter and charity were unable to raise enough revenue to pay part of the charge on time. Although the balance was paid only three days after the deadline, DOR fined the respondents $5,000, which was upheld by the ALJD. The Respondents argue that Lexington Co. Voiture is distinguishable from the present case because it involved poor business judgment, unlike the present case; however, the promoters in both cases exercised their business judgment similarly, both underestimating the negative effect on demand that the Bingo Tax Act of 1996 would have on their games. The respondents in Lexington Co. Voiture "were unable to generate enough bingo business to fully utilize the revenue they had anticipated . . . ." This error is indistinguishable in any material way from the actions of the promoters in the instant case. The Lexington Co. Voiture is more easily distinguished considering that the respondents in that case complied more fully with the statute, actually remitting most of the charges due on time, while the Respondents in the instant case made no such effort.

Notably the Respondents' case does not involve a claim to waiver based on Revenue Procedure 98-3, which allows for waiver of a penalty when a taxpayer's failure to comply with the law is "due to reasonable cause," such as serious illness. Accordingly, the fines imposed by DOR must be upheld.

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

1. The Division holds jurisdiction over the parties and subject matter of this dispute.

"The game of bingo, when conducted by charitable, religious or fraternal organizations exempt from federal income taxation or when conducted at recognized annual State and county fairs, shall not be deemed a lottery prohibited by this section." South Carolina Const. Art. XVII, § 7.

"Organizations may conduct bingo in this state only by license. The license confers no property right. It is a permit issued pursuant to the State's police power." Army Navy Bingo, Garrison No. 2196 v. Plowden, 314 S.E.2d 339, 340, 281 S.C. 226, 229 (1984).

"The promoter and the nonprofit organization are jointly and severally liable for all taxes, penalties, interest, and fines imposed by this article and Chapter 54 of this title." S.C. Code Ann. § 12-21-3960 (Supp. 1997).

Section 12-21-4270 provides as follows:

Each licensed nonprofit organization or promoter, in the name of a licensed organization, may obtain bingo cards approved by the department by making application and remitting sixteen and one-half percent of the total face value of the cards to be purchased. Payment to the State for the issuance of bingo cards must be made by certified check within fifteen days of receipt of the application.

1. "Upon receipt of the application [for bingo cards], the department shall notify a licensed distributor, who has purchased bingo cards from a licensed manufacturer that the licensed distributor may release the face value of the bingo cards requested to the licensed organization or promoter." S.C. Code Ann. § 12-21-4270 (Supp. 1997).
2. "All unused bingo cards may be returned to the department for refund and destruction." S.C. Code Ann. § 12-21-4210 (Supp. 1997).
3. Respondents Ramon Ashy, Jr. and the Elks' Lodge violated S.C. Code Ann. § 12-21-4270 (Supp. 1997) by failing to remitting 16.5% of the total face value of the cards purchased within fifteen days of receipt of the application.
4. Respondents Ashy International, Inc. and the Police Lodge violated S.C. Code Ann. § 12-21-4270 (Supp. 1997) by failing to remitting 16.5% of the total face value of the cards purchased within fifteen days of receipt of the application.
5. S.C. Code Ann. § 12-21-4140 provides that "[a] penalty of up to five thousand dollars and revocation of the license at the discretion of the department may be imposed for a violation of this article. Each violation and each day in violation of a provision of this article constitutes a separate offense."
6. S.C. Revenue Procedure 97-7 recommends a fine of $5,000 for a first violation of S.C. Code Ann. § 12-21-4270. A fine of $5,000 and revocation are recommended for a second offense.
7. Respondents Ramon Ashy, Jr. and the Elks' Lodge are liable jointly and severally for a penalty of up to $5,000. S.C. Code Ann. § 12-21-4140 (Supp. 1997); S.C. Code Ann. § 12-21-3960 (Supp. 1997).
8. Respondents Ashy International, Inc. and the Police Lodge are subject jointly and severally to a penalty of up to $5,000. S.C. Code Ann. § 12-21-4140 (Supp. 1997); S.C. Code Ann. § 12-21-3960 (Supp. 1997).
9. In contested cases the administrative law judge may determine the appropriate penalty under the facts presented. Walker v. South Carolina ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633 (1991); cf., South Carolina Dep't of Revenue v. Head, 98-ALJ-17-0451-CC (November 5, 1998).
10. As the penalties imposed are within the range of those authorized by law, the Respondents' contention that the fines assessed by DOR were arbitrary and capricious is without merit. See Deese v. South Carolina State Bd. of Dentistry, 286 S.C. 182, 332 S.E.2d 539 (Ct. App. 1985).
11. A fine of $5,000 against Respondents Ramon Ashy, Jr. and the Elks' Lodge for violation of S.C. Code Ann. § 12-21-4270 (Supp. 1997) is appropriate and reasonable under the circumstances of this case.
12. A fine of $5,000 against Respondents Ashy International, Inc. and the Police Lodge for violation of S.C. Code Ann. § 12-21-4270 (Supp. 1997) is appropriate and reasonable under the circumstances of this case.

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

ORDERED, that Ramon Ashy, Jr. and Greenville Lodge No. 858, The Benevolent and Protective Order of Elks of the United States of America remit $5,000 to the South Carolina Department of Revenue.

IT IS FURTHER ORDERED THAT Ashy International, Inc. and the Anderson County Lodge #10, Fraternal Order of Police ("Police Lodge") remit $5,000 to the South Carolina Department of Revenue.

AND IT IS SO ORDERED.

__________________________________

ALISON RENEE LEE

Administrative Law Judge

March 2, 1999

Columbia, South Carolina