SC Administrative Law Court Decisions

The South Carolina Department of Revenue (DOR) seeks to hold Henry O. Hucks (Hucks), a bingo promoter, liable for an administrative penalty of $5000 for violating S.C. Code Ann. § 12-21-4270 (Supp. 1998). Hucks opposes DOR's position. Hucks asserts the penalty is inappropriate and should be dismissed.⁽¹⁾ Based upon the circumstances of this case, the $5,000 penalty is dismissed.

Is Hucks, a bingo promoter, liable for a fine of $5000 for violating S.C. Code Ann. § 12-21-4270 (Supp. 1998)?

1. Positions of Parties

DOR asserts that Hucks is liable for a penalty for violating S.C. Code Ann. § 12-21-4270 (Supp. 1998) by failing to timely remit to DOR 16.5% of the total face value of bingo cards purchased by Hucks. DOR asserts that the amount of the penalty under S.C. Code Ann. § 12-21-4140 (Supp. 1998) should be $5,000. Finally, DOR argues that the written agreement with Hucks does not waive the $5,000 penalty.

Hucks argues two positions. First, no penalty is due since DOR waived the penalty pursuant to a binding written agreement. Second, if the penalty has not been waived, extenuating circumstances relating to poor business decisions mitigate in favor of reducing the penalty.

2. Findings of Fact

I find by a preponderance of the evidence the following facts:

a. Background Facts

The Non Profit Food Center, Inc. (Food Center), a party licensed to conduct bingo, provides a bingo parlor at 2520 N. Broad Street, Camden, South Carolina. The Camden location is operated by Hucks as the promoter.

On October 3, 1997, the Food Center ordered bingo cards for a price of $69,000. However, neither Hucks nor the Food Center paid DOR the required 16.5% tax ($11,385) due on the cards. After receiving the cards, the bingo parlor operated for less than ten days and was closed due to a lack of profitability. The unused bingo cards were reported missing. In addition, the bingo equipment was removed from the parlor without the permission of Hucks or Food Center.

On January 23, 1998, DOR notified Hucks that he was liable for a $5,000 penalty for failing to pay the 16.5% tax due on the cards. As a result, on February 18, 1998, Hucks protested both the proposed tax and penalty by asserting to DOR "we owe some taxes but not the mentioned amount." The protest resulted in a conference on March 24, 1998 between DOR and Hucks. At that conference both the tax and the penalty were discussed. However, the parties differ on what conclusions were reached as a result of that conference.

A subsequent meeting on April 27, 1998, again allowed DOR and Hucks to address the penalty and the tax. At that meeting, DOR presented Hucks with a form containing a statement of DOR's determination of Hucks's liability to the State. That statement of indebtedness declared that Hucks was liable to DOR for a debt of a specific and stated amount. However, prior to signing the agreement, the parties altered the amount of indebtedness. After the alteration, the agreement stated Hucks was indebted to DOR "for taxes, penalties, interest and costs in the amount of $12,759.44."

After executing the agreement, Hucks began making payments. He made a $2,000 down payment and made several monthly payments of $897. Ultimately, he was unable to continue payments due to business reversals and loss of funds from contributing partners.

b. Facts in Controversy Decided

On at least two occasions Hucks asked DOR to reduce the tax and to waive the $5,000 penalty. The disputed fact is whether DOR agreed not to assert the $5,000 penalty.

From Hucks's point of view, the written agreement of April 27, 1998 reflects the understanding of the parties that DOR would not assert the $5,000 penalty. He argues the agreement states Hucks is "indebted to the South Carolina Department of Revenue for taxes, penalties, interest and costs in the amount of $12,759.44." (Emphasis added). In his view, the parties agreed on a fixed liability which imposed no $5,000 penalty. Indeed, on April 27, 1998, the agreement showed a tax, penalty, interest and cost due on that date of $12,759.44 consisting of the following:

Tax $11,385.00

Penalty ⁽²⁾

341.52

Interest⁽³⁾ 433.98

Cost 598.99

Accordingly, Hucks argues nothing in the agreement of indebtedness states the parties are unsettled on any other liability. Rather, Hucks asserts the agreement sets forth his entire liability to the State, and, since the agreement specifically omits the $5,000 penalty, he argues DOR agreed no to assert the $5,000 penalty.

DOR disagrees with Hucks and argues the $5,000 penalty was not addressed at all by the agreement. From DOR's point of view, the agreement addressed only that part of the controversy upon which the parties had reached agreement, i.e. the $11,385 tax liability plus interest and penalties accrued to the date of the agreement. Accordingly, DOR believes Hucks still owes the $5,000 penalty.

I agree with Hucks. As more fully developed in the Conclusions of Law, DOR chose to settle the liability without imposing the $5,000 penalty. Under the document signed by the parties on April 27, 1998, the parties agreed Hucks was liable for an indebtedness of $12,759.44. That agreement established Hucks's entire liability to the State and that indebtedness did not charge him with a $5,000 penalty.

3. Conclusions of Law

The agreement signed by DOR and Hucks on April 27, 1998 established Hucks's liability as being $12,759.44. Under that agreement Hucks is not liable for an additional $5,000 penalty. Such a conclusion is consistent both with the statutes governing DOR and with the general law of settlements and compromises.

a. Authority to Compromise

First, no serious doubt exists that DOR has the authority to enter into a settlement agreement establishing Hucks's bingo liability and creating a payment schedule. Indeed, DOR has broad statutory authority to "compromise any tax, interest, or penalty imposed by [Title 12]." S.C. Code Ann. §12-4-320(3) (Supp. 1998).

b. Construction of Agreement

Second, having exercised its settlement authority, the terms of the agreement are subject to the rules of construction applicable to contracts in general. 15A C.J.S. Compromise & Settlement § 21 (1967). Under such rules of construction, the goal is to give effect to the intention of the parties. Parker v. Byrd, 309 S.C. 189, 420 S.E.2d 850 (1992). The parties' intention is best found by examining the language of the contract since the instrument's force and effect will be determined by the plain and unambiguous language used. Blakeley v. Rabon, 266 S.C. 68, 221 S.E.2d 767 (1976).

Language is plain and unambiguous if it can fairly and reasonably be understood in only one way. Farr v. Duke Power Co., 265 S.C. 356, 218 S.E.2d 431 (1975). Language understood plainly in one way will not necessarily become ambiguous due to the agreement being silent on one or more points. Jordan v. Security Group, Inc., 311 S.C. 227, 428 S.E.2d 705 (S.C. 1993) (an ambiguity is not necessarily created because the document fails to include or specify other information that would be informative or helpful to one of the parties). Indeed, the court must enforce the contract as executed. A court will not supply omitted language that, if inserted, may be protective of one party nor will the court base its construction on how well the parties chose to guard their various interests. McPherson v. J.E. Sirrine & Co., 206 S.C. 183, 206, 33 S.E.2d 501, 510 (1945); see Ellis v. Taylor, 316 S.C. 245, 449 S.E.2d 487, 488 (1994) (court would not supply protective terms where "[n]othing in the agreement requires consideration of Father's financial ability nor does it require the children to minimize college expenses.").

c. Application to Facts

Here, the signed document states that Hucks is "indebted to the South Carolina Department of Revenue for taxes, penalties, interest and costs in the amount of $12,759.44." (Emphasis added). The amount is clear: $12,759.44. Equally as important, the scope of coverage is clear: taxes, penalties, interest and costs. Had the parties wished to impose on Hucks any additional liability the agreement could easily have added such a provision. In short, the agreement covers the entire liability of Hucks to DOR.

Finally, alterations to the face of the document demonstrate the statement of Hucks's indebtedness is not an ambiguous term. The document shows the parties specifically negotiated an amount of indebtedness upon which they finally agreed. The alteration to the agreement shows that an amount of indebtedness other than $12,759.44 was originally on the form. What the original indebtedness was is not established. However, the evidence establishes that the parties altered the original indebtedness, inserted a new indebtedness of $12,759.44, and agreed to the change by initialing the altered amount.

Had the parties wished to express their intent that Hucks owed a liability of $5,000 beyond that expressed in the agreement, the parties' joint act of changing the document's amount of indebtedness could easily have been utilized to state just such an intention. However, no such change was inserted. Rather, the agreement on its face, in plain, unambiguous language states Hucks owes the State $12,759.44. Accordingly, Hucks is not liable for an additional $5,000 imposed by S.C. Code Ann. §12-21-4140 (Supp. 1998).

The South Carolina Department of Revenue's assessment under S.C. Code Ann. §12-21-4140 (Supp. 1998) of a $5,000 penalty against Henry O. Hucks for violating S.C. Code Ann. § 12-21-4270 (Supp. 1998) is dismissed.

AND IT IS SO ORDERED

______________________

RAY N. STEVENS

Administrative Law Judge

Dated: March 31, 1999

Columbia, South Carolina

1. Hucks's disagreement with DOR's determination places jurisdiction in the Administrative Law Judge Division (ALJD). S.C. Code Ann. § 1-23-600 (Supp. 1998).

2. A penalty for failure to pay the tax when due accrues at the rate of one-half of one percent for each month the tax remains unpaid. S.C. Code Ann. §12-54-40 (Supp. 1998). Under the agreement, Hucks remains liable for the failure to pay penalty which continues to accrue with the total accrued penalty to be paid "with the final payment."

3. Interest on the unpaid tax continues to accrue until the tax is paid in full. S.C. Code Ann. §12-54-25 (Supp. 1998). Just as with the failure to pay penalty, under the agreement, Hucks remains liable for interest which continues to accrue until the tax is paid with the final accrued interest to be paid "with the final payment."