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SC Administrative Law Court Decisions

SCDOR vs. Thomas W. Northern, d/b/a Gold Rush Promotions, et al

South Carolina Department of Revenue

South Carolina Department of Revenue

Thomas W. Northern, d/b/a Gold Rush Promotions, and Senior Citizens Association in Florence County

Petitioner & Representative: South Carolina Department of Revenue, Geoffrey R. Bonham

Respondent & Representative: Thomas W. Northern, d/b/a Gold Rush Promotions, Pro se and Senior Citizens Association in Florence County, Julie Jeffords Moose



I. Statement of the Case

The South Carolina Department of Revenue (DOR) brought this matter against Thomas W. Northern/Gold Rush Promotions (Gold Rush) and the Senior Citizens Association in Florence County (Citizens) concerning a violation of the Bingo Tax Act of 1996. DOR seeks a $5,000 penalty against Gold Rush and Citizens for failure to remit in a timely fashion the 16.5 percent tax imposed by the Bingo Tax Act of 1996. Having considered all of the evidence and the arguments, a $5,000 penalty is appropriate.

II. Issue

Should Gold Rush or Citizens be required to pay an administrative penalty of $5000 for violating S.C. Code Ann. § 12-21-4270 (Supp. 1998)?

III. Analysis

1. Positions of Parties

DOR asserts that Gold Rush and Citizens are liable for a penalty of $5,000 for failing to timely remit to DOR the 16.5% tax imposed by S.C. Code Ann. § 12-21-4270 (Supp. 1998). Neither Gold Rush nor Citizens dispute the fact that tax was untimely paid. Rather, both assert extenuating circumstances militate against a penalty of $5,000.

2. Findings of Fact

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

Gold Rush applied for and received a Bingo Card Purchase Voucher on October 16, 1998 authorizing the purchase of $238,000 of bingo cards. Gold Rush was aware that the 16.5 percent tax was due within fifteen days. However, neither Gold Rush nor Citizens paid the 16.5 percent tax of $39,270 by the due date of October 31, 1998.

The tax was not paid since neither Gold Rush nor Citizens had the required funds. Further, the bingo game for which the cards were purchased did not produce a sufficient amount of income to cover both the expenses associated with the game and the 16.5% tax due on the cards. In an effort to pay the tax due, on October 30, 1998, Gold Rush attempted to secure a short term loan to pay the $39,270 tax liability. However, the bank was unable to process the loan as timely as hoped resulting in the tax not being paid until November 6, 1998.

3. Conclusions of Law

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

A failure to pay the 16.5 percent tax on the total face value of bingo cards purchased within fifteen days of DOR 's receipt of the purchase application is a violation of S.C. Code Ann. § 12-21-4270 (Supp. 1998). Here, no dispute exists that the tax was not timely paid. Given the late payment, the issue is what penalty results from a failure to timely pay the tax.

A. Statutory Penalty

The failure to timely pay the tax subjects the violator to a penalty of up to $5,000. See S.C. Code Ann. § 12-21-4140 ("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 [for which e]ach violation and each day in violation of a provision of this article constitutes a separate offense."). Further, the penalty is a joint and several liability of Gold Rush and Citizens. S.C. Code Ann. § 12-21-3960 (Supp. 1998). Both Gold Rush and Citizens contend a $5,000 penalty is excessive under the circumstances of this case, and they seek a waiver or reduction of the penalty.

B. Amount of the Penalty

The ALJ has the authority to establish the amount of the penalty. Inherent in and fundamental to the quasi-judicial powers of an ALJ, as the trier of fact in contested cases under the Administrative Procedures Act,(1) is the authority to decide the appropriate penalty when such is disputed. Walker v. South Carolina ABC Comm'n, 305 S.C. 209, 407 S.E.2d 633 (1991).

A failure to pay the bingo tax is a serious violation. The law is clear that the tax is due within fifteen days of DOR's receipt of the application for purchase of bingo cards. Further, the General Assembly just as clearly stated that each day past October 31, 1998 constitutes a separate offense. Thus, Gold Rush and Citizens, having not paid the tax until November 6, 1998, could have been subjected to a penalty of up to $30,000. Hence, the penalty sought by DOR is far less than the maximum penalty available. Further, the statute also authorizes the revocation of the promoter's and the sponsor's licenses. No revocations are sought here and thus again, less than the maximum penalty is being requested. Accordingly, given the nature of the violation, a penalty of $5,000 is proper.

C. Mitigating Factor

Even though the penalty is less than the maximum, Gold Rush and Citizens seek to reduce the amount of the penalty by arguing that a mitigating factor exists in that the bingo games failed to produce enough funds to cover the tax liability. I do not find such a circumstance to be a persuasive mitigating factor.

While other factors may warrant consideration, a significant consideration is whether the alleged mitigating factor demonstrates reasonable cause to reduce the penalty. Kroger Co. v. Department of Revenue, 673 N.E.2d 710 (Ill. 1996). Reasonable cause is generally absent if ordinary business care is absent. Id. Certainly, what constitutes ordinary business care must be determined by the peculiar facts of each particular case. Armstrong's, Inc. v. Iowa Dept. of Revenue, 320 N.W.2d 623 (Iowa 1982). However, the lack of ordinary business care is strongly suggested if the facts show the taxpayer simply failed to pay what it knew it owed. See, e.g. Hearst Corp. v. Iowa Dept. of Revenue and Finance, 461 N.W.2d 295 (Iowa 1990) (where lack of ordinary business care was established and corresponding lack of reduction of penalty was ordered where taxpayer knowingly failed to remit tax due as required by law).

Here, Gold Rush knew it owed the tax. Indeed, the tax liability arises at the moment the request for the bingo cards is made, but by legislative grace the payment of that tax is extended for an additional fifteen days. See S.C. Code Ann. § 12-21-4270 (Supp. 1998) (bingo cards obtained only by "making an application and remitting [16.5% tax]. Payment . . . must be made . . . by certified check within fifteen days of receipt of the application."); see also Stephens v. Hendricks, 228 S.C. 458, 90 S.E.2d 632, 633 (1955) (where sales tax liability arose at the time of the sales transaction even though the payment of the tax was not required for an additional twenty days, with such period being a "grace period for payment.").

Knowing the tax was due and unpaid, however, Gold Rush chose to expend its available funds for other purposes. In fact, Gold Rush relegated the payment of the tax to whatever funds were left after paying all other expenses. Such a means of paying taxes owed is not the exercise of ordinary business care. Rather, ordinary business care presents an adequately capitalized operation capable of paying taxes due without having to rely upon expected profits to pay known liabilities. Thus, the lack of funds is not a mitigating factor.

IV. Order

Pursuant to S.C. Code Ann. § 12-21-4140 (Supp. 1998), Thomas W. Northern, d/b/a Gold Rush Promotions, and Senior Citizens Association in Florence County are liable for a penalty of $5,000 for violating S.C. Code Ann. § 12-21-4270 (Supp. 1998)



Administrative Law Judge

Dated: June 4, 1999

Columbia, South Carolina

1. S.C. Code Ann. § 1-23-310 et seq. (1986 & Supp. 1998)

Brown Bldg.






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