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. Kenneth W. Branch

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Kenneth W. Branch
 
DOCKET NUMBER:
99-ALJ-17-0138-CC

APPEARANCES:
Petitioners & Representative: South Carolina Department of Revenue, Carol I. McMahan

Respondents & Representative: Kenneth W. Branch, Wade S. Weatherford, III

Parties Present: All Parties Present
 

ORDERS:

FINAL ORDER AND DECISION

I. Statement of the Case



The South Carolina Department of Revenue (DOR) seeks penalties of $7,000 against Kenneth W. Branch (Branch). One portion of the penalty, $5,000, arises from Branch's failure to license two Class III video game machines ($2,500 for each machine that failed to have a license). Further, DOR seeks to impose a $1,000 penalty ($500 per violation) for failure to conspicuously display each of the two required licenses. Finally, DOR seeks a $1,000 fine (penalties of $500 for each violation) for each of two Class III coin-operated machines that failed to have the required owner/operator identification. Branch opposes DOR's position on all of the fines.



This disagreement places jurisdiction in the Administrative Law Judge Division (ALJD). S.C. Code Ann. §§ 12-4-30(D), 12-60-1310, 12-60-1320, 1-23-600 (Supp. 1998). The hearing in this matter was held May 19, 1999 at the Edgar Brown Building, Columbia, South Carolina. Based upon the evidence and the argument presented by the parties, a $5,000 penalty is imposed for Branch's failure to license the Class III machines and a total $100 fine is imposed for failing to have the owner/operator identification on each machine. Finally, under the facts here, no violation is found for the alleged failure of Branch to conspicuously display licenses on two of the machines.



II. Issues



1. Did Branch violate S.C. Code Ann. Sec. 12-21-2720(A) (Supp. 1998) 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. Sec. 12-21-2720(A)(3) (Supp. 1998), (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 fine for such a violation?



2. Did Branch violate S.C. Code Ann. Sec. 12-21-2726 (Supp. 1998) by failing to conspicuously display on the front of the machine the license required by S.C. Code Ann. § 12-21-2720(A)(3) (Supp. 1998), and, if so, what is the penalty for such a violation?



3. Did two of Branch's machines located at 640 5th Street, Gaffney, South Carolina have information attached identifying the owner or operator of those machines as required by S.C. Code Ann. § 12-21-2748 (Supp. 1998), and, if not, what is the appropriate penalty?



III. Analysis



A. Failure to License a Class III Machine



1. Positions of Parties



DOR argues that Branch operated two Class III video machines without a license. Branch argues that he was not operating the machines. Rather, Branch argues the machines were merely left at a location owned by Herrin Collins and that Collins was operating the machines.



2. Findings of Fact



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



Prior to May, 1998, Branch owned several Class III video game machines and placed two of those machines on the premises of Herrin Collins at Collins's place of business of 640 5th Street in Gaffney, South Carolina. At the time of placement of the machines at Collins's business, Branch held a Class III license for each of the two machines.



During May of 1998, Branch began abandoning his video game business and started removing machines from various locations. On May 24, 1998, prior to the May 31, 1998 expiration dates of the two licenses at Collins's location, Branch's son Kevin, on Branch's behalf, executed a lease governing the two machines on the Collins premises. The lease was handwritten and stated the following: "I, Kevin W. Branch, will be leasing 2 pool tables & 2 poker machines to Spanky's Country Store." The agreement was signed by Kevin Branch and by Herrin Collins and was dated May 24, 1998. At some point after the signing of the lease and after May 31, 1998, Branch received between $50 to $200 from the machines at Collins's property.



On October 13, 1998, SLED made an inspection of the location operated by Collins and examined the two machines owned by Branch. As a result of the SLED Agent's inspection, the SLED Agent determined the two machines in the Collins location were unlicensed machines. That decision was reached after a through examination of each machine. The unlicensed machines were in an establishment that was open for business and the machines were turned on and were operational. As the result of the lack of a license, the SLED Agent issued a citation against Branch for a violation of S.C. Code Ann. Sec. 12-21-2720(A) (Supp. 1998) for maintaining two unlicensed Class III machines. Further, DOR established a fine of $2,500 for each machine for a total of $5,000.



3. Conclusions of Law



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



a. Violation Established



A person who "maintains for use," 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.) (1998).



Here, no significant dispute exists on the question of whether the machines were licensed. They were not. Rather, the licenses for the two machines had expired on May 31, 1998 and no new licenses were secured. However, Branch argues that the lack of a license does not subject him to a fine since he did not "maintain for use" the two machines on the Collins premises. Rather, he implies that Collins maintained the machines for use. I cannot agree since Branch's actions are consistent with one who maintained the machines for use.



"Maintain" means to "continue or preserve in or with; to carry on." Black's Law Dictionary 953 (6th ed. 1990); see also Merriam-Webster OnLine Dictionary, 1999 ("maintain" means "to continue or persevere in: carry on, keep up" or "to support or provide for."). Here two significant facts demonstrate Branch had more than the minimum degree of activity to satisfy the statutory requirement of being one who maintained the two machines for use.



First, the receipt of income from the machine is evidence of maintaining the machine. Cf. Wausau Underwriters Ins. Co. v. Howser, 309 S.C. 269, 422 S.E.2d 106 (1992) (where in the context of liability coverage under an automobile insurance contract, "maintenance" of a vehicle can be found if there is a causal connection between the vehicle and a resulting injury). Here, a causal connection exists between the machine and the income produced (and thus a "maintenance" of the machine by Branch) in that the income is received by Branch because he is the owner of the machines. Thus, Branch's receipt of funds of between $50 to $200 from the machines on Collins's property demonstrates Branch maintains the machines within the meaning of S.C. Code Ann. § 12-21-2720(A) (3) (1998).



Second, that casual connection is unmistakably demonstrated by the existence of a lease of the machines by Branch to Collins. While the instrument is not detailed, the document is clear that Branch is the lessor. The role of lessor inextricably links Branch with the continued use of the machines by Collins and demonstrates Branch maintains the machines for use in the sense of carrying on the activity of the machines. Thus, Branch maintains for use the two machines on the premises of Collins and did so without obtaining a license for either machine.



b. Penalty Determined



So long as a Class III machine is involved, a failure to obtain a license for each machine results in a $2,500 penalty since that monetary fine is imposed on the "person who fails, . . . to comply with the terms and provisions of [Article 19]." S.C. Code Ann § 12-21-2738 (Supp. 1998). Further, the amount of the penalty is not discretionary since the statute explains that "the applicable penalty is two thousand five hundred dollars." Id.



Here, Branch failed to comply with the terms and provisions of Article 19 since he failed to "procure from [DOR] a license . . . for the privilege of making use of the [Class III] machine." See S.C. Code Ann. § 12-21-2720(A) (3) (Supp.) (1998). Thus, the penalty of $2,500 is required for each violation and produces a fine of $5,000.



B. Failure to Display Licenses for a Class III Machine



1. Positions of Parties



DOR asserts that not only did Branch fail to procure a license but also he failed to conspicuously display a Class III license on each of the two machines involved in this dispute. As a result, DOR seeks a fine of $500 for each violation for a total of $1,000. Branch argues no violation occurred since he should not be fined for failing to display a license he did not have.



2. Findings of Fact



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



No licenses were displayed on the two Class III video game machines located on the Collins premises. In fact, Branch removed the expired licenses from the machines and did not acquire any licenses to cover periods beyond the date of expiration of the prior licenses. Indeed, the lack of licenses was confirmed on October 13, 1998, by the inspecting SLED Agent who observed the machines and noted the lack of licenses. As a result of the inspection, Branch was cited for failing to conspicuously display a license.



3. Conclusions of Law



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



Branch argues the statutes employed by the General Assembly do not intend to impose a fine on a person for failing to conspicuously display a license when the person has no license to conspicuously display. I agree.



The issue here is, once imposing a penalty for not having a license, did the General Assembly intend to further penalize a party for not displaying the very license the party does not have? The primary concern in interpreting a statute is to ascertain and effectuate legislative intent. State v. Four Video Slot Machines., 317 S.C. 397, 453 S.E.2d 896 (1995). In finding that intent, the statute under review should be given a practical construction that is consistent with the purpose expressed in the statute itself. Hertz Corporation v. S. C. Tax Commission, 246 S.C. 92, 142 S.E.2d 445.



Here, the practical construction consistent with the stated purpose of § 12-21-2726 is that no second penalty should be imposed for failing to display a license when the party has already been fined for not having a license. The purpose expressed in the "display" statute is that of accomplishing "proof of licensing." S.C. Code Ann. § 12-21-2726 (Supp. 1998) ("a machine subject to the license imposed by [Article 19] by way of proof of licensing must have a current license displayed conspicuously on the front of the machine." (emphasis added)). The "proof of licensing" language expresses the General Assembly's intent that a license already be procured so that the owner can conspicuously display the license as proof that the license has been obtained. Thus, the purpose of the statute is to assure the machine is licensed.



Given that the purpose of § 12-21-2726 is to assure the machine is licensed, that purpose is not further by imposing a simultaneous second penalty for not displaying the license when a penalty for not having a license as already been imposed. Rather than furthering the purpose of determining the licensure of the machine, the practical result of imposing the second penalty is that of increasing the amount of the penalty for not having a license.(1) Accordingly, once having penalized a party for not having a license, the General Assembly did not intend to impose a simultaneous second penalty for failing to conspicuously display the license. Thus, no violation of S.C. Code Ann. § 12-21-2726 (Supp. 1998) has been established, and no fine is imposed.



C. Owner Identification and Penalty Amount



1. Positions of Parties



DOR asserts that the SLED Agents found no owner identification on either of the machines in question. Thus, DOR argues a violation occurred and a penalty of $500 must be imposed for each violation giving a total of $1,000. Branch argues that he was not operating the machines and thus no owner identification was needed from him.



2. Findings of Fact



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



Branch holds several Class III video game machines with some of the machines in use being located at 640 5th Street, Gaffney, South Carolina. On October 13, 1998, SLED Agents conducted an inspection of the video gaming machines at that location. The inspection included determining whether an owner or operator identification was displayed on the machines.



The inspection revealed no owner or operator identification was displayed on either of the machines. As a result, DOR issued a Preliminary Findings Report concluding that Branch violated S.C. Code Ann. § 12-21-2748 (Supp. 1998) by failing to affix an owner identification to two of the Class III video game machines located at the Gaffney location. Further, on February 9, 1999, DOR issued a Final Determination on the alleged failure to affix owner identification to two of the Class III video game machines at this location.



The evidence establishes that the owner identifications were not affixed to the machines. The SLED Agent conducted a careful inspection of the machines and found no owner identification on the machines. Nothing in the evidence demonstrates the Agent overlooked any identification on the two machines. Accordingly, Branch failed to affix owner identification to the two machines.



The current citation is Branch's first alleged violation of the owner identification statute. Additionally, Branch is no longer in the gaming business.



3. Conclusions of Law



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



a. Violation



Licensed Class III machines must have attached information identifying the owner or operator of the machine with the identification placed on a visible area of the machine for inspection purposes. S.C. Code Ann. § 12-21-2748 (Supp. 1998). Failure to comply with the identification requirement subjects the violator to the applicable penalty and enforcement provisions of Chapter 21 and Chapter 54 of Title 12. Id.



The evidence here shows the SLED Agent found no owner identification on either of the two machines in question. Further, no persuasive evidence establishes that the required identification was affixed to the machines on the date of inspection. Accordingly, on October 13, 1998, two Class III video game machines located at 640 5th Street, Gaffney, South Carolina, owned by Branch did not have the owner or operator identification affixed. Thus, Branch failed to comply with the statutory requirement of owner identification and, therefore, violated S.C. Code Ann. § 12-21-2748 (Supp. 1998).



b. Penalty



DOR's position is that the penalty for a failure to affix an owner identification to a Class III machine should be $500 for each violation. That amount is the maximum allowed under the penalty provisions of S.C. Code Ann. § 12-54-40(H) (Supp. 1998). Here, the facts do not warrant a maximum penalty.



Branch has had no past violations of the owner identification statute prior to the current citation of October 13, 1998. Further, Branch is no longer in the gaming business and carried a good faith belief that he was not the owner of the machines in question and did not need his owner identification on the machines. Accordingly, no basis exists for a maximum penalty. Rather, based on the totality of the facts of this case, a fine of $50 is imposed for each violation producing a total fine of $100 for these violations.



IV. Order



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



A $5,000 penalty is imposed for Branch's failure to license two Class III machines and a $100 fine is imposed for failing to have the owner/operator identification on each of the machines. However, no violation is found for the alleged failure of Branch to conspicuously display licenses on two of the machines. Accordingly, Kenneth W. Branch is liable to the Department of Revenue for a fine of $5,100.







AND IT IS SO ORDERED.





____________________________

RAY N. STEVENS

Administrative Law Judge



Dated: August 9, 1999

Columbia, South Carolina

1. Indeed, carried to its logical conclusion, one not having a license could also be fined for a third penalty of not having the license "attached to a permanent, nontransferable part of the machine" pursuant to § 12-21-2732. A practical construction of the statutes consistent with the intent of the General Assembly will not produce such a result.


Brown Bldg.

 

 

 

 

 

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