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. Northwestern, Inc., d/b/a McConnell's Corner Mart, et al

AGENCY:
South Carolina Department of Revenue

PARTIES:
Petitioners:
South Carolina Department of Revenue

Respondents:
Northwestern, Inc., d/b/a McConnell's Corner Mart, and North South Amusement Co.
 
DOCKET NUMBER:
99-ALJ-17-0313-CC

APPEARANCES:
For the Petitioner: Daphne Dell Sipes, Esquire

For Respondents: James M. Griffin, Esquire
 

ORDERS:

FINAL ORDER AND DECISION

STATEMENT OF THE CASE



This matter comes before me upon Respondents' request for a hearing after being cited for violating the Video Game Machines Act (the Act), specifically, S.C. Code Ann. § 12-21-2804 (A) (Supp. 1998). The South Carolina Department of Revenue (Department) contends that the Respondents operated machines licensed pursuant to S.C. Code Ann. Section 12-21-2720(A)(3) (Supp. 1998) (commonly referred to as "Class III" machines and licenses) in violation of Section 12-21-2804(A) and 27 S.C. Regs. 117-190 (Supp. 1998). A hearing was held before the Administrative Law Judge Division (Division) on October 20, 1999, in which the parties stipulated to the facts of this case as set forth in the Petitioner's Trial Brief.

FINDINGS OF FACT

Having observed the witnesses and exhibits presented at the hearing and closely passed upon their credibility, taking into consideration the burden of persuasion by the parties, I make the following Findings of Fact by a preponderance of evidence:

1. Notice of the time, date, place and subject matter of the Hearing was given to the Department and the Respondents.

2. On July 30, 1998, South Carolina Law Enforcement Division (SLED) Special Agent Clayton W. Pope conducted an inspection of the business Northwestern, Inc., d/b/a McConnell's Corner Mart at 4175 Chester Highway, McConnells, York County, South Carolina. The location had ten video poker machines in two rooms, with five machines located in each room. However, the location did not have a commons area between the two rooms. Rather, the rooms shared a common entrance way. Furthermore, the location had only one retail sales tax license. When the SLED agent entered the location, all ten video game machines were "on" and available for play.

3. The owner and business license holder for the location is Northwestern, Inc., d/b/a McConnell's Corner Mart. The Class III machine licenses were issued to Respondent North South Amusements Co. The following Class III video game machine licenses were located in the game room(s):

Room 1 Room 2

3931645 633018

633022 3931651

633023 3931641

3931642 3931644

633024 3931640



4. Following the inspection, SLED Agent Clayton W. Pope issued a violation report charging the Respondents with operating the location in violation of 27 S.C. Code Ann. Regs. § 117-190 (Supp. 1998) and S.C. Code Ann. § 12-21-2804 (Supp. 1998) by not having a commons area between the two rooms and for having only one retail sales tax license.

5. The Department seeks the imposition of a Five Thousand ($5,000.00) Dollar fine against each Respondent, for a total fine of Ten Thousand ($10,000) Dollars. The Department further seeks revocation of the ten Class III machine licenses at the location. Finally, the Department requests that this Division order that the Respondents be precluded from the use or operation of any Class III coin operated devices at the location for a period of six months after the entry of an Order revoking the licenses.

6. Although the evidence presented provided facts that, when taken in their entirety, mitigate the appropriate monetary penalty in this case, I find that a fine is nonetheless substantiated for each Respondent. The evidence sets forth that this location was North South Amusements Co.'s first attempt to place more than five video game machines at a location. Also, there was a miscommunication between the Respondents as to whom would obtain the additional retail sales tax license for the location. Finally, this is North South Amusements' first "single place or premises" violation, although they have a previous violation for failing to prominently display an ownership sticker. Therefore, I find that the appropriate penalty in this case is a Two Thousand ($2,000) Dollar fine against Northwestern, Inc., d/b/a McConnell's Corner Mart and a Two Thousand Five Hundred ($2,500) Dollar fine against North South Amusements Co. for violation S.C. Code § 12-21-2804(A) (Supp. 1998).

CONCLUSIONS OF LAW

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

General Conclusions

1. The Administrative Law Judge Division has jurisdiction to hear this matter pursuant to S.C. Code Ann. § 12-4-30 (D) (Supp. 1998) and S.C. Code Ann. § 1-23-320 (Supp. 1998).

2. The Department contends that the Respondents violated S.C. Code Ann. § 12-21-2804(A) (Supp. 1998). That section provides:



After July 1, 1994, the commission [Department] may not issue nor authorize to be maintained any licenses or permits for more than five machines authorized under Section 12-21-2720(A)(3) at a single place or premises.



3. Machines licensed under Section 12-21-2720(A)(3) include video games with a free play feature operated by a slot in which a coin or thing of value is deposited. S.C. Code Ann. § 12-21-2720 (Supp. 1998).

4. S.C. Code Ann. § 12-21-2804(A) (Supp.1998) mandates that the Department "shall revoke the licenses in an establishment which fails to meet the requirements of this section." This section also directs that the Department must not issue a license for a machine in an establishment in which a license has been revoked for a period of six months. The authority to issue a license is the power to revoke it. Feldman v. South Carolina Tax Commission, et al, 26 S.E. 2d 22 (1943).

Single Place or Premises

5. The Department contends that the Respondents violated 27 S.C. Code Regs. 117-190 (Supp. 1998) by not having a commons area between the two rooms and for having only one retail sales tax license. The Act does not define the term "single place or premises." However, Regulation 117-190 sets forth a four part test to be utilized in determining whether or not a location is a "single place or premises." In order to qualify, the location must meet all four criteria. Regulation 117-190 sets forth, in relevant part:



A "single place" or "premises" means a structure surrounded by exterior walls or firewalls consistent with the requirements of the applicable building code (or where no building code is applicable, a one hour rated firewall), provided such exterior walls and firewalls may not have any windows, doors or other openings leading to another area where video game machines are located.



If a structure surrounded by exterior walls has two or more areas where video game machines are located, each surrounded by exterior walls or firewalls as defined and required above, the Department must review all the facts and circumstances to determine if each area in reality constitutes a single place or premise for video game machines.



In determining whether each entity is in fact a single place or premises, the Department of Revenue will consider the following factors:



(1) Does each entity or business have a separate electric utility meter?



(2) Does each entity or business have at least one separate employee on the premises during business hours?



(3) Does each entity or business have a separate local business license where required?



(4) Does each entity or business have a separate state sales tax license?



A positive answer to these four questions is required for each area to be considered a "single place or premise" for purposes of The Video Game Machines Act.

(Emphasis added). Thus, according to the language of the regulation, each business must not have a shared entryway leading into an area where other video game machines are located, which the Respondents have clearly violated. Additionally, the location(s) does not meet the fourth criterion of having a separate state sales tax license. Finally, I find it persuasive that the parties reached an agreement as to the facts surrounding this matter and came before me for a determination of penalties only.

Six Month Prohibition

6. The Department contends that no Class III video game machines should be allowed to operate at the location for a period of six months from the effective date of the revocation of the Respondent's licenses. The role of the court in statutory interpretation is limited to seeking to effectuate the legislature's intent. Laird v. Nationwide Ins. Co., 243 S.C. 388, 395 S.E. 2d 206 (1964). In statutory interpretation, courts must read the statute in a manner that harmonizes it with its subject matter and is in accordance with its general purpose. Multi-Cinema, Ltd. v. South Carolina Tax Comm'n, 292 S.C. 411, 357 S.E. 2d 6 (1987). Plain and unambiguous language in a statute that conveys a clear and definite meaning should not be altered or redefined by the judiciary. Paschal v. State Election Comm'n, 317 S.C. 434, 454 S.E. 2d 890 (1995). However, if a statute is ambiguous, courts must ascertain legislative intent through statutory construction. See Abell v. Bell, 229 S.C. 1, 91 S.E. 2d 548 (1956). An ambiguity arises when the language of a statute is capable of being understood by reasonably well-informed persons in either of two or more senses. Southeastern Fire Ins. Co. v. South Carolina Tax Comm'n, 253 S.C. 407, 171 S.E. 2d 355 (1969).

The Video Game Machines Act became effective on July 1, 1993. The Act provides the framework for the licensing and operation of various video game machines and locations in the State of South Carolina. At that time, the Act was directed at the regulation of the ever-growing gambling industry in this state. Justice v. The Pantry, et al., Opinion No. 2787 (S.C. January 26, 1998).

Section 12-21-2804(A) of the Act provides, in relevant part:



(A) . . . The commission shall revoke the licenses of machines located in an establishment which fails to meet the requirements of this section. No license may be issued for a machine in an establishment in which a license has been revoked for a period of six months from the date of the revocation . . . .



(emphasis added). This language has produced two varying interpretations. One interpretation, commonly referred to as the "dead location" approach, is that once a license has been revoked for a machine within an establishment, no Class III machines may be maintained at that location for six months from the date of revocation. The alternative interpretation, the "dead machine" approach, maintains that no license should be reissued on specific machines for six months after a Class III license has been revoked on those machines.

These differing interpretations result from the legislature's usage of the phrase "a machine" in the six-month penalty provision. As an indefinite article, "a" may refer to a specific object or thing. See Black's Law Dictionary 1 (6th ed. 1990). However, the article is "often used in the sense of 'any' and is then applied to more than one individual object." Id. Therefore, interpreting this statute in a manner that harmonizes it with its subject matter and is in accordance with its general purpose, the relevant portion of § 12-21-2804(A) is best read to state that "[n]o license may be issued for [any] machine in an establishment in which a license has been revoked."

Additionally, the "dead machine" approach should not be adopted because doing so would make § 12-21-2804(A) internally inconsistent. Courts reject a construction of words used in a statute when acceptance of a statutory interpretation would lead to a result so absurd that it could not possibly have been intended by the legislature or would defeat the plain legislative intention. See Kiriakides, Supra. The clear language of Section 12-21-2804(A) grants the Department the authority to revoke any licenses at an establishment found in violation of the requirements of the statute.

The Department does not issue video game machine licenses for specific locations. Instead, licenses are issued to individuals for machine ownership. Therefore, meaningful punishment of the licensee for failure to comply with the statute is best effectuated through revocation of the machine licenses. Under § 12-21-2804(A), a machine license must be revoked by virtue of its misuse at a particular establishment, whether the actual violator is the licensee, machine owner, or lessee. Although machine owners may seek relicensure of the machines, they incur significant costs in doing so. First of all, the machine owner must pay the fee for licensure in accordance with S.C. Code Ann. § 12-21-2728(A) (Supp. 1998). Secondly, the owner must find another location for machine placement and develop a clientele without advertising the machine's existence at the new location.(1)

The statute also curtails violations of the Act by requiring that the place where the violation occurred cease operations for six months. The legislature probably envisioned that licenses would be issued for video poker machines at specific establishments. However, the practical effect of the "dead machine" approach, as the Department currently licenses video poker activity, would be to exact an additional penalty for violation of the Act upon the machine owner alone, although the owner may not have been the actual violator. Punishment against the operators of the establishment would be virtually meaningless. Owners of establishments would be able to buy or lease new machines, purchase new licenses and resume operations at the same location (benefitting from the same patrons) almost immediately, having only suffered replacement costs and usage losses for the affected machines during the revocation period. The operators of the establishments, who potentially may possess greater culpability, could escape any punishment pursuant to the "dead machine" approach. The legislature surely did not intend such an absurd result.

Furthermore, it would be impossible, as a practical matter, for the Department to enforce the penalty provision of Section 12-21-2804(A) under the "dead machine" approach. The Department has elected to issue licenses that may be attached to any machine at any location. The "dead machine" approach would necessitate that the Department track machines that are readily movable by serial number to make sure that no "dead machine" was being operated at any given location.

Proponents of the "dead machine" approach argue that the legislature would have provided for a six-month revocation of the "establishment license" if it intended to impose a "location" penalty. If the Department issued video gaming licenses for specific establishments, application of this provision would be simple. However, the Department does not issue a specific "establishment license" other than retail licenses pursuant to S.C. Code Ann. § 12-36-510 (Supp. 1998).(2) Moreover, video game machines are usually placed in establishments that conduct business activities other than video games. Therefore, revocation of a retail license could impose a greater punishment upon an establishment than intended by the legislature by precluding all retail activities, not just video games. The only practical way to curtail violations of the Act at a given location is to revoke the licenses of machines in the establishment and refuse to license any machines at that location for a fixed period of time.

I therefore find that Section 12-21-2804(A) requires that no Class III video game machines should be allowed to operate at a location found in violation of that section for a period of six months from the effective date of the revocation of the licenses in the location.

7. It is a generally recognized principle of administrative law that the fact-finder has the authority to impose an administrative penalty after the parties have had an opportunity to have a hearing and be heard on the issues. See Ohio Real Estate Comm'n v. Aqua Sun Investments, 655 N.E. 2d 266 (Ohio 1995); Shadow Lake of Noel, Inc. v. Supervisor of Liquor Control, 893 S.W. 2d 835 (Mo. App. S.D. 1995); Matter of Henry Youth Hockey Ass'n, 511 N.W. 2d 452 (Minn. App. 1994); Vermont Agency of Natural Resources v. Duranleau, 617 A.2d 143 (Vt. 1992); City of Louisville v. Milligan, 798 S.W. 2d 454 (Ky. 1990); Com., Dept. of Transp. v. Slipp, 550 A.2d 838 (Pa. 1988); Dept. of Transp. v. Miller, 528 A.2d 1030 (Pa. 1987); State Police v. Cantina Gloria's, 639 A.2d 14 (Pa. 1994).

Prior to governmental restructuring, a Commission, sitting in its adjudicatory capacity, imposed penalties for violations of statutory provisions administered by the Commission's subordinate agency. In its capacity as the fact-finder, the Tax Commission would conduct an adjudicatory hearing in all contested cases arising under Title 12 of the South Carolina Code, and would issue an order containing findings of fact and conclusions of law. As the fact-finder, it was the Commission's prerogative "to impose the appropriate penalty based on the facts presented." Walker v. South Carolina ABC Comm'n, 305 S.C. 209, 407 S.E. 2d 633 (1991). With the advent of restructuring and the abolition of the Tax Commission, however, the Administrative Law Judge Division was given the authority to hear "all contested cases, as defined by Section 1-23-310 and as previously considered by the three [tax] commissioners. . . ." S.C. Code Ann. Section 12-4-30(D) (Supp. 1998). The administrative law judge, as the current fact-finder, must also impose a penalty based on the facts presented at the contested case hearing. Parties are entitled to present evidence on all issues arising out of the contested agency action and the tribunal responsible for conducting the contested case proceedings has the authority to decide the issues based on the facts presented and to make the final decisions on all the issues, including the appropriate penalty.

ORDER

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

ORDERED that the licenses listed above in paragraph three of the Findings of Fact are revoked, and that a fine of Two Thousand ($2,000) Dollars is imposed upon Northwestern, Inc., d/b/a McConnell's Corner Mart and that a fine of Two Thousand Five Hundred ($2,500) Dollars is imposed upon North South Amusement Co.

IT IS FURTHER ORDERED that no Class III machine shall be operated in any of the game rooms listed above in paragraph three of the Findings of Fact for a period of six months from the date of this Final Decision.

AND IT IS SO ORDERED.





___________________________

Ralph King Anderson, III

Administrative Law Judge





February 1, 2000

Columbia, South Carolina

1. S.C. Code Ann. § 12-21-2804(B) (Supp. 1998) forbids the advertisement of the availability of video gaming machines.

2. S.C. Code Ann. § 12-21-2784 (Supp. 1998) provides that "[e]ach machine . . . operator, and licensed establishment must be licensed by [the Department] pursuant to Article 19 of this chapter and this article before a machine . . . is placed for public use in this State." S.C. Code Ann. § 12-21-2772(4) (Supp. 1998) defines "licensed establishment" as "an establishment owned or managed by a person who is licensed pursuant to Article 19 of this chapter for the location of coin-operated nonpayout video machines with a free play feature." The Department interprets this section as simply requiring a sales tax license. Therefore, there is no "establishment license" to revoke.


Brown Bldg.

 

 

 

 

 

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