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24819 - McNickel's, Inc. v. S.C. Department of Revenue

Davis Adv. Sh. No. 26
S.E. 2d

THE STATE OF SOUTH CAROLINA

In The Supreme Court





McNickel's, Inc., Appellant

v.

South Carolina Respondent

Department of Revenue,




.

AAA Entertainment

Corporation, McNickel's,

Inc., and Nick Santaramo, Appellants,

v.

South Carolina

Department of Revenue, Respondent.











Appeals From Beaufort County

Thomas Kemmerlin, Jr., Master-In-Equity





Opinion No. 24819

Heard February 18, 1998 - Filed July 20, 1998





AFFIRMED





H. Fred Kuhn, Jr., of Moss & Kuhn, P.A., of

Beaufort, for appellants.





p.31


MCNICKEL'S, INC. v. S.C. DEPARTMENT OF REVENUE

AAA ENTERTAINMENT CORP., et al. v. S.C. DEPARTMENT OF REVENUE





General Counsel Harry T. Cooper, Jr., Chief Counsel

for Regulatory Litigation Nicholas P. Sipe, and

Counsel for Regulatory Litigation Carol I. McMahan,

all of South Carolina Department of Revenue, of

Columbia, for respondent.





TOAL, A.J.: This case presents the question whether the South

Carolina Department of Revenue ("Department") exceeded its authority under

the Video Game Machines Act when it promulgated the "employee

requirement" in 27 S.C. Code Ann. Regs. 117-190 (Supp. 1997). We find

Department did not and, accordingly, affirm.





FACTUAL/PROCEDURAL BACKGROUND

Two businesses, Black Burner Cafe and Treasures Revived, are located

in a strip shopping center in Hilton Head, South Carolina. Black Burner

Cafe occupies #11 Northridge Road, while Treasures Revived occupies #13

Northridge Road. The businesses are accessible through a single entrance,

leading to a common area. From there, sliding glass doors open onto the two

businesses. Paneled walls separate Black Burner Cafe and Treasures

Revived. Each of these businesses has five Class III video poker machines

on its premises.





In July 1995, revenue officers for Department inspected the businesses

and issued a violation report to AAA Amusements, Inc., the licensee of the

video poker machines, for violating S.C. Code Ann. § 12-21-2804 (Supp. 1997).

The report charged that AAA had allowed the use of more than five video

poker machines in a "single place or premises," as defined by 27 S.C. Code

Ann. Regs. 117-190. During the inspection, only one employee was found in

the common area of the businesses (i.e. each business did not have at least

one of its own employees present).





AAA appealed the violation report, and Department issued a final

determination upholding a fine and revocation of the licenses for the

machines. AAA and the others,1 (collectively "Business") appealed Depart-

ment's final determination to the Administrative Law Judge Division. The

administrative law judge upheld the violation on the grounds that each

business did not have an employee present in its game room during business


1 These included parties who were added because they are the current

business license holders or leaseholders at the premises.



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MCNICKEL'S, INC. v. S.C. DEPARTMENT OF REVENUE

AAA ENTERTAINMENT CORP., et al. v. S.C. DEPARTMENT OF REVENUE





hours.





Business appealed to the circuit court, which affirmed the

administrative law judge. Business now appeals to this Court, raising one

issue:





Did the South Carolina Department of Revenue exceed its

regulatory authority under the Video Game Machines Act when

it imposed the "employee requirement" found in South Carolina

Regulation 117- 190?2





LAW/ANALYSIS

Business argues that Department exceeded its regulatory authority

when it imposed the "employee requirement" found in Regulation 117-190.

We disagree.





The Video Game Machines Act, S.C. Code Ann. § 12-21-2770 et seq.

(Supp. 1997), governs the licensing and use of video game "machines," which

are defined as "electronic video games machine[s] that, upon insertion of

cash, [are] available to play or simulate the play of games as authorized by

the commission utilizing a video display and microprocessors in which the

player may receive free games or credits that can be redeemed for cash."

S.C. Code Ann. § 12-21-2772(5) (Supp. 1997).





Under section 12-21-2804, after July 1, 1994, "the commission 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)3 at a single place or


2 McNickel's is one of the parties in Business's appeal. During the

pendency of the administrative appeal, McNickel's commenced in circuit court

a separate action seeking a declaration that Regulation 117-190 is invalid.

The circuit court ruled against McNickel's, and McNickel's now appeals.

Business's appeal, as well as the appeal of McNickel's, present the same

issues. Accordingly, we consolidate the appeal for the purpose of this opinion.

See Rule 213, SCACR (where the same question is involved in two or more

appeals in different cases, the appellate court may, in its discretion, order the

appeal to be consolidated).





3 See S.C. Code Ann § 12-21-2720(A)(3) (Supp. 1997)("a machine of the

nonpayout type, in-line pin game, or video game with free play feature

operated by a slot in which is deposited a coin or thing of value except



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MCNICKEL'S, INC. v. S.C. DEPARTMENT OF REVENUE

AAA ENTERTAINMENT CORP., et al. v. S.C. DEPARTMENT OF REVENUE





premises." In July 1995, the Department promulgated the following

regulation:







The Video Game Machines Act, found in Article 20, Chapter

21 of Title 12, limits the number of machines that may be located

in a "single place" or "premises."

A single place or premises must be a fixed location. It does

not include moving property such as a boat or a train, unless

such property is permanently affixed to a specific location.

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.



S.C. Code Ann. Regs 117-190 (emphasis added).



Business argues that Department exceeded its regulatory authority

when it imposed a requirement that each business must have at least one

separate employee on the premises.




machines of the nonpayout pin table type with levers or 'flippers' operated by

the player by which the course of the balls may be altered or changed.").





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MCNICKEL'S, INC. v. S.C. DEPARTMENT OF REVENUE

AAA ENTERTAINMENT CORP., et al. v. S.C. DEPARTMENT OF REVENUE





While the Legislature may not delegate its power to make laws, in

enacting a law complete in itself, it may authorize an administrative agency

or board "to fill up the details" by prescribing rules and regulations for the

complete operation and enforcement of the law within its expressed general

purpose. Heyward v. South Carolina Tax Comm'n, 240'S.C. 347, 126 S.E.2d

15 (1962). An administrative regulation is valid as long as it is reasonably

related to the purpose of the enabling legislation. Hunter & Walden Co. v.

South Carolina State Licensing Bd. for Contractors, 272 S.C. 211, 251 S.E.2d

186 (1978). Although a regulation has the force of law, it must fall when it

alters or adds to a statute. Society of Professional Journalists v. Sexton, 283

S.C. 563, 324 S.E.2d 313 (1984). A rule may only implement the law. Banks

v. Batesburg Hauling Co., 202 S.C. 273, 24 S.E.2d 496 (1943).





In Hunter & Walden, we addressed the question of the validity of a

regulation promulgated by the State Licensing Board for Contractors. S.C.

Code Ann. § 40-11-160 (1976) provided that the Board, shall not issue a

license to any contractor who contracts or intends to contract for a job in

excess of $75,000 "until such contractor furnishes the Board with a financial

statement certified by a certified public accountant . . . ." The Board had

promulgated a regulation providing that in order to comply with section 40-

11-160, a contractor must show a net worth of $50,000 to be licensed. This

Court found the regulation to be valid because it was "a natural amplification

of the Code Section which requires that a financial statement be submitted."

Hunter & Walden, 272 S.C. at 213, 251 S.E.2d at 186. The challenged

regulatory provision bore a reasonable relation to the statutory requirement

that a financial statement be submitted with a contractor's application.





More recently, in U.S. Outdoor Advertising, Inc. v. South Carolina

Department of Transportation, 324 S.C. 1, 481 S.E.2d 112 (1997), we held

that a Department of Transportation regulation was reasonably related to the

purpose of the Highway Advertising Control Act. The relevant statute

declared that a business does not qualify as a commercial or industrial

activity unless it is "visible from the main traveled way." The Department

of Transportation, by regulation, defined "visible" as "capable of being seen,

and readily recognized as a sign or commercial or industrial activity by a

person of normal visual acuity." We found that the regulation did not

impermissibly expand the requirement of visibility.





We find under the facts of the present case that Department did not

exceed its authority in imposing an employee requirement under Regulation

117-190. S.C. Code Ann. § 12-21-2798 (Supp. 1997) provides: "The

department may promulgate regulations pertaining to the machines and



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MCNICKEL'S, INC. v. S.C. DEPARTMENT OF REVENUE

AAA ENTERTAINMENT CORP., et al. v. S.C. DEPARTMENT OF REVENUE





persons licensed by it."1 The critical question is whether Department

exceeded its authority by defining a "single place or premises" to require that

least one separate employee on the premises during business hours." See

S.C. Code Ann. Regs. 117-190.





Regulation 117-190 sets forth a number of criteria for determining

whether an entity is in fact a "single place or premises." These include such

tests as whether the entity has a separate utility meter; whether it has a

separate local business license; whether it has a separate state sales tax

license; and whether it has at least one employee on the premises during

business hours. We find that these criteria, including the last one, are

reasonably related to the purpose of the statute. Without at least one

employee, it would be possible for video poker operators to largely circumvent

the "single place or premises" requirement, by securing separate licenses for

technically separate, but practically joined, businesses. The single employee

criterion is reasonably related to determining whether each entity operates

as a separate place. The present regulation is a natural amplification of the

statute.





Business argues that Department can only regulate machines and

persons licensed by Department and cannot impose requirements upon a

business in which the machine is located. "Machines," "persons licensed," and

the "businesses" that operate them are so interconnected that it would be

difficult to issue a regulation bearing on one, but which would not have an

effect on another of these entities. Accordingly, we reject this argument.





CONCLUSION

Based on the foregoing, we AFFIRM the orders Upholding the validity

of Regulation 117-190.





FINNEY, C.J., MOORE and BURNETT, JJ-, and Acting Associate

Justice George T. Gregory, Jr., concur.




4 The section was amended in 1997. The section previously had provided:

"The commission shall promulgate rules and regulations pertaining to the

machines and persons licensed by it."





p.36