SC DEPARTMENT OF REVENUE AND TAXATION v. Rosemary Coin Machines, …

• Decision Date: 04 May 1998
• Docket Number: No. 2840.,2840.
• Citation: 331 S.C. 234,500 S.E.2d 176
• Court: South Carolina Court of Appeals
• Parties: SOUTH CAROLINA DEPARTMENT OF REVENUE AND TAXATION, Appellant, v. ROSEMARY COIN MACHINES, INC., Respondent.

331 S.C. 234

500 S.E.2d 176

SOUTH CAROLINA DEPARTMENT OF REVENUE AND TAXATION, Appellant, v. ROSEMARY COIN MACHINES, INC., Respondent.

No. 2840.

Court of Appeals of South Carolina.

Submitted April 7, 1998.

Decided May 4, 1998.

Rehearing Denied June 19, 1998.

Harry T. Cooper, Jr., Malane S. Pike, and Nicholas P. Sipe, all of South Carolina Department of Revenue and Taxation, Columbia, for appellant.

Dwight F. Drake and Zoe Sanders Nettles, both of Nelson, Mullins, Riley & Scarborough, Columbia, for respondent.

HOWARD, Judge:

Rosemary Coin Machines, Inc. (Rosemary Coin) brought this action to appeal the assessment of license fees it claims were retroactively charged by the South Carolina Department of Revenue and Taxation (Revenue) for a multi-player video poker machine. Revenue cited Rosemary for having only a single license for a multi-player machine after the video poker licensing statute was amended during the period of the machine's original license to require a separate license for each station. The Administrative Law Judge (ALJ) decided Revenue's application of an amendment to the licensing statute constituted an improper retroactive application and ordered a refund to Rosemary Coin. The circuit court agreed. We reverse.

FACTS

In 1995 the South Carolina General Assembly passed Act No. 145, which amended S.C.Code Ann. § 12-21-2720 (Supp. 1997). This amendment became effective July 1, 1995. Section 12-21-2720(A) requires that "[e]very person who maintains for use" certain gaming machines, to include the one at issue here, obtain from Revenue a license effective for two years. Such licenses expire "May thirty-first the second year of which the license is valid following the date of issue." S.C.Code Ann. § 12-21-2734(A) (Supp.1997). The Act amended Section 12-21-2720(C) to read in pertinent part:

(C) The owner or operator of any coin-operated device which is ... subject to licensing under Section 12-21-2720(A)(3) and which has multi-player stations, shall purchase a separate license for each such station and any such multi-player station counts as a machine when determining the number of machines authorized for licensure under Section 12-21-2804(A).¹

Prior to this amendment, machine owners were allowed to purchase a single license for a multi-player machine.

Rosemary Coin owned a multi-player, five-station blackjack machine located at a convenience store in Conway, South Carolina. Rosemary Coin had purchased one license for this machine which, under the then current licensing framework, would lawfully license the machine from June 1, 1995 until May 31, 1997. On June 30, 1995, the day before the amendment became effective, Revenue called Rosemary Coin to inform it of the need to obtain additional licenses. On July 5, 1995, a Revenue officer entered the store and observed three stations of the machine in use by players. The machine was subject to licensing under Section 12-21-2720(A)(3) (Supp. 1997), but had only one license posted. The Revenue officer cited Rosemary Coin for having four unlicensed machines and assessed a licensing fee for each. Rosemary Coin purchased four additional licenses for the machine and then appealed the citation to the ALJ Division. The ALJ ruled for Rosemary Coin. After Revenue's motion for reconsideration was denied, Revenue petitioned the circuit court for review. The circuit court also held in favor of Rosemary Coin.

LOWER COURTS' ANALYSIS

The ALJ concluded Revenue had retroactively applied the amendment to Rosemary Coin's machine in contravention of South Carolina law. See Hercules, Inc. v. South Carolina Tax Comm'n, 274 S.C. 137, 262 S.E.2d 45 (1980)

; Neel v. Shealy, 261 S.C. 266, 199 S.E.2d 542 (1973). The ALJ held such application to be error, as "[n]o statute will be applied retroactively unless that result is so clearly compelled as to leave no room for reasonable doubt." Hyder v. Jones, 271 S.C. 85, 88, 245 S.E.2d 123, 125 (1978).

The ALJ determined Section 12-21-2720(C) must be construed, and thus, the ALJ needed to ascertain the legislative intent. First South Sav. Bank v. Gold Coast Assocs., 301 S.C. 158, 390 S.E.2d 486 (Ct.App.1990). The ALJ found Section 12-21-2720(C) to be a penal statute and, as such, to be strictly construed in favor of the taxpayer. State v. Blackmon, 304 S.C. 270, 403 S.E.2d 660 (1991); South Carolina Nat'l Bank v. South Carolina Tax Comm'n, 297 S.C. 279, 376 S.E.2d 512 (1989).

In "considering the plain and ordinary meaning of the statutory language," the ALJ was "not satisfied that the legislature intended this section to apply to machines licensed prior to June 1, 1995 for the current biennial period." See Adkins v. Varn, 312 S.C. 188, 439 S.E.2d 822 (1993)

. The ALJ found under the "well-defined licensing framework," the machine would be validly licensed through May 31, 1997, concluding:

had the legislature intended the amendment to section 12-21-2720(C) to apply to this machine which was licensed prior to June 1, 1995 under the current biennial period, it would have changed the existing licensing period, or specifically indicated its intent to have the amendment apply to the prior licensing periods. The legislature did not do so.

Accordingly, the ALJ concluded the amendment "was intended to be applied prospectively to machines licensed on or after June 1, 1995."

On review, the circuit court found the amendment to be penal, determining "[t]he correct test ... depends ... upon... whether the pecuniary amount to be paid is calculated to compensate injured parties for the wrongs done." Grain Dealers Mut. Ins. Co. v. Lindsay, 279 S.C. 355, 359, 306 S.E.2d 860, 863 (1983). After following the ALJ's opinion in all particulars, the circuit court affirmed.

LAW/ANALYSIS

This court takes a different view of the contested amendment. We believe the legislature, in a valid exercise of its police power, intended this enactment to be effective immediately.

I. The Police Power

The government is imbued with the power to legislate for the protection of the public health, welfare and morals. State v. Langley, 236 S.C. 583, 115 S.E.2d 308 (1960); Midwest Beverage Co. v. Gates, 61 F.Supp. 688 (N.D.Ind.1945) (citing Mugler v. Kansas, 123 U.S. 623, 8 S.Ct. 273, 31 L.Ed. 205 (1887); Crane v. Campbell, 245 U.S. 304, 38 S.Ct. 98, 62 L.Ed. 304 (1917)). This power "has no well defined limits, but must be as extensive as the necessities which call for its exercise." City Council of Charleston v. Werner, 38 S.C. 488, 495, 17 S.E. 33, 35 (1893). An excellent discussion of this concept is set forth in the South Carolina case of State ex rel. George v. City Council of Aiken, 42 S.C. 222, 20 S.E. 221 (1894):

"... [T]he origins of this power must be sought in the very purpose and framework of organized society. It is fundamental and essential to government. It is a necessary and inherent attribute of sovereignty. It antedates all laws, and may be described as the assumption on which constitutions rest; for the state, whether we regard it as an association of individuals, or as a moral organism, must have the right of self-protection, and the power to preserve its own existence in safety and prosperity, else it could neither fulfill the law of its being nor discharge its duties to the individual. And to this end it is necessarily invested with power to enact such measures as are adapted to secure its own authority and peace, and preserve its constituent members in safety, health, and morality. Theories of the state, according as they tend to enlarge or restrict the legitimate sphere of its functions and activities, will create theories as to the proper limitations of the police power. But its existence in a measure proportioned to the rights and duties it is to guard is implied in the recognition of the state as a factor in law and civilization."

Id. at 234, 20 S.E. at 225-26 (quoting Black Intox. Liq., § 24).

No payment of money can stay the power of the government to legislate on behalf of its people:

No legislature can bargain away the public health or the public morals. The people themselves cannot do it, much less their servants. The supervision of both these subjects of governmental powers is continuing in its nature, and they are to be dealt with as the special exigencies of the government may require. Government is organized with a view to their preservation, and cannot divest itself of the power to provide for them. For this purpose the largest legislative discretion is allowed, and the discretion cannot be parted with any more than the power itself.

Stone v. Mississippi, 101 U.S. 814, 819, 25 L.Ed. 1079 (1879). See Sammons v. City of Beaufort, 225 S.C. 490, 499, 83 S.E.2d 153, 157 (1954)

(the police power "must always remain fluid"); State ex rel. George v. City Council of Aiken, 42 S.C. 222, 20 S.E. 221 (1894) (quoting Stone, supra); State ex rel. Pollard v. Superior Court of Marion County, 233 Ind. 667, 122 N.E.2d 612 (1954) (the right to legislate under the police power can not be surrendered or bartered away by the legislature); Midwest Beverage Co. v. Gates, 61 F.Supp. 688 (N.D.Ind.1945) (no binding limitation can be placed on the exercise of the police power through legislative action).

A. Regulation under the police power

It is well within this broad power for the legislature to regulate the ownership and operation of coin-operated devices such as the subject blackjack machine. See State v. Langley, 236 S.C. 583, 115 S.E.2d 308 (1960) (holding the legislature has a right to regulate the operation of pinball machines under its police power, especially when the machines had been declared gambling devices). "In fact, the State's power to suppress gambling is practically unrestrained." Army Navy Bingo, Garrison No. 2196 v. Plowden, 281 S.C. 226, 314 S.E.2d 339 (1984) (addressing the regulation of bingo).

The General Assembly has previously adopted a policy which protects a gambler and his family from the gambler's uncontrollable...