What does South Dakota's video lottery operator law actually require for 'residency'? And does the partnership/corporation majority-ownership rule apply to LLCs and limited partnerships too?

Plain-English summary

The Department of Revenue, which houses the South Dakota Lottery, asked the AG two questions about who can hold a video lottery operator license:

1. SDCL 42-7A-43 requires an operator to be a "resident of the State of South Dakota." The Music & Vending Association had been pushing whether the Lottery's standard process (asking for the applicant's address and verifying it through database searches) is enough, or whether the Lottery has to do more digging.
2. The same statute says partnerships and corporations holding an operator license must have majority South Dakota resident ownership. The Music & Vending Association also questioned whether that rule extends to LLCs, limited partnerships, and other modern entity types.

AG Marty Jackley's answers:

On residency: "Resident" is not defined in chapter 42-7A. The legislature defined residency for some specific purposes (voting, college tuition, hunting/fishing) but not for lottery licensing. So the ordinary dictionary meaning applies: someone who lives in South Dakota and has made it their permanent or continuous home. The Lottery's burden under ARSD 48:02:02:01 is to be "satisfied" the applicant meets the requirements; the applicant has the burden of proving qualifications. The Lottery is not limited to address verification: if anything in the application raises questions about residency, the Lottery can and should investigate further.

On entity types: The statute names "partnership[s]" and "corporation[s]." It does not name LLCs, limited partnerships, LLPs, or limited liability limited partnerships. South Dakota's plain-language rule (Holborn, Wintersteen Revocable Trust) means the AG cannot read those other entity types into the statute. The majority-resident-ownership rule applies only to partnerships and corporations. The legislature could expand it; the AG cannot.

The opinion is a textbook example of strict statutory construction: where a statute is silent or omits a category, the AG declines to fill the gap. The AG states he is "not at liberty to read additional items into the statute," and that if the Legislature wants the rule to cover other entities, "it must amend the statute to specifically reference them."

What this means for you

If you operate or want to operate video lottery machines in South Dakota

The opinion holds that an operator must be a resident of South Dakota, meaning, in the AG's reading of the undefined term, "a person who lives in South Dakota and has chosen to make the state their permanent or continuous home." It holds the Lottery must "take whatever steps are necessary to be satisfied" of residency, and that the applicant "has the burden of proving his or her qualifications." The opinion describes the Lottery's existing steps (requiring an address, requesting a driver's license, running database or internet searches) as reasonable, and adds that if the materials or process "raise questions about an applicant's status as a resident, further investigation may be required."

If you are structuring or restructuring a video lottery business

The opinion holds an entity-type distinction in SDCL 42-7A-43: for a partnership or corporation, "the majority of ownership interest shall be held by residents of the state" (subject to the pre-1997 public-company exception), while the statute "only references 'partnership[s]' and 'corporation[s]'" and "has no application to other legal entities" such as LLCs, limited partnerships, LLPs, and LLLPs. The operator itself must still be a South Dakota resident. The opinion notes that extending the rule to other entities would require the Legislature to amend the statute.

If you are in the Department of Revenue or on the Lottery Commission

The opinion holds the Lottery is not limited to address verification: it "is required to take those steps necessary" to be satisfied an applicant is a resident, and "further steps to investigate" are warranted if questions arise. On entity types, the opinion holds the majority-residency requirement applies "only to partnerships and corporations" and declines to read other entities into the statute. It notes the Commission may adopt rules under SDCL chapter 1-26 to "establish additional requirements to preserve the integrity and security of the lottery."

If you are a state legislator

The opinion explicitly addresses legislative action on the entity-coverage question: "If the Legislature intends for the statute to apply to those other entities, it must amend the statute to specifically reference them." The opinion identifies the other entity types South Dakota law recognizes (LLCs under ch. 47-34A, limited partnerships under ch. 48-7, LLPs under § 48-7A-1001, and LLLPs under § 48-7-1106) that the current text does not reach.

If you advise out-of-state operators wanting to enter the SD market

The opinion holds that LLCs and similar entities are not subject to the majority-resident-ownership rule that binds partnerships and corporations, but that the operator must still be a resident of South Dakota under SDCL 42-7A-43. It does not analyze particular ownership structures; its holding is limited to the reading of the residency term and the entity-type scope of the statute.

Common questions

Q: What does "resident" mean for video lottery purposes?
A: Per the opinion, someone who lives in South Dakota and has chosen to make it their permanent or continuous home. The Lottery applies this ordinary-meaning definition.

Q: Why doesn't the statute define resident?
A: The legislature defined residency for voting, tuition, and hunting/fishing but did not enact a general definition. For chapter 42-7A, the dictionary meaning applies. The AG declines to import the voting or tuition definitions into the lottery context.

Q: What if I have homes in multiple states?
A: The opinion does not set specific factors. It defines a resident as someone who "lives in South Dakota and has chosen to make the state their permanent or continuous home," and holds the Lottery takes whatever steps are needed to be satisfied of that, with the applicant bearing the burden of proof. How a multi-state situation resolves would depend on the Lottery's fact-specific investigation.

Q: I'm forming a video lottery business as an LLC. Do my members have to be SD residents?
A: Under SDCL 42-7A-43 as currently written, no. The majority-resident-ownership rule applies only to partnerships and corporations. Your members can live anywhere. But the individual or entity that actually holds the operator license must be a SD resident (SDCL 42-7A-43).

Q: What about the background investigation requirements?
A: SDCL 42-7A-43 requires background investigation of "each partner of a partnership and each director and officer and all stockholders of five percent or more in a parent or subsidiary corporation." That language also targets partnerships and corporations. The opinion does not address whether the background-investigation requirement extends to LLC members, but the same statutory-silence logic would apply: the legislature would need to amend if it wants LLC members subject to the rule.

Q: Can the Lottery deny my application for reasons other than residency?
A: Yes. SDCL 42-7A-43 says applicants have "the burden of proving his or her qualifications to the satisfaction of the commission and executive director." The Commission can also adopt rules under SDCL chapter 1-26 establishing "additional requirements to preserve the integrity and security of the lottery."

Q: What does the public-company exception do?
A: SDCL 42-7A-43 includes a narrow exception for "a public company or its subsidiary licensed as a video lottery machine operator pursuant to chapter 42-7A prior to January 1, 1997, and traded on any market regulated or recognized by the United States Securities and Exchange Commission." This grandfathers in pre-1997 publicly traded operators from the majority-resident-ownership rule, but only for that specific class.

Background and statutory framework

South Dakota authorizes video lottery under S.D. Const. Art. III § 25, with the substantive framework in SDCL chapter 42-7A. Operators (individuals or entities placing video lottery machines for public use) must be licensed by the Lottery, which sits within the Department of Revenue. Licensing is gated on background investigation, residency, and meeting general qualification rules.

The residency rule in SDCL 42-7A-43 reads: "A video lottery machine operator shall meet the same requirements of §§ 42-7A-13 and 42-7A-14, in addition to being a resident of the State of South Dakota and, if a partnership or corporation, the majority of ownership interest shall be held by residents of the state or by a public company or its subsidiary [pre-1997 grandfathered]."

The Music & Vending Association raised the two questions in this opinion because the practical landscape had drifted. Modern operators frequently use LLC structures; the licensing process for them was not entirely clear. And residency verification practice varied across cases, leaving applicants uncertain about what proof would satisfy the Lottery.

The opinion's resolution preserves the residency rule as written (operators must be residents, with broad Lottery investigation discretion), but does not extend the entity-type rule beyond what the statute lists. South Dakota's strict plain-language tradition (Holborn, Wintersteen Revocable Trust, Olson) is on full display: the AG explicitly says "I am not at liberty to read additional items into the statute."

A possible legislative follow-up would be to either (a) define residency for chapter 42-7A purposes with specific factors, or (b) extend the entity-type list. Either reform would tighten the framework and reduce future interpretation disputes.

Citations and references

Statutes:
- S.D. Const. Art. III § 25 (state lottery)
- SDCL 42-7A-43 (operator residency)
- SDCL 42-7A-1(17) (operator definition)
- SDCL 12-1-4 (voting residency)
- SDCL 13-53-23.1 (tuition residency)
- SDCL 41-6-10 (hunting/fishing residency)
- SDCL chapters 47-1A, 47-34A, 48-7, 48-7A (business entity formation)

Administrative rules:
- ARSD 48:02:02:01 and :02 (licensing satisfaction standard)
- ARSD 48:02:03:01 (applicant information requirements)

Cases on statutory interpretation:
- Holborn v. Deuel County Board of Adjustment, 2021 S.D. 6, 955 N.W.2d 363
- In re Wintersteen Revocable Trust Agreement, 2018 S.D. 12, 907 N.W.2d 785
- Olson v. Butte County Comm'n, 2019 S.D. 13, 925 N.W.2d 463
- Martinmass v. Engelmann, 2000 S.D. 85, 612 N.W.2d 600

Source

• Landing page: https://atg.sd.gov/OurOffice/OfficialOpinions/opinionhtml.aspx?id=1764
• Original PDF: https://atg.sd.gov/OfficialOpinions/AG%20Opinion%2024-02.pdf

Original opinion text

OFFICIAL OPINION 24-02

Re: Official Opinion Concerning Residency for Purposes of State Video Lottery Regulations

Dear Sec. Houdyshell,

In your capacity as Secretary of the Department of Revenue you have requested an official opinion from the Attorney General's Office on the following questions:

QUESTIONS:

• Does the term "resident," as used in SDCL § 42-7A-43, require the South Dakota Lottery to take steps beyond verification of a residential address to confirm whether an applicant for a video lottery operator license is a resident of the State?
• Do the requirements of SDCL § 42-7A-43, pertaining to partnerships or corporations, apply generally to all similar business entities, or do those requirements apply only to partnerships and corporations?

ANSWERS:

• The South Dakota Lottery is required to take whatever steps are necessary to be satisfied that an applicant for a video lottery operator license is a resident of South Dakota.
• The requirements of SDCL § 42-7A-43 apply only to partnerships or corporations, and do not apply to other legal entities.

FACTS:

As allowed by S.D. Const. Art. III, § 25, South Dakota operates video lottery as one aspect of the overall State lottery. The South Dakota Lottery (Lottery) is administered by the State Lottery Commission, a division of the Department of Revenue. SDCL § 42-7A-2. The Lottery is responsible for licensing all video lottery manufacturers, distributors, establishments, and operators. SDCL § 42-7A-41.

State law places certain requirements and restrictions upon any person or entity holding a video lottery license, including video lottery machine operators. SDCL §§ 42-7A-13, 42-7A-14, & 42-7A-43. A video lottery machine operator is "any individual, entity, partnership, corporation, or association that places video lottery machines or associated equipment for public use in this state." SDCL § 42-7A-1(17). One of the requirements imposed upon a video lottery machine operator is to be a resident of the State. SDCL § 42-7A-43. Prior to issuing a license, the Lottery performs background investigations on any applicant. SDCL § 42-7A-43; see also ARSD § 48:02:02:01.

The Music & Vending Association has raised questions concerning the interpretation of SDCL § 42-7A-43 related to the residency of applicants, and the statute's application to partnerships and corporations.

IN RE QUESTION 1:

Based upon the above facts, you have asked whether the residency requirement of SDCL § 42-7A-43 requires the Lottery to take steps beyond verification of a residential address to confirm whether an applicant for a video lottery operator license is a resident of the State?

SDCL § 42-7A-43 states:

Any person licensed as a video lottery machine manufacturer, distributor, operator, or lottery retailer shall submit to a background investigation. This includes each partner of a partnership and each director and officer and all stockholders of five percent or more in a parent or subsidiary corporation of a video lottery machine manufacturer, distributor, operator, or lottery retailer. A video lottery machine manufacturer or distributor shall meet the same requirements of subdivisions 42-7A-13(1) to (4), inclusive, and § 42-7A-14. A video lottery machine operator shall meet the same requirements of §§ 42-7A-13 and 42-7A-14, in addition to being a resident of the State of South Dakota and, if a partnership or corporation, the majority of ownership interest shall be held by residents of the state or by a public company or its subsidiary licensed as a video lottery machine operator pursuant to chapter 42-7A prior to January 1, 1997, and traded on any market regulated or recognized by the United States Securities and Exchange Commission. A copy of any disclosure statement involving ownership of the public company required to be filed with the United States Securities and Exchange Commission shall be filed with the lottery commission. A lottery retailer shall meet the same requirements of §§ 42-7A-13 and 42-7A-14. Any applicant for any license under this chapter has the burden of proving his or her qualifications to the satisfaction of the commission and executive director. The commission may adopt rules pursuant to chapter 1-26 to establish additional requirements to preserve the integrity and security of the lottery.

(emphasis added).

When interpreting state law, "'the language expressed in the statute is the paramount consideration.'" Olson v. Butte County Comm'n, 2019 S.D. 13, ¶ 5, 925 N.W.2d 463, 464 (quoting Goetz v. State, 2001 S.D. 138, ¶ 15, 636 N.W.2d 675, 681). "When the language in a statute is clear, certain and unambiguous, there is no reason for construction. . . . When we must, however, resort to statutory construction, the intent of the legislature is derived from the plain, ordinary and popular meaning of the statutory language." In re Wintersteen Revocable Trust Agreement, 2018 S.D. 12, ¶ 12, 907 N.W.2d 785, 789 (citations omitted).

The term "resident" is not defined in SDCL ch. 42-7A. While residency has been defined in State law for several other specific purposes (i.e. voting residency as defined in SDCL § 12-1-4, residency for purposes of tuition rates established in SDCL § 13-53-23.1, residency for purposes of hunting and fishing established in SDCL § 41-6-10), no generally applicable definition of "resident" or "residency" exists. Because the Legislature has not provided a specific definition of "resident" for purposes of SDCL ch. 42-7A, it is my opinion that the ordinary, plain, and generally accepted definition of the term is applicable in the interpretation of SDCL § 42-7A-43. Wintersteen Revocable Trust Agreement, 2018 S.D. 12, ¶ 12.

Webster's dictionary defines a "resident" as "living in a place for some length of time," and alternatively as "one who resides in a place." Resident, Merriam-Webster's Collegiate Dictionary (11th ed. 2014). "Reside" is defined as "to dwell permanently or continuously." Reside, Merriam-Webster's Collegiate Dictionary (11th ed. 2014). Black's Law Dictionary similarly defines "resident" as "someone who lives in a particular place" or "someone who has a home in a particular place." Resident, Black's Law Dictionary (10th ed. 2014).

Considering these definitions, I conclude that "resident" as used in SDCL ch. 42-7A means a person who lives in South Dakota and has chosen to make the state their permanent or continuous home. Some may argue for a more specific definition of "resident," but if the Legislature had intended such a definition, it could have defined "resident" in a more detailed way. It did not, and I am not at liberty to read additional items into the statute. Holborn v. Deuel County Board of Adjustment, 2021 S.D. 6, ¶ 35, 955 N.W.2d 363, 378 (citing Martinmass v. Engelmann, 2000 S.D. 85, ¶ 49, 612 N.W.2d 600, 611).

Each applicant has the burden to prove their qualifications for licensure "to the satisfaction of the [Lottery]." SDCL § 42-7A-43. "All applicants … must provide all information required" for licensure. ARSD § 48:02:03:01. The Lottery is authorized to conduct investigations for purposes of licensure, and any person licensed by the Lottery must submit to a background investigation. SDCL §§ 42-7A-43 & SDCL § 42-7A-25. The Lottery may not issue a license until it is satisfied that the applicant meets the requirements for licensure. ARSD §§ 48:02:02:01 and :02.

Based on the above, it is my opinion that the Lottery is required to take those steps necessary to become "satisfied" (as per ARSD §§ 48:02:02:01 and :02) that an applicant for a video lottery operator license lives in South Dakota and has chosen to make this state their permanent or continuous home.

You have indicated the application that perspective operators submit to the Lottery requires each applicant to provide their address, and to verify that they are a resident of South Dakota. By submitting the application, the applicant certifies that all the information provided is correct. You also state that the Lottery communicates with the applicant during the application process to ensure that all required information is provided. During this process, the Lottery may request a copy of an applicant's driver's license and may perform various database or internet searches to verify an applicant's residential address. Those steps are reasonable efforts on behalf of the Lottery to become satisfied as to an applicant's residency. If the application materials, or the application process, raise questions about an applicant's status as a resident, further investigation may be required for the Lottery to be satisfied that the applicant is indeed a resident of South Dakota.

IN RE QUESTION 2:

You have also asked whether the requirements of SDCL § 42-7A-43, pertaining to partnerships or corporations, apply generally to all similar legal entities or only to partnerships and corporations?

SDCL § 42-7A-43 has been set out in full above. Relevant to your second question, if the applicant is "a partnership or corporation," the statute requires "the majority of ownership interest shall be held by residents of the state." SDCL § 42-7A-43.

As noted above, the language of a statute is the paramount consideration when interpreting the statute. Olson, 2019 S.D. 13, ¶ 5. When the language of the statute is clear and certain, I am left simply to declare the meaning of the unambiguous language. In re Wintersteen Revocable Trust Agreement, 2018 S.D. 12, ¶ 12.

State law authorizes the formation of partnerships (SDCL ch. 48-7A) and corporations (SDCL ch. 47-1A), as well as limited liability companies (SDCL ch. 47-34A), limited partnerships (SDCL ch. 48-7), limited liability partnerships (SDCL § 48-7A-1001), and limited liability limited partnerships (SDCL § 48-7-1106). The text of SDCL § 42-7A-43, however, only references "partnership[s]" and "corporation[s]," and is silent as to the statute's application to the remaining legal entities.

Based on the plain and clear language of the statute, it is my opinion that the requirement of SDCL § 42-7A-43 is limited only to partnerships and corporations. I am not at liberty to read additional items into the statute. Holborn, 2021 S.D. 6, ¶ 35. The statute has no application to other legal entities allowed to be organized under State law. If the Legislature intends for the statute to apply to those other entities, it must amend the statute to specifically reference them.

I conclude that SDCL § 42-7A-43 requires the majority of the ownership interest of partnerships and corporations must be residents of South Dakota. The plain language of the statute does not place the same requirement on the ownership interest of other legal entities.

CONCLUSION

I conclude that the Lottery is required to take those steps necessary for it to be satisfied that an applicant for a video lottery operator license meets the requirements of licensure found in statute and administrative rule. This includes the requirement that an applicant be a resident of the State. If questions arise during the application process as to an applicant's qualifications, then further steps to investigate that concern may be warranted. Further, it is my opinion that the requirement that a majority of the ownership interest of an applicant be residents of South Dakota, as per SDCL § 42-7A-43, applies only to partnerships and corporations.

Sincerely,

Marty J. Jackley

ATTORNEY GENERAL

MJJ/SRB/dd