When the South Dakota Lottery licenses video lottery operators, does the state need to do more than check the applicant's home address to confirm residency? And does the partnership-and-corporation residency rule apply to LLCs too?

Plain-English summary

Secretary Houdyshell, who runs the SD Department of Revenue (which houses the Lottery Commission), asked the AG two practical licensing questions about video lottery machine operators.

Question 1: Is a residential address enough? SDCL 42-7A-43 requires video lottery operators to be South Dakota residents. Currently the Lottery's application asks the applicant to list a SD address and certify residency, and the Lottery may check a driver's license and run database searches. The Music & Vending Association raised the question whether more is required.

The AG concluded that an address check is generally sufficient, but the Lottery is required to take whatever further steps are necessary to be "satisfied" the applicant is a SD resident. "Resident" isn't defined in the lottery chapter, so the AG used Webster's and Black's plain definitions: someone who lives in and has chosen SD as their permanent or continuous home. The administrative rules at ARSD 48:02:02:01 and :02 require the Lottery to be "satisfied" before issuing a license. The applicant has the burden under SDCL 42-7A-43 of proving qualifications. If routine checks come back clean, the Lottery can issue the license. If the application or background investigation surfaces doubt, the Lottery has both authority and a duty to investigate further.

Question 2: Does the partnership/corporation rule extend to LLCs? SDCL 42-7A-43 requires that, "if a partnership or corporation," the operator's "majority of ownership interest shall be held by residents of the state" (with a narrow public-company carve-out). The question was whether the same residency-of-majority-ownership requirement applies to other entity types: LLCs, limited partnerships, LLPs, LLLPs.

The AG said no. The statute names "partnership[s]" and "corporation[s]" only. South Dakota law treats LLCs and the various limited partnership variants as distinct legal entities under different chapters (47-34A for LLCs, 48-7 for limited partnerships, 48-7A-1001 for LLPs, 48-7-1106 for LLLPs). The AG would not read additional entity types into the statute. The Legislature could have included them and chose not to. If extending the rule is the policy goal, the Legislature has to amend SDCL 42-7A-43.

The practical consequence is significant. An LLC operating video lottery machines does not need majority SD-resident ownership. As long as the LLC itself meets other licensing requirements and the natural persons who serve in regulated officer/manager roles meet their individual residency obligations, the LLC's ownership composition is not subject to the SDCL 42-7A-43 majority-residency restriction.

What this means for you

For SD Lottery Commission and Department of Revenue staff

On residency verification: an address check is your default. But the AG opinion makes clear that you have both authority and an obligation to dig deeper when something looks off. Examples that warrant follow-up: applicant lists a P.O. box only, address ties to a known mail-drop service, driver's license is from another state, applicant has very recently moved to SD from a state with similar gambling regulation, applicant's business operations are clearly centered out-of-state. Document the follow-up investigation in the file.

On the entity rule: when an applicant is an LLC, do not apply the majority-residency requirement to the LLC's ownership. The natural persons listed for background investigation under SDCL 42-7A-43 (partners, directors, officers, 5%+ stockholders) still face individual scrutiny. But the LLC's member composition is outside the statutory requirement.

For video lottery operators considering entity structure

If you want flexibility on ownership composition, an LLC may be more accommodating than a partnership or corporation under SDCL 42-7A-43. Out-of-state investors can hold majority membership interest in an SD video lottery LLC. Partnerships and corporations cannot have that structure. Note that other licensing requirements (background investigation of officers/managers, SD residency of the operator entity itself if it's an LLC) still apply.

For business attorneys advising lottery licensees

The opinion gives you a clean structural answer for entity choice. The corporate-form choice can affect access to capital and tax planning; now you can add SDCL 42-7A-43 to the analysis. A multi-state ownership group seeking to enter the SD video lottery market can use an LLC and still comply with state law, where a corporation or partnership would not.

For state legislators considering policy

If the original intent of SDCL 42-7A-43 was to keep majority ownership of video lottery operators in SD hands, the AG opinion identifies a gap. LLCs are now a dominant business form and were not specifically addressed when the residency provision was enacted. The 2018 introduction of the LLC framework in many states pre-dated the current SD LLC chapter being widely used. If you want the rule to cover LLCs, an amendment listing the specific entity types is the path. Drafting tip: rather than enumerating entity types (which leaves the next entity form out), consider "any legal entity formed under SDCL Title 47 or Title 48."

For applicants who are partnerships or corporations

The majority-residency rule applies to you. Your partnership or corporation must have a majority of its ownership interest held by South Dakota residents (with the limited public-company carve-out). The Lottery will look at ownership documentation in addition to the residency of the individual partners/directors/officers/major shareholders.

For LLC members and managers

The LLC entity is not subject to the majority-residency rule under this opinion. But individual managers and members who are required to undergo background investigation under SDCL 42-7A-43 still face the personal background and residency rules applicable to them in their roles.

Common questions

Q: What counts as a "resident" under SDCL 42-7A-43?
A: Per the AG, someone who lives in SD and has chosen to make it their permanent or continuous home. There is no specific statutory definition in chapter 42-7A, so the general dictionary meaning controls. Other statutory residency tests (voting, tuition, hunting) are not transplanted.

Q: What kind of investigation steps might the Lottery take if the application raises questions?
A: SDCL 42-7A-25 gives the Lottery investigation authority. Possible steps: request lease or property documentation, check utility records, verify employment in SD, interview the applicant, cross-check tax filing residency status, look at how long the SD address has been in use. The AG opinion doesn't enumerate steps; it just confirms the authority and obligation to investigate further when something raises doubt.

Q: Why are LLCs treated differently than partnerships?
A: Because the statute names only "partnership" and "corporation." Statutory construction principles, especially the rule against reading additional items into a statute, mean the AG can't extend the language to entity types the Legislature didn't name. The Legislature treats LLCs as distinct entities under SDCL Chapter 47-34A.

Q: Can a foreign LLC (organized outside SD) operate video lottery machines in SD?
A: SDCL 42-7A-43 requires the operator to be a resident of SD. For a non-natural-person operator (an LLC, partnership, or corporation), the operator entity itself must qualify for residency under the statute. A foreign LLC would need to be registered to do business in SD. The opinion doesn't directly address whether a foreign LLC qualifies as a SD "resident"; the operator entity's qualification is a separate question from the ownership-residency rule the opinion addressed.

Q: Is this opinion likely to be challenged?
A: The Music & Vending Association raised the question, so there's industry attention. The AG's reading on the entity-type point is straightforward statutory construction; it would be hard to argue the statute reaches beyond the entity types it names. The residency-verification answer is more discretionary, giving the Lottery room without prescribing specific steps.

Q: Does this affect lottery retailers, manufacturers, or distributors?
A: SDCL 42-7A-43 imposes the residency requirement on operators specifically. Lottery retailers and manufacturer/distributors have different licensing requirements under SDCL 42-7A-13 and 42-7A-14. The opinion focused on operators.

Q: What's the difference between an "operator," a "retailer," a "manufacturer," and a "distributor"?
A: Manufacturers produce video lottery machines. Distributors place machines for sale or use. Operators place machines for public play and run the operation. Retailers are the establishments where the machines are located. Each license type has its own requirements under chapter 42-7A.

Background and statutory framework

South Dakota authorizes a state lottery under S.D. Const. Art. III, § 25, including a video lottery program. The Lottery is administered by the State Lottery Commission within the Department of Revenue (SDCL 42-7A-2). The Commission licenses each tier of the video lottery business: manufacturers, distributors, operators, retailers (SDCL 42-7A-41).

Each license type has its own requirements. Operators face the most stringent residency rule: SDCL 42-7A-43 requires the operator itself to be a SD resident, and if it's a partnership or corporation, requires majority-resident ownership.

The residency rule originated in the early 1990s effort to localize the operator tier of the video lottery business and prevent out-of-state-controlled operations. The narrow public-company carve-out preserved access for one or two pre-1997 operators that had public-company structure. The Legislature didn't update the language when LLCs became a dominant business form in the late 1990s and 2000s.

The AG's opinion is a clean statutory construction exercise: name the entity types the statute names, refuse to extend to types it doesn't. That posture follows Holborn v. Deuel County Board of Adjustment (2021), which warned against reading additional items into a statute, and In re Wintersteen Revocable Trust Agreement (2018) on plain-language interpretation.

The residency verification answer is more administrative. ARSD 48:02:02:01 and :02 require the Lottery to be "satisfied" before issuing a license; the AG opinion concludes that "satisfied" is a substantive standard that requires more than just receipt of a certified-correct application when something raises doubt.

Citations and references

Statutes:
- S.D. Const. Art. III, § 25
- SDCL Chapter 42-7A (State Lottery)
- SDCL 42-7A-1(17), -2, -13, -14, -25, -41, -43
- SDCL Chapter 47-1A (corporations)
- SDCL Chapter 47-34A (LLCs)
- SDCL Chapter 48-7 (limited partnerships)
- SDCL Chapter 48-7A (partnerships, LLPs, LLLPs)
- ARSD 48:02:02:01, 48:02:02:02, 48:02:03:01

Cases:
- Olson v. Butte County Comm'n, 2019 S.D. 13, 925 N.W.2d 463
- Goetz v. State, 2001 S.D. 138, 636 N.W.2d 675
- In re Wintersteen Revocable Trust Agreement, 2018 S.D. 12, 907 N.W.2d 785
- Holborn v. Deuel County Board of Adjustment, 2021 S.D. 6, 955 N.W.2d 363
- 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 "on 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