Did offering an over-limit video-game-machine jackpot count as a prohibited inducement under SC RR 99-7?

Plain-English summary

South Carolina Revenue Ruling #99-7 distinguished an excessive machine payout from a prohibited special inducement under the historical Video Game Machines Act.

The ruling said offering a jackpot above the then-applicable maximum payout did not itself become a special inducement. The specific payout statute controlled over the more general inducement prohibition. As a result, the inducement statute's separate penalty framework did not apply merely because the jackpot exceeded the payout limit.

That did not make an excessive payout penalty-free. The Department said actual payment above the limit exposed the establishment operator to the general civil penalty of $50 to $500 per violation and possible revocation of any or all Department-issued licenses held by the operator. The ruling found no specific criminal penalty under the Video Game Machines Act for offering or paying an excessive jackpot.

What this means for you

Historical gaming-law researchers

The ruling treated maximum-payout and inducement violations as different offenses with different penalty provisions. Giving a player cash or another benefit to encourage play could be an inducement, while the possibility of winning a payout was analyzed under the separate payout statute.

Former location and machine operators

The ruling's recommended civil enforcement escalated from a monetary penalty to retail-sales-tax-license revocation and then potential revocation of all Department licenses held by the operator. Those recommendations belong to the historical regime described in the PDF.

Lawyers and compliance professionals

Do not transfer the ruling's 1999 payout amount, licensing system, or enforcement schedule to a current matter without verifying present law.

Common questions

Q: Was an over-limit jackpot a prohibited special inducement?
A: No. RR #99-7 said the specific maximum-payout statute controlled instead of the general inducement provision.

Q: Was an excessive payout free from civil penalties?
A: No. The ruling applied a $50-to-$500 civil penalty per violation and possible Department license revocation.

Q: Did the historical Video Game Machines Act impose a specific criminal penalty for the excessive payout?
A: The ruling said no. It found specific criminal sanctions for other violations but not for exceeding the maximum payout under § 12-21-2791.

Q: Could a willful inducement violation be referred for prosecution?
A: Yes. The separate inducement provision allowed referral when the Department determined that violation was willful.

Q: Is this current gaming-law guidance?
A: No. It explains the statutes and enforcement policy in effect when the ruling was issued in 1999.

Citations and references

• S.C. Code Ann. § 12-21-2791 — historical maximum-payout provision
• S.C. Code Ann. § 12-21-2804(B), (F) — inducement prohibition and its penalty provisions
• S.C. Code Ann. § 12-54-40(H) — general civil penalty applied by the ruling
• S.C. Code Ann. § 12-54-90 — Department license revocation
• S.C. Regulation 117-190.1 — historical inducement guidance
• SC Revenue Procedure #99-1 — penalty guidelines referenced by the ruling

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR99-7.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P.O. Box 125, Columbia, South Carolina 29214

SC REVENUE RULING #99-7

SUBJECT:

Maximum Payout - Inducements
(Video Game Machines)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous documents and any oral directives in conflict
herewith.

REFERENCES:

S. C. Code Ann. Section 12-21-2791 (Supp. 1998)
S. C. Code Ann. Section 12-21-2804 (Supp. 1998)
S. C. Code Ann. Section 12-54-40(H) (Supp. 1998)
S. C. Code Ann. Section 12-54-90 (Supp. 1998)
SC Regulation 117-190.1 (Supp. 1998)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 1997)
SC Revenue Procedure #97-8

SCOPE:

A Revenue Ruling is the Department of Revenue’s official
advisory opinion of how laws administered by the Department
are to be applied to a specific issue or a specific set of facts, and
is provided as guidance for all persons or a particular group. It is
valid and remains in effect until superseded or modified by a
change in the statute or regulations or a subsequent court
decision, Revenue Ruling or Revenue Procedure.

Question:

1. Does the offering of a video game machine jackpot that exceeds the maximum payout
   provisions of Code Section 12-21-2791 constitute a special inducement under the
   provisions of Code Section 12-21-2804(B) and SC Regulation 117-190.1?
2. Does the offering, or actual payment, of a video game machine jackpot that exceeds
   the maximum payout provisions of Code Section 12-21-2791 carry a criminal penalty
   or criminal sanction under the Video Game Machines Act?

1

Conclusion:

1. The offering of a video game machine jackpot that exceeds the maximum payout
   provisions of Code Section 12-21-2791 does not constitute a special inducement under
   the provisions of Code Section 12-21-2804(B) and SC Regulation 117-190.1.
   As such, the payment of a video game jackpot that exceeds the maximum payout
   provisions of Code Section 12-21-2791 will subject the operator of the establishment to a
   civil penalty of not less than $50 nor more than $500 for each violation. In addition, any
   or all of the licenses issued by the department and held by the operator of the
   establishment (e.g., liquor licenses, beer and wine licenses, Class C coin-operated device
   owner/operator's license, machine licenses, establishment licenses, and retail sales tax
   licenses) are subject to revocation, regardless of whether the licenses are for the
   establishment where the violation occurred.
2. The offering, or actual payment, of a video game machine jackpot that exceeds the
   maximum payout provisions of Code Section 12-21-2791 does not carry a specific
   criminal penalty or criminal sanction under the Video Game Machines Act.
   Facts:
   Recently, the department was asked to explain the applicable penalties for exceeding the
   maximum payout provisions of Code Section 12-21-2791.
   The department established guidelines for imposing the civil penalties under Code
   Section 12-54-40(H) (previously 12-54-40(b)(3)) and Code Section 12-54-90 for
   violations of Code Section 12-21-2791 in the summer of 1993 shortly after the enactment
   of the Video Game Machines Act. The imposition of these same penalties continued with
   the issuance of two subsequent advisory opinions - SC Revenue Procedure #97-2 and SC
   Revenue Procedure #99-1.
   While the department has previously issued advisory opinions establishing guidelines for
   assessing civil penalties for violating the Video Game Machines Act, it was determined
   that this advisory opinion should be issued to explain why certain civil and criminal
   penalties under the Video Game Machines Act are or are not assessed with respect to a
   violation for exceeding the maximum payout provisions of Code Section 12-21-2791.
   Discussion:
   The issue has been raised as to whether an offer of a jackpot that exceeds the $125
   maximum payout provision of Code Section 12-21-2791 constitutes a special inducement
   under the provisions of Code Section 12-21-2804(B) and SC Regulation 117-190.1.
   2

Code Section 12-21-2791 establishes the maximum payout per player, per location, per a
24 hour period, and reads:
Any location which operates or allows the operation of coin-operated machines
pursuant to Section 12-1-720(A)(3) which provides payouts shall limit the cash
payout for credits earned for free games to two thousand five hundred credits a
player a location during any twenty-our hour period. The cash value of credits for
each free game shall be limited to five cents.
See also SC Information Letters #94-28 and #97-4.
A review of Code Section 12-21-2791 indicates that it does not provide a specific civil or
criminal penalty for exceeding the maximum payout.
Code Section 12-21-2804(B) prohibits special inducements and reads:
No person who maintains a place or premises for the operation of machines
licensed under Section 12-21-2720(A)(3) may advertise in any manner for the
playing of the machines nor may a person offer or allow to be offered any special
inducements to a person for the playing of machines permitted Section 12-212720(A)(3). (Emphasis added.)
SC Regulation 117-190.1 reads:
The Video Game Machines Act, found in Article 20, Chapter 21 of Title 12,
prohibits the offering of any special inducements to a person for the playing
of video game machines.
Therefore, any attempt to influence a person to play video game machines is
an inducement and is strictly prohibited by the statute.
A location will be subject to the various civil or criminal penalties imposed
by the statute for offering any of the following inducements:

1. Free or discounted food or beverages,
2. Free or discounted games,
3. Prizes, either at the doors or through drawings or other means,
4. Coupons offering any of the above,
5. Cash, or
6. Any other valuable consideration.

3

If a location engages in activities other than the operation of video game machines,
then that location will also be subject to the various civil or criminal penalties
imposed by the statute for offering any inducement unless the location can
establish that the inducements it offers are not directed at video game machine
players and if the location can establish that such offerings are part of the normal
business practice of similar activities in South Carolina.
For example, a lounge that offers entertainment and dancing and sells alcoholic
beverages may provide a complimentary buffet for its patrons. If this lounge also
has video game machines, then the complimentary buffet is not an inducement to
play video game machines as long as the location can establish that it is not
directed at video game machine players and the location can establish that it is a
part of the normal business practice of similar activities in South Carolina.
The above list of inducement is not all inclusive. Any other attempts to influence a
person to play a video game machine will also be subject to the various civil or
criminal penalties imposed by the statute. (June 23, 1995)
Code Section 12-21-2804(F) provides the penalty for violating the inducement
prohibition and reads:
(F) A person violating subsections (A), (B), (D), or (E) of this section is subject to
a fine of up to five thousand dollars to be imposed by the [department]. The
[department], upon a determination that the violation is wilful, may refer the
violation to the Attorney General or to the appropriate circuit solicitor for criminal
prosecution, and, upon conviction, the person must be fined not more than ten
thousand dollars or imprisoned not more than two years, or both. The
[department] shall revoke the licenses of any person issued pursuant to the
provisions of Article 19 of this chapter for a violation of subsection (C) of this
section. Revocation is pursuant to the procedures set forth in Section 12-54-90.
Unlike the maximum payout provisions, the code section prohibiting special inducements
authorizes a specific civil and a specific criminal penalty for violating the special
inducements provisions.
Code Section 12-54-40(H) (previously codified as 12-54-40(b)(3)) states:
(H) A person who must obtain a license or purchase stamps for identification
purposes, and who fails to obtain or display the license properly, or to affix the
stamps properly, or to comply with statutory provisions, is subject to a penalty of
not less than fifty dollars nor more than five hundred dollars for each failure. For
failure to obtain or display a license as prescribed in Sections 12-21-2720 and 1221-2730, the penalty is fifty dollars for each failure to comply.
4

Code Section 12-54-90 states:
(A) When a person fails, neglects, violates, or refuses to comply with a provision
of law or regulation administered by the department, the department, in its
discretion, may revoke one or more licenses held by the taxpayer within ten days
of notification in writing of the taxpayer’s failure to comply. The notification may
be served by certified mail or personally.
(B) A person whose license has been revoked must not be issued a new license
until all outstanding liabilities are satisfied.
(C) The [department] may review and determine whether a new license may be
issued according to guidelines established by it.
Based on its review of the above, the department applies the following civil penalties (see
SC Revenue Procedure #99-1 – “Penalty Guidelines for Violations of the Video Game
Machines Act and Coin-Operated Device Laws”) to violations of the maximum payout
provisions and the special inducement provisions:
Maximum Payout:
Violation Section

12-21-2791

Penalty Section

12-54-40(H); 12-54-90

Penalty Amount

$50 to $500; Revocation of licenses issued by the
department and held by the location operator.

Recommended Action

First Offense - $500
Second Offense - $500 and revocation of the
location operator's retail sales tax license.
Addt’l Offenses - $500 and revocation of all
licenses issued by the department and held by the
operator of the single place or premises, regardless
of whether or not the licenses are for the premises
in violation (for example, liquor licenses, beer and
wine licenses, and Class C coin-operated device
owner/operator's license).

5

Inducements:
Violation Section

12-21-2804 (B); Regulation 117-190.1

Penalty Section

12-21-2804(F); 12-54-90

Penalty Amount

Up to $5,000; Revocation of licenses issued by the
department and held by the location operator.

Recommended Action

First Offense - $2,000
Second Offense - $3,000
Third Offense - $5,000 and the revocation of the
location operator's retail sales tax license.
Addt’l Offenses - $5,000 and revocation of all
licenses issued by the department and held by the
operator of the single place or premises, regardless
of whether or not the licenses are for the premises
in violation (for example, liquor licenses, beer and
wine licenses, and Class C coin-operated device
owner/operator's license).

Note: If the department determines that the violation is willful, then it may refer the
violation to the Office of the Attorney General for prosecution. See Code Section 12-212804(F).
Based on the above, the department has never considered the offering of a jackpot that
exceeds the maximum payout provision to be a special inducement for the following
reasons:

1. Specific v. General: In Wilder v. South Carolina State Highway Dept., 228 S.C. 448,
   454, 90 S.E. 2d 635, 638 (1955), the Court stated that “where there is a statute dealing
   with a subject in general terms and another statute dealing with a part of the same
   subject in a more minute and definite way, the special statute will be considered as an
   exception to, or qualification of, the general statute and given effect.” The General
   Assembly enacted a specific statute concerning the maximum payout. The more
   general statute concerns inducements. Under this rule of construction, the maximum
   payout provisions is an exception to the general rule on inducements. In essence, it is
   not an inducement for purposes of the Video Game Machines Act. Therefore, it would
   be an inducement to give players five dollars to spend on video poker machines;
   however, the possibility of receiving a payout is not an inducement within the
   meaning of the statute and regulation.
   6

However, the General Assembly did understand that a civil penalty could be imposed.
In 1985 the General Assembly enacted Chapter 54 of Title 12. For many years, each
tax administered by the department had its own set of penalties and enforcement
procedures. This chapter was enacted to make such penalties and procedures uniform
among the taxes. Code Section 12-54-190 specifically states that “[u]nless otherwise
specified, the provisions of this chapter take precedence over all other related statutory
provisions.” Therefore, since the Code Section 12-21-2791 does not state a penalty,
the provisions of Chapter 54 are controlling and the civil penalty set forth in Code
Section 12-54-40(H) is applicable. In addition, the imposition of the civil penalty
under Code Section 12-54-40(H) for violations of Code Section 12-21-2791 has been
upheld by the Administrative Law Judge Division on several occasions.

2. Intent of the General Assembly: The General Assembly, in enacting the Video
   Game Machines Act, set forth specific criminal penalties for specific violations. In
   fact, with respect to Code Section 12-21-2804, the General Assembly delineated
   which violations under that code section were subject to criminal penalties. The
   General Assembly also enacted criminal penalties for tampering with machines,
   skimming of proceeds, possession of contraband machines, and operating within a
   certain number of feet of a school or church, but they did not impose a specific civil or
   criminal penalty under Code Section 12-21-2791 for exceeding the maximum cash
   payout. As such, it is the department’s position that the General Assembly did not
   intend to impose the criminal penalty for a special inducement for exceeding the
   maximum cash payout.
3. Ambiguity in a Criminal Statute: Ambiguity in a criminal statute favors the person
   upon whom the state seeks to impose the criminal penalty. If the department were to
   attempt to apply criminal sanctions to this activity, any possible ambiguity in the
   statute would be held against the department. See State v. Four Video Slot Machines,
   317 S.C. 397, 453 S.E. 2d 896 (1995).
4. Longstanding Administrative Policy: The department has never considered an
   excessive payout to be a special inducement. “Administrative interpretations of
   statutes by the agency charged with their administration and not expressly changed by
   the legislative body are entitled to great weight. Marchant v. Hamilton, 279 S.C. 497,
   309 S.E. 2d 781(1983). When ... the construction or administrative interpretation of a
   statute has been applied for a number of years and has not been changed by the
   legislature, there is created a strong presumption that such interpretation or
   construction is correct.” Ryder Truck Lines, Inc. v. South Carolina Tax Commission,
   248 S.C. 148, 149 S.E. 2d 435 (1966); Etiwan Fertilizer Company v. South Carolina
   Tax Commission, 217 S.C. 354, 60 S.E. 2d 682 (1950).

7

The department has, since 1993, consistently imposed the civil penalty under Code
Section 12-54-40(H) (previously 12-54-40(b)(3)) for violations of Code Section 12-212791 1 . In addition, the imposition of this civil penalty under Code Section 12-54-40(H)
for violations of Code Section 12-21-2791 has been upheld by the Administrative Law
Judge Division on several occasions. See South Carolina Department of Revenue v.
A.M.F. Bowling Centers, Inc., 96-ALJ-17-0061-CC and South Carolina Department of
Revenue v. McDonald Amusements, Inc., 98-ALJ-17-0123-CC. Finally, Code Section
12-21-2791 was amended in 1997 (Act 53, Section 2), but the General Assembly did not
add a specific civil or criminal penalty.
Based on the above, the offering of a video game machine jackpot that exceeds the
maximum payout provisions of Code Section 12-21-2791 does not constitute a special
inducement under the provisions of Code Section 12-21-2804(B) and SC Regulation 117190.1

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/ Elizabeth A. Carpentier
Elizabeth A. Carpentier, Director
Columbia, South Carolina
March 11
, 19 99

1

As stated in the Facts, the department established guidelines for imposing the civil
penalties under Code Section 12-54-40(H) (previously 12-54-40(b)(3)) and Code Section
12-54-90 for violations of Code Section 12-21-2791 in the summer of 1993 shortly after
the enactment of the Video Game Machines Act. The imposition of these same penalties
continued with the issuance of two subsequent advisory opinions - SC Revenue Procedure

97-2 and SC Revenue Procedure #99-1.

8