                                          ORNEY           GENERAL
                                       OF%-EXAS
                                    AI[~~TIN, TEXAFS     78111
       JOHN    Ii.RILL
    ATTORNEY    GENERAL

                                             July27, 1973

               Mr. Ivan Williams, Executive.Director
               Texas AmusementrMachine Commission
               1411 West -Avenue,.HichmondBuilding
               Suite--2‘d0
               Austin, Texas 78711
                                             Opinion No. H- 73
                                                   Re:    The meaning~:of.Article~l3,1Z;
                                                          Taxation-General, V.A.T.C.S.,
                                                          governing taxation of coin-
                                                          operated machines-in lightof
                                                          Thompson v. Calvert.,.
                                                                               489 SW3d
                                                          95 (Tex:c:.-Sup.
                                                                        1972)

               Dear Mr. Willia@.t-
                    Article~l3.17;~~Title>122A, Taxation-General, Vernon's
               Annotated Civil Statutes-(1969)',is a.'comprehensiveregula-
               tion of certain coin-operated machfnes.and.%n part is directed
               at.prev&nting.persons.fn,businesses dea,lingin those machines
               from hqving concurrentfinancial interests in certain alco-
               holic be,verage,businesses,lSection 8*(1.):
                                                         of,,Arti.cle
                                                                    13.17
               provides:
                            "No person shall"Gngage-in business to
                            manufacture$ own:;buy; se~l~l,.oor
                                                             rent,.
                            lease, :trade*;lend,.or.furnish to an-
                            other,-.or-repefr~.maintain,service,
                            transport-within,the state;.'store,-.or
                            import-;‘
                                    a*music:coin-operated machine
                            or a &cil;l;-~~or.
                                           pl,ga,wrecoin-operated
                            machhe with-out. a :iicenseT
                                                       .$ssuedun-
                            der.this-'article;"

1              Section,23(1) .of thersame article in -part provides:
                             "It sha&l ]be unlawful ,for a:.personwho
                            has .a financi&~:iaterest~%n-.a.business
                            required:-%0<be licensed by-,this-Artir
                            cle.to knowingly have-+a:.,financial in-
                            .terest-;in-
                                       a.business-engaged,in sell--
                            ing:or,-servfngi,aEc~o~c:beaerages-.for
                          i -on-pr+em&see~coasumption~~. . . . "
                                                 p. 324
 Honorable Ivan Williams, page 2 (H-73)


      In Thompson'v. Calvert,.j89,S,W2d,95,(Tex. Sup. 19721,
 the,S,upreme*Court,,held
                        that Article 13,,17did,.notapply to:

              "(IPndividual ,petitioners--andothers simi-
              larly situated'whose distinctive bugigess,
              occupation, and employment is that of
              selling and serving alcoholic beverages
              for on-premfses~consumptfon, and who    .
              only own co&nLoperatedzlmachinesfor use
              and displ&y,,onthecLr'own premises and on-
              ~r;-‘e~ta~~adjundt;or"
                                  Qx&dental;thereto."
              - .      .
          You have;asked,.three?questions:
              (1). What areLIthecriteria,.,ifany,:.fordeter-
              mining,whether,-theownership :and.nse of "coin-
              operated ,machhnes-?:.are-\npurely
                                             incidental" to.
              the busfness-of ~selPing~:or
                                         serving alcoholic
              beverages~:for~~on~premise~s~~consumption?
               (2)-cIf there'are criteria'for-determining
              whether=the :ownership-anduse of "coin-
              operated.,maoh-ines"‘are':"pljre~y,;incidental!'.
              to the-business.-of~eellfngor serving al-
              coholio;-beverages.Bor‘-on-premisesconsump- .
              tion;..mayr+hesecriteria ;-beemployed by
              -theCommission toclimit :the tobal number
              of ncofn-operated~machines"an owner of-a
              permit*,to,,*engagecin
                                   selling or serving al-
              cohol,ic-bevera,ges,
                                 Zor "on-premisesconsump-
              tionmay,own.<and use-at a place,.of.business
              owned by him?
              (3) .'If-'a+limitation.'may
                                        -be&tipgs@ ,on,the
              total numberof -HOokn~op&&ed machines"
              an owner :ofr:a?permittaengage -rinselling.
              or se,rvingc-alcohol&cbeverages for on-
              premises*consumption-may :own-and us.e.,at
             '.hisplace-of<:busknessras"gu~e3.yin&den-
              tal" .!toyhis,bus~nass,::how-.~y'T‘.~uch,.a
                                                    limi-
              tation be,e.nfdrcedby-the Commission?
      Your quest$ons~'conce~nsthe&tead~&*saope :of.the prohibi---
don-:Of  &he concurrant;~~~fnanC~~~~'re3:atlonship,,described
                                                         in Sec-
tion e27(1).---
              Speaificallg, :the.:.question~.dea.l,
                                               with its,applica?,-
-tion toowne*S -tof.permits,,fs=om
                                the:sAZc&ioS-&c,.I3+\~~qe.
                                                       Commission
 to.seU or serve a3cohoSic beverages .for'on-~;l=~ises...:consumptiOn
jhereinafter ,referred,to~as.,:sA~C--~rmittees")
                                              .

                                 p. 325
Honorable Ivan Williams, page 3      (H-73)



     It is clear that the SupremeCourt. has,held.that mere
ownership :of coin-operated machioasrisnot sufficient to...
bring an AbC' pe~ittee_within.:~e..puraiew...of...,,S,ention
                                                       27 (l)...
It is appyopriateYto note,:the.comments ,of:the Su-premeCourt
regarding:theLegislature's intentinpassing, Article 13.17
and the intended'effect.-ofits decision.
     Woting that-a speotal;committee,was created during the
1969 @g@ionwhich   Sater made a report on'wh.iohthe Coin-
Operated Machine .Law:-was
                         hased:; the Court stated:
           "It is shown&n the.record that in 1969
          .the Legislature<;-Tin.
                               response to a trend
          of %increesizngvfolenoe.-andt'other
                                            illegal
          activities,,whiah#centere&yaround taverns
          and ~night~alubs, created,~a~specialcommit-
          tee to"study \the prob%.em;:.
                                      That.comm$ttee
          determhned,.tkatsome %of,khoseiengaged-in
          khe .aofnisperated-maa~~nabasiness had.
          gained a.:greatdealof control over and.
          financial intergse..~~i.n.,csrtLzfn-
                                         alcoholic
          beverage,,bUsinesses:,.Artfcle.l3.17was
          then passed . . . .
          "[Al-s..interpreted,: the-Act:e&fect&vely car-
          ries out ~the~~intent~to  free,the small.
          tavern operator-from .the hold ..ofthe
          machine industry and make‘those.opera-
          tors of'-  alooboMa .bevecageest&lish-
          ments more:*independent;n.Thompson v.
          Ca;i??ert Pw;supraJ;xp.!,
                                ,9,7.,
                                     98.
     .It is doublt‘fu,l'&at%he;terms "control"; ."financial in-
terest", -and--"ho&d" referred;,to-,bythe::Court;..ase
                                                     attributable
to .tavern'operators'who cwn.:a-smaltr‘:number~of-vending.machines.,
                                                                   .
On the- contrary;,.,the:COUrt.,s~j;d,.~at:.the,
                                            Act,,isdirectedLat..the
vending,%usiness:n-:Zl&;thtit*ter&is'com+n&yf.understood.
                                                    ,I
           "We think that the o&ear*legis,lativein-
           tent ,of,Che,:Act:'wasrto
                                   regulate those
           engaged..inthesbusinessof .dealing in.
         --Icoin-opere~,'ma-chineri;.:rnea~ng.t~se
           who *are engaged;i&n-.manufaaturiag,own-
          .ing, .buying;.selling, rentj;ng,;leasing.
           trad,kng;lending;Y:-&tO*
                                  ~.~snch~chines. .
          .-.as
              .f~n
                 .oc~gsntj;o~r~~.n,-~l~-~t..The
           Act.:cl;e~lp~TeqO~es.ra lice&e tit. 1
          -those-thus~engaged:'f~~such~~dfatin~ive
           business, such as*.Petitfoner,A'S;,.
          -Vending+ a.T&aszC&rpo%ation [which..
           owned-81 machines acccrding~~to~~testi-
          'monp,at trf~l:l.;<~~which
                                  ad&ttecily?was
           engaged fn -khe,bus3;ness:af selling.- ~
           coin-operated-smachfne;" -,-Id.at 98.
                            p. 32%
 Honorable Ivan Williams, page 4 (H-73)


Thus, it would not .be*.appropriate
                                  to define the term "incidentaln
in-such a.way that :such definitkon wouM.result..in many tavern
xxvneSs,,be_ing
             forcedto .~esr;eimaohises,.-E~om.the.
                                                vending industry,
althoughnot themsePveszbeing,*engag,ed--inthe vending "business"
as it is viewed'by.the Supreme Courtin. Thomps,on.


was a Mr..Harrison;.-who',testified thet,he :owned ten machines
in a total o&three places,:of~  business;, -Additional testimony
indicated .that;qetitionerThompson,owned *onemachine and pe;
titioner Pu%aica;owned'thsee machinesqttwo -places of busi-.
ness. _ It was' sugges~ted-bycounsel, though not corroborated,
that-Mr. Zbores owned+:threemachines,et two;places of busi-
ness. .This testimonyshoa%d.be of some;value:.in.   assessing
the meaning of the Court% statementthat-?Petitioners Thomp-
son,.Flares.,Zulaioa:,Harrisun; .and.,otherssimilarly situated"
were.not :barred+fromowning*their own -maohines,. Id. at 99.
      On the.,-other*hand,;-,
                           the deckion:cannot.%be read to allow
an ABC'permittee,to own"an:-unlimitedaumberof machines* Beyond
some point.the ownership of a %arge :quanG.ky*:af, machines ,could
not properly-be viewed as incideatak~.to.thedistincfive -busi-..
ness of sel*Ung alcoholic beverages:for on-premises consumption.
.The Thornson-rationa&e prevents-the,use;of Ian alcoholic beverage
perm+I.
      .t..as,qsubterfuge *for engaging*-iq$he.-vendingbusiness,
The chance of-sucht&a-clande,stine"vending:business" being
started-would*.presumably:  be greater 5n the case ,of an ABC per-
mittee who owned a-large number?of -vending machines in his ~only
place of business licenaed,torxserve'  alcoholic beverages on-
premisesor -in.the case-~of-  an-ABC permittee-.who-ownedboth
a large number-of -businesses‘so licensed and :a large number
of machinesb;':Aocordingtly;the-total,number-of machines owned..
by an ABC permibtee:xnd~:the~  number-af machines ~t.each place-
of busJ.ness:"are-reEevant.criteria:-in-:determ~n~ngwhether Sec-
tion.27(l) is applicable.xtosuch ypermittee.
      If-the.Commi;ssionfound,\thata'tavern-operator were sellingr
                           and,-therebyengaging inksome activity
 leasing,Lxenting,*~buying~~
beyond--mereownership of,*hismachines,:-a:presumption would appro-
priately.exist.that:-hewas engaging,+n-..the vending "businessN1
This conclusion--wouldseem;-to~be>;true,:regardlessof the number
of machines.:owned,by.She:..rindividual
                                     sinoe:,the'*'incidental"
.J.imdtation.~was
                applied only with -respect to those who "merely
,own'!their -machines.


have to-be,.madewithfn the limits,.ofr-thecourt'sdecision
and-thisopinion.~ Nevertheless.,we consider the following
factors relevant-to'-de-terminkq~whetheran ABC ,permittee
                            p. 327
Honorable Ivan Williams, page 5    tHT73)


 who owns one or more vending machines is engaged in the "busi-
 ness of dealing in:coin-operated machines" or whether the
 ownership of the machine or machines is "purely incidental"
 to the primary business of serving alcoholic beverages on-
 premises, thereby exempting that business from Section 27(l):
  (1) The numberof machines in each place of business; the
 number of places of businesses owned by the ABC permittee;
 and the total number of machines owned by the ABC permittee
 at all of his.places of business .combined; (2) Whether such
 person is.engaging:in any .transactionsconcerning his machines
 beyond mere ownership of them; (3) Some comparison, if possi-
 ble, of revenues attributable to .salesof alcoholic.beverages
 and revenues attributable to coin-operated machines; (4) A
 comparison of-floor space attributable to ,the sale and con-
 sumption of alcoholic beverages,with the floor space attri-
 butable to the use of coin-operated machines;- (5) Whether
 the tavern containing the amusement machines was open during
 hours in which'it could not legally sell alcoholic beverages;
 and (6) A comparison of the ABC permittee's capital invest-
 ment in amusement machines with his total capital investment,
 We are not in a position to assess the'administrative'diffi-
 culties of establishing and enforcing any set of criteria,
'Of,course, the Commission may use other criteria which it feels
 are rea'sonablyrelevant to applying the rationale of the Thompson
 decision,
                                 ,
      Turning to your seconc'question, it..is,ouropinion that
 the Cominissioii
                does have'the power to ‘regulate-thenumber of
machines .an'ABC permittee may ,own and use at his place of
 business. The purpose of Article 13,17 as expressed in Section
 1 thereof 'is:   "             :

          -"fT]oprovide comprehensive-regulation of
          music ahd skill'& pleasure -coin&operated
          machines and businesses dealing in these
          machines, and to prevent persons in these
          businesses from having certain‘concurrent
          financial interests in, or unauthorized
          financial dealings with, certain alcoholic
          beverage businesses,,'     '
     Where an agency is obligated by statute to effectuate the
express purpose of the act, authority reasonably necessary to



                      Article 13,17, Section 4 makes this grant
of power expressly:

                             PO 328
 Honorable Ivan Williams, page 6   (H-73)




              "In addition to its existing powers,
           the,. . ; Commission mayi-for the pur-
           pose of administerinq this Article,
              "(1) prescribe all necessary.regu-
           lations . . . ."
      Even if;the ABC permittee owns-vending machines -purely
 incidentally to:.his;business,-'
                                in:order.to..:determinewhether.
 his aJnership-:Qf..machine~;.is-:'prPger-;~.~e,
                                           .Commi.s,sion
                                                       ,hasI.ign-
 plied,authority to.obaerYe:.*his:
                                 operation and -to.request re-
 ports. .Sin.cethe=Commissionl.is::duty-bound'to.regulate the
 vending,industryl;:
                   &t ,necessarkPy.has.*the.authority to deter-
 mine who should be licensed--under-Article.93.17.The li-
 censing power would:.bealmost,meaninglass %f the Commission
 did not'also havetheTauhority.-to determine whether a ta-
 vern operator-'sownershkp..aqd:-
                                use of<%cohn-operatedmachines
 is incidental-to--:hisbuainesis!:Ln
                                   orderlto implement the
T;g?      decision. .:Thus~,the,,regulations.envisioned by your
      ,,_,
        qu+tion, would-;be':necessaryfor 'the,implementation of
 the Thompson.,decision.
   .r. The Commission may-not+',of,course;r*makeregulations which.
 are contraFy to,.or:beyond.the$r statutory ;authorization. All-
'state.Insurance..:Co4v;“.State Board.--of:
                                         Iasuaance.;:;.~~,Ol.
                                                        SW2d T‘JT-
 (Tex. Civ. App:,.-.:Austin
                          1966, writ ref'd n.r.e.f The-requla:',
 tions promulgated.by'the~~Commissfonmust'also be sufficiently
 explici-tto.inform those.bound:,by%hem what conduct will consti-
 tute a violatfon;-~'.RakIroad-Commi-ssion.-v;
                                             Ft. Worth and:.D.C.
           161.SHLd,:56a.1~(Tex..
                              Civ, 'App.,cAustin 1942, writ
 $ll:o,*;m;)-*. .-_
                  S%ntie-ti
                          'violation'of,'-So&ion27(l) renders'the
 violator liable‘to-the!penal provisions'of Section 27(S), the
 rules promu&$atedtwith-respect-to Section->27(1)must.meet the
 strict:s,tanda,rdqlo-fj.~de-f~niteness-
                                    applicable to Enal statutes.
          "No one'may"bs requ%redr.atthe.peril of
          life, liberty or property'to'speculate
          as
          ---to: the.meanfng.
                       _'_ - of--penalstatutes.
          All are entitled_to be informed as to
          what, the>State commends.or forbids."
          Lanyetta v;New Jersey,;+386,U.S*451,
               (1939).
Lack ,of spe‘cE~d-~ty:~;wi-~l.render
                                %he.rules void: as violative of
theadue process clause .ofthe-Fourteenth Amendment of the U..S.
Constitution.&;Gonna~~~:v.;.-GenPr~l.=Construction:Go,;
                                                      269 U. SI
385,,391 (&925).



                             p. 329
Honorable Ivan Williams, page 7 (H-73)


     Your third question asks how the.Commission would enforce
such a regulation. We noted,above that.the.Commission has the,
power to require .information'fromtavernowners who own coin?
operated machines. The Commission ,should consider sending
notifications.,of.
                 the rules.it.promulgates to ARC permittees.       ..
Through notification,,required reports'*,and, "spot checks" the
Commission could,determineywhether -any businesses were not com-
plying with Article 13.17. The Commission after such determina-
tion could..
           then notify the appropriate district.or~,countyattor-
neys for.prosecution under:.thestatute.
     Since.the -businesses,that:the,Thompson decision is con-
cerned with are all permittees..ofthe Alcoholic-Beverage Com-
mission, it might-be approprfaterto soliuit..the.assistanceof
that agency.in.some aspects-,ofcthe..enforcementof the Act.
Article 13.17, ,Seotion-6 provides:
         "All'state~agencies.are,directed-to'cooperate
                       .. Commission *in its.investiga-
         with the- . '-.
         tory.-functions-underthis Article, and shall
         prov,ide,
                 it access to-their relevant records
         and reports . . . ."
     Article 13.17, Section,3, provides that the Commission
may institute civil-proceedings through.the Attorney General
against.violators which-would include.5njunctive relief.

                          SUMMARY
         While the criteria for determining.the applica-
    bility of Article 13.17, Section 27fl)kto owners of
    permits'to sell or.serve-alcoholic-beverages for on-
    premises consumption may not:be-*determinedwith exacti-
    tude, it wou,ldnot be,,approprfate.,tozwdefine
                                                 the term
    "incidental" in such,,awaythatwonld Lexclude only a
    very restrictive categoryof.‘tavern owners from the
    purview -of,Section.27(l). Such 'a-restrictiveinter-
    pretation,would not be-in .keepingwSth.-theintent of.
    Article 13.17, as expressed-,bythe Supreme Court, to
    "free the small tavern owner from the -hold of the
    machine industry" because,.suchan -interpretationwould
    result in many .tavernownersbeing:,forced to.lease
    machines from.jthe--vending-industry; Nonetheless, it
    is also inappropriate-.toconclude-that the.owners of
    such permits may"own>>an unlimitednumberof machines.



                            p. 330
 Honorable Ivan Williams, page 8        (H-73)



           The Amusement Machine,CommissionJpossesses the
     authorilzy,-to,promulgate,regu:lat$onsto regulate the
     number>of mach&nes an.owner:.of%a:per&it to sell or
     serve,alcotro-l;itr.
                       .beveragesjfor on-premises consumption
     may ownathis     placeof: business.;::These -rules must not
     go.-beyond.the~~Commia.s~on..'s
                                  .s.tatuttary
                                             a,uthoriz&on
     and-musk-be,sufficiently explicit.to,informthose~~
     persons affeotedrby them what conduct*:will:constitute
     a violation;=-- The Commissfon.~may~.de.termine
                                                   if any busi-
     nesses.are failing to comply-*withArticle 13.17. After
     s.ucha-determination, appropriate civil and criminal
     remedies,iireavailable-to the.-.Commission.
                         d.


                              -Very      truly yours,




                         I/     Attorney General of Texas




DAVID MI.KENDALL; Chairman      -.      -
Opinion Committee    -  '.




                               p. 331
