ALJDEC

99A-26047-LOT · Arizona Lottery · 1999-08-23

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: August 23, 1999. APPEARANCES: LaDonna K. Ockinga, Assistant Attorney General, appeared representing the Arizona State Lottery. Michael T. Herrod appeared representing James Forster, Respondent. ADMINISTRATIVE LAW JUDGE: Kip M. Micuda _____________________________________________________________________ The hearing in this matter was held for the purpose of determining whether the Arizona State Lottery’s claim against James Forster for $1,761.34 is valid, and, if so, whether the Arizona Department of Revenue may set off, at least in part, a refund it holds due Mr. Forster and his present wife against the Lottery’s claim. Evidence and testimony were presented and, based upon the entire record, the following Findings of Fact, Conclusions of Law, and Recommended Decision are made:

FINDINGS OF FACT 1. In May 1981, James Forster, Respondent, applied to the Arizona State Lottery (“State Lottery” or “Lottery”) for a license to sell lottery tickets issued by the Lottery for sale to the general public. Respondent noted in the application the trade name of his business: Carefree United Drug. 2. The Application states, in part: If an Individual Owner, this application must be signed by that Owner; if a Partnership, by an authorized partner; if a Corporation, by President and Secretary, affix seal.

Mr. Forster identified himself as the “President” of the business; however, no “Secretary” signed the Application. 3. Attached to the application is a Questionnaire to be completed by each owner, partner, manager, principal officer, and stockholder holding 10% or more stock of the entity. Respondent identified the business as “Carefree United Drug,” and that he was employed as its pharmacist. 4. While the Application form falls short as a model of clarity and thoroughness, the preponderance of the evidence fails to establish that “Carefree United Drug” was identified as a corporation at the time. 5. The Lottery issued Respondent a license to sell lottery tickets to the general public. The preponderance of the evidence establishes that the Lottery understood, at the time, “Carefree United Drug” to be a sole proprietorship. This understanding is found to be reasonable under the circumstances. 6. On June 1, 1983, the Lottery sent Respondent a letter stating that its investigation indicated that Respondent’s wife at the time, Pauline Forster, was a partner in the business. Accordingly, the Lottery requested that Mrs. Forster complete the questionnaire for owners, partners, managers, principal officers, and stockholders holding 10% or more stock of an entity. In completing the questionnaire, Mrs. Forster described her position as the “Vice-President” of “Carefree Pharmacy.” While Mrs. Forster’s questionnaire confuses the nature of Respondent’s business, the preponderance of the evidence fails to demonstrate, again, that the Lottery should have understood at the time what Respondent testified to during the hearing in this matter: that he applied for licensure as the corporate entity “Carefree Pharmacy Limited,” doing business as “Carefree United Drug,” not as an individual owner. Furthermore, the preponderance of the evidence fails to establish that Respondent should now be allowed to rely on the Application and 2 questionnaires to estop the Lottery from asserting that the license was issued to an individual owner. 7. Respondent closed the business on or about December 15, 1995. The Lottery cancelled Respondent’s license allowing the business to sell lottery tickets to the general public on January 9, 1996. Mr. Forster closed the business’s bank account in February 1996. The instant matter concerns the final accounting of Respondent’s sales and credits for instant game, or “scratcher,” tickets. 8. During the hearing in this matter, the State Lottery introduced evidence (settlement reports and other documents) outlining the items of Respondent’s account. In summary, the evidence indicates that Mr. Forster’s account with the Lottery was billed $830.74 on October 13, 1995; billed $1,692.00 on February 16, 1996; credited $564.00 on February 23, 1996; and credited $197.40 on July 5, 1996, for a balance of $1,761.34. 9. The State Lottery’s evidence indicates, more specifically, that it billed Respondent’s account $830.74 on October 13, 1995. Mr. Forster does not dispute this billing. However, the Lottery’s accounting also indicates that, because of insufficient funds in Respondent’s bank account, this sum was charged back to the Lottery on October 16, 1995. Mr. Forster testified in this matter that he received no notice of insufficient funds and that he believes his records demonstrate that his account had sufficient funds. While this Judge finds no reason to question his veracity, Respondent conceded to at least one material inconsistency in his records. At any rate, Mr. Forster conceded his liability for the $830.74 billed on October 13, 1995. 10. Looking to the 2 items the Lottery credited to Respondent’s account, Mr. Forster does not dispute these credits. The credits are for unsold, complete and partial ticket packs. Because the Lottery encountered problems with its computer system and its on-line contractor, the actual accountings of these credits were delayed. 11. The final item of account the State Lottery alleges is a bill for $1,692.00 charged February 16, 1996. Respondent disputes this sum. The preponderance of the evidence establishes that this sum is for the period November 1, 1995, through February 4, 1996. The Lottery’s settlement report for February 4, 1996, states that Respondent purchased 6 packs of instant game tickets over this period at a cost of $300.00 each and that he was credited $108.00 for sales commission. A balance of $1,692.00 is reported, as a result. Respondent challenges the billing, asserting, during the hearing, that he recalls purchasing only 1-2 ticket packs during the period in issue. The preponderance of the evidence supports the Lottery’s claim. 12. The preponderance of the evidence establishes, accordingly, that Mr. Forster, personally, owes the Lottery the total sum of $1,761.34, after credits. 13. The preponderance of the evidence establishes also that the Arizona Department of Revenue holds a refund due Mr. Forster and his present wife, Linda Forster. 14. The parties stipulate in this matter that, to the extent Mr. Forster is found to be personally liable to the Lottery for its claim, only that portion of the refund held by the Arizona Department of Revenue, due him and his wife, that is attributable to Mr. Forster’s income (68.6%) may be set off against his debt to the Lottery.

APPLICABLE LAW State law provides that the Arizona Department of Revenue shall establish a liability setoff program by which tax refunds may be used to satisfy debts that a taxpayer owes this State. Arizona Revised Statutes (“A.R.S.”) §42-1122(A). In doing so, the Department of Revenue matches information submitted by agencies or courts with taxpayers who qualify for tax refunds. A.R.S. §42-1122(C). Upon confirming matched information with an agency, the taxpayer is notified of the intention to set off the refund due the taxpayer against the taxpayer’s debt to this State. A.R.S. §42- 1122(E). The taxpayer has the right to appeal the matter and challenge the validity of the State’s claim. Id. Here, the Lottery seeks a set off against a tax refund due a retailer. The Commission licenses retailers to sell to the public lottery tickets issued by the State Lottery. Arizona Administrative Code (“A.A.C.”) R19-3-101(5) and (7). The license may be issued to an applicant doing business as an individual, or to a corporation or other business entity. A.A.C. R19-3-201. If a corporation, the applicant must submit evidence to the Commission that it is in good standing with the Arizona Corporation Commission or the Secretary of State. A.A.C. R19-3-201(d). Once a license is issued, it expires “3 years from the license issuance date by operation of law.” A.A.C. R19-3-201(J)(1). There are two types of tickets issued by the Lottery: instant game tickets and on-line tickets. Tickets for instant games are in issue in this matter. The Lottery pays each retailer a commission of 6 1/2% of the price of each instant lottery ticket it sells. A.A.C. R19-3-205(C). Instant lottery tickets are issued in packs, or groups, bearing a common identification number. A.A.C. R19-3-701(6). The Lottery bills each retailer for instant ticket packs “45 days after a pack is activated or after 85% of winning tickets in the pack are validated, whichever occurs first.” A.A.C. R19-3-205(A)(2). Provision R19-3-205 adds:

3. Within 30 days before the announced end of each instant game, the Lottery . . . shall collect unopened full packs of tickets in a retailer’s possession. The Lottery shall credit to the retailer, within 60 days following the announced end of the instant game, the net dollar value of any unopened full packs of tickets collected by the Lottery. All opened partial packs of tickets shall remain in the retailer’s possession and may be sold before the end of the 180-day redemption period following the announced end of game. *** 5. A retailer shall follow a schedule established by the Lottery for payment of all amounts due according to a statement or invoice provided by the Lottery. The retailer shall pay the amount due to the Lottery by an electronic transfer of funds. 6. A retailer shall deposit funds in a timely manner into a bank account from which an electronic transfer will be made to the Lottery. *** 7. If a retailer’s payment is returned to the Lottery for insufficient funds or any other reason, the retailer shall deliver a certified check, cashier’s check, or money order or make a direct deposit to the Lottery’s bank account before the next payment is due. ***

Finally, the Lottery may conduct investigations to verify compliance with the statutes and regulations it is charged to enforce. Accordingly:

A retailer shall keep all invoices, records, bills and other papers and documents relating to the purchase, sale, and validation of Lottery products that are kept in the normal course of business for tax purposes for 5 years. . . .

A.A.C. R19-3-207(C).

CONCLUSIONS OF LAW 1. The Lottery has jurisdiction over Respondent and the subject matter of this case under A.R.S. §5-501, et seq. 2. The State Lottery has the burden of demonstrating by a preponderance of the evidence that its claim against Mr. Forster, personally, is valid, and, if so, that a refund due Respondent, which is held by the Arizona Department of Revenue, may be set off against the debt. Cf. Culpepper v. State of Arizona, 187 Ariz. 431, 437-38, 930 P.2d 508 (Ariz. App. 1996). Proof by “preponderance of the evidence” means that the evidence is sufficient to persuade the finder of fact that the proposition is “more likely true than not.” In re Arnold and Baker Farms, 177 B.R. 648, 654 (9th Cir. BAP (Ariz.) 1994). It “is evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.” Black’s Law Dictionary 1182 (rev. 6th ed. 1990). 3. Mr. Forster’s assertion that he is not personally responsible for the Lottery’s claim is unavailing. 4. The State Lottery sustains its burden of demonstrating by a preponderance of the evidence that its claim against Mr. Forster, personally, is valid, and that a refund due Respondent, which is held by the Arizona Department of Revenue, may be set off against the debt. Accordingly, Mr. Forster is personally responsible to the Lottery for the sum of $1,761.34, after credits.

RECOMMENDED DECISION In view of the foregoing, it is recommended that the Arizona Department of Revenue proceed, consistent with the foregoing findings and conclusions, with a set off . . . of the refund it holds due Mr. Forster against the debt he owes the State Lottery. Done this day, October 8, 1999.

______________________________________ Kip M. Micuda Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 1999, to:

Arizona Lottery Geoffrey Gonsher 4740 East University Drive Phoenix, Arizona 85034

ATTN: Laura Plimpton

By ___________________________

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Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826