The Department of Internal Affairs is appealing against a court ruling that found it acted wrongly when it penalised Pub Charity, a gaming machine operator, for spending too much on operating costs.
In 2009 Pub Charity breached the legal limit on operating costs by more than $280,000, prompting the department to suspend its licence for a day.
Pub Charity successfully challenged the penalty in the High Court.
Internal Affairs said the spending limit is there to ensure more money goes to community organisations and the judgement limits the its ability to penalise operators who break the rules.
Spokesperson Debbie Despard said the only other sanction is cancelling gaming machine licences and the department will appeal the ruling to clarify matters.