WSR 05-19-019

PERMANENT RULES

GAMBLING COMMISSION


[ Order 451 -- Filed September 9, 2005, 3:56 p.m. , effective October 10, 2005 ]


Purpose: The commission approved a reduced budget for the 2005-07 biennium. This rules package supports those budget reductions by removing credit and pricing restrictions between manufacturers and distributors. The commission received over one hundred written letters regarding this proposed rule change. Additionally, numerous members of the industry have testified at three commission meetings regarding whether they supported or opposed the changes. The following amendments were adopted regarding how distributors and creditors handle credit and pricing: (1) Pricing and credit restrictions between manufacturers and distributors has been removed; (2) manufacturers will no longer notify other manufacturers or the commission when a distributor is delinquent on an account; (3) gifts between manufacturers, distributors and operators as incentives to purchase products are now allowed; (4) operators and distributors may now use credit cards to make purchases, including purchases of gambling equipment; (5) operators may use credit for leases, rentals and license agreements; and (6) NSF checks will be handled between distributors or manufacturers and the commission will not get involved in the matter.

Citation of Existing Rules Affected by this Order: Repealing WAC 230-12-320, 230-12-330, and 230-12-345; and amending WAC 230-12-340 and 230-12-350.

Statutory Authority for Adoption: RCW 9.46.070.

Adopted under notice filed as WSR 05-13-116 on June 20, 2005, with a published date of July 6, 2005.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 2, Repealed 3.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 2, Repealed 3.

Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 2, Repealed 3.

Date Adopted: September 9, 2005.

Susan Arland

Rules Coordinator

OTS-7963.1


REPEALER

     The following section of the Washington Administrative Code is repealed:
WAC 230-12-320 Manufacture and distribution of gambling equipment and services -- Prohibited practices -- Gifts, promotional activities, and loans -- Exceptions.

OTS-7964.1


REPEALER

     The following section of the Washington Administrative Code is repealed:
WAC 230-12-330 Availability of gambling equipment and related products and services--Prices--Contracts--Discounts--Restrictions -- Exceptions.

OTS-8103.1


REPEALER

     The following section of the Washington Administrative Code is repealed:
WAC 230-12-345 Leases, rentals, and license agreements -- Requirements -- Restrictions.

OTS-7976.2


AMENDATORY SECTION(Amending Order 411, filed 4/18/02, effective 7/1/02)

WAC 230-12-340   Sale of gambling equipment, devices, supplies, paraphernalia, and related services -- ((Credit prohibited -- Exceptions)) Authorized transactions.   ((The use of)) Manufacturers and distributors must not offer credit to operators in the sale of gambling equipment, devices, related supplies or paraphernalia, and services ((is prohibited. Except as authorized by this section,)). Manufacturers and distributors must conduct all sales of such ((shall be transacted)) to operators on a cash basis. ((The following definitions, restrictions, and procedures apply to this section:)) "Cash basis" means full payment is received by the seller on or before actual delivery of the product or service to the purchaser.


Capital leases.

(1) All licensed manufacturers and distributors may sell gambling equipment such as dispensers, bingo blowers, roulette wheels, etc., and gambling-related support equipment through capital lease agreements or other financing arrangements to operators subject to the following conditions and requirements:

(a) The cost of a single item, or group of similar and related items included in the sale, exceeds one thousand dollars;

(b) The term of the contract does not exceed forty-eight months;

(c) All terms of the contract are in writing and copies of such agreements are provided to the commission within thirty days of execution;

(d) The manufacturer or distributor retains only a security interest in the item sold and cannot obtain any ownership interest in the licensee, or exercise any control over the use of the item in the licensed activity;

(e) The amount of payments is not based on the size or level of gambling activity and is determined by use of a standard amortization schedule for the term and stated interest rate;

(f) The interest rate charged by the contract is set at the time of sale and does not vary during the term of the contract; and

(g) The contract does not require the purchaser to directly or indirectly purchase any other products or services from the seller.


((Definitions.)) Rental or license agreements.


(2) ((The following definitions only apply to subsections (3) through (9) of this section:

(a) "Manufacturers and distributors" refers only to the manufacturers and distributors of pull-tabs, punch boards, and bingo supplies.

(b) A "cash basis" means full payment is received by the seller on or before actual delivery of the product or service to the purchaser;

(c) A "trade account" is a payment system that allows distributors to place orders for inventory or services from manufacturers or distributors and to make payment for such within a specific period of time after shipment of the product or completion of the service;

(d) "Prescribed time period" is the maximum period of time a distributor has to pay for purchases of goods or services made under trade account terms prior to being restricted to cash basis terms. The time period begins when a product is shipped or service completed and ends on the date payment is actually delivered to the manufacturer or distributor, or if delivered by the U.S. mail, the U.S. postmark date of the envelope containing the payment. For purposes of this section, prescribed time period means no later than sixty days after shipment of the products or completion of the services.


Authorized transactions.


(3) For purposes of this WAC title, the following transactions are authorized and shall not be deemed as credit or loans of money when applicable requirements are met:

(a))) Except for punch boards, pull-tabs, bingo paper, bingo supplies, playing cards, and other consumable gambling-related equipment or devices, manufacturers and distributors may lease or rent gambling equipment to operators. Manufacturers may also enter into license agreements with operators for use of the manufacturer's patented, copyrighted, or trademarked games.

(3) Manufacturers and distributors may only base fee structures for electronic bingo equipment on the number of times a device is used or the number of bingo sessions in which devices are used. Fees must not be determined by a percentage of sales, the number of bingo cards sold through the device, or the average amount a player spends on a device.


Check or credit card purchases.


(4) Operators may purchase((s of)) goods and services from manufacturers or distributors when paid for by checks, or credit card issued by a state and/or federally regulated financial institution that meet the requirements of WAC 230-12-350((;

(b) Purchases of goods or services by distributors from manufacturers or other distributors when utilizing trade account terms and the requirements of subsection (4) of this section are followed;

(c) Promissory notes between manufacturers and distributors for payment of debts incurred prior to the effective date of this section;

(d) Purchases made under capital lease agreements when the requirements of this section are followed;

(e))).


Exceptions.


(5) All transactions between manufacturers or distributors and tribal governments or companies certified to manage class III gambling activities operated under a tribal/state compact are exempt from all provisions of this section;

(((f))) (6) Charitable or nonprofit organizations licensed to conduct bingo may purchase bingo cards and bingo supplies from distributors and/or manufacturers and receive such without making immediate payment if payment is made, by check or cash, no later than thirty days after delivery of the product. ((If the distributor or manufacturer does not receive payment within thirty days, they must immediately restrict the licensee to sales on a cash on delivery basis until payment is received. Licensees paying for bingo supplies on terms other than a cash basis must document on the purchase invoice the date paid and the check number; and

(g) The sales of nongambling equipment, fixtures, supplies, or commodities to licensees are exempt from all provisions of this section when the requirements of WAC 230-12-330 are met.


Trade account conditions.


(4) Manufacturers and distributors may allow distributors to establish "trade accounts" to purchase gambling-related inventory or services without making immediate payment under the following conditions:

(a) Trade account terms, if offered to any distributor, shall be made available to all distributors without discrimination: Provided, That trade accounts may be restricted to distributors that:

(i) Meet objective credit criterion established by a manufacturer or distributor. Such criterion must be in writing, available to the commission for review, and provided to any distributor upon request. A manufacturer or distributor may include a distributor's payment history as a part of the trade account approval criterion;

(ii) Meet minimum purchase requirements established by the manufacturer: Provided, That the minimum purchase requirement shall not be greater than five hundred dollars per transaction;

(b) Trade account terms shall not allow a manufacturer or distributor to gain any ownership or financial interest in a licensee. This section is not intended to prohibit or restrict a manufacturer or distributor from gaining a security interest in inventory sold for credit, as authorized by the Uniform Commercial Code: Provided, That this section shall not allow a manufacturer to obtain an interest in inventory sold by any other manufacturer under trade account terms;

(c) A distributor shall make full payment for all goods or services purchased under trade account terms within the prescribed time period. Failure to pay within the prescribed time period may be deemed solicitation of credit by the distributor.


Procedures for past due accounts - notification and sales restrictions.


(5) When a distributor fails to pay for goods or services purchased under trade account terms within the prescribed time period, the creditor manufacturer or distributor shall comply with the procedures set forth below. Failure to comply with these procedures may result in the manufacturer or distributor being deemed to have extended credit to the distributor. The following procedures must be followed when a distributor fails to make required payments:

(a) Notify the delinquent distributor of failure to pay by telephone no later than the end of the next business day;

(b) Restrict sales of all goods and services to the delinquent distributor no later than the end of the third business day after the default: Provided, That sales may be made to a delinquent distributor on a cash basis only;

(c) Notify the commission and all licensed manufacturers and distributors in writing by letter, facsimile or e-mail no later than the end of the fifth business day after default. Written notification shall include at least the following:

(i) The distributor's name;

(ii) The invoice or shipping order numbers involved in the transaction;

(iii) The date the item was shipped or service was provided; and

(iv) Any other information requested by the commission.


Cash only sales to delinquent distributors.


(6) Upon receipt of notification from the manufacturer that a distributor has a delinquent account, manufacturers and distributors shall immediately cease sales, shipments of products, and providing services to the delinquent distributor on other than a cash basis.


Notification of payment on past due accounts.


(7) The manufacturer shall notify the commission and all manufacturers and distributors in writing by letter, facsimile or e-mail, no later than the next business day after receiving payment from the delinquent distributor for the outstanding account. Trade account sales may then resume with all manufacturers.

(8) The distributor that was placed on a credit hold shall notify the commission in writing by letter, facsimile or e-mail, no later than the next business day after payment has been made to the manufacturer in which they were delinquent.


Failure to pay promissory notes.


(9) A creditor manufacturer or distributor shall immediately notify the commission if a distributor fails to abide by the terms of the promissory note and the process being pursued to correct the situation.
))

[Statutory Authority: RCW 9.46.070. 02-10-003 (Order 411), 230-12-340, filed 4/18/02, effective 7/1/02; 98-21-009 (Order 365), 230-12-340, filed 10/9/98, effective 1/1/99. Statutory Authority: RCW 9.46.070 (14) and (20). 97-20-026, 230-12-340, filed 9/22/97, effective 1/1/98.]

OTS-7977.2


AMENDATORY SECTION(Amending WSR 97-20-026, filed 9/22/97, effective 1/1/98)

WAC 230-12-350   Use of checks and credit cards to purchase gambling equipment, products, and services -- Restrictions.   Checks and credit cards may be used by licensed operators and distributors to purchase gambling equipment, devices, related supplies or paraphernalia, and services in lieu of cash under the following conditions:


((What are the restrictions on checks utilized for payment of gambling products or services?))


(1) Checks and credit cards must be drawn on the licensee's business account: Provided, That personal checks and credit cards drawn on the account of an owner, partner, or officer or substantial interest holder of a corporate licensee may be accepted.

(2) Checks received by distributors from operators must be negotiable and dated on or before the delivery date of the product or service. Checks shall not be postdated.


((When must a check be deposited?))


(3) Checks shall not be held and must be presented for payment at the manufacturer's or distributor's bank within the prescribed time frames. Failure to present checks within the prescribed time period shall be prima facie evidence of extension of credit to the drawer licensee by the manufacturer or distributor. Prescribed time frames are as follows:

(a) Checks received from operators shall be deposited within ten calendar days after the date the product or service was delivered; and

(b) Checks received from distributors shall be deposited within ten days of the date received or, if delivered by mail, thirteen days from the postmark of the envelope containing the payment.


((What are the procedures for handling a dishonored check presented to a distributor by an operator?


(4) Checks from licensed operators that are initially returned by a bank for lack of sufficient funds may be deposited again if within five banking days after return by the bank. If dishonored by the bank a second time, the distributor shall:

(a) Deliver dishonored checks to an owner, manager, or officer of the licensee within seven banking days after return from the bank and demand payment in cash. If unable to deliver such checks to an owner, manager, or officer of the licensee within seven days, the distributor shall notify the commission; and

(b) Upon being presented with a check returned by the bank, licensees shall immediately replace such check with cash or a cash equivalent such as a money order, certified check, or other guaranteed negotiable instrument; or

(c) Failure of an operator to replace a check returned by a distributor with cash or a cash equivalent shall be prima facie evidence of solicitation of credit and must be reported to the commission by the distributor within seven days.


What are the procedures for handling a dishonored check presented to a manufacturer or distributor by a distributor?


(5) Checks from distributors that are initially returned by a bank for lack of sufficient funds shall be processed by manufacturers or distributors using the following procedures:

(a) Checks received for payment for a prepaid or COD transaction may be deposited again if within five banking days after return by the bank. If dishonored by the bank a second time, the manufacturer or distributor shall:

(i) Contact an owner, manager, or officer of the distributor within seven banking days by telephone or facsimile and demand payment by a certified check, postal money order, or other cash equivalent. If unable to contact an owner, manager, or officer within seven days, the manufacturer shall notify the commission;

(ii) Upon receipt of a cash equivalent to replace the dishonored check, the manufacturer or distributor shall return the check to the distributor by mail;

(iii) If a distributor that is presented a dishonored check does not immediately replace such check, the manufacturer or distributor shall cease all sales to the distributor and notify the commission within seven days. Failure to replace a dishonored check with cash or cash equivalent shall be prima facie evidence of solicitation of credit by the distributor.

(b) If payment is for a transaction completed with trade account terms, the manufacturer:

(i) May deposit the check again if the prescribed time period for payment has not passed; or

(ii) May contact an owner, manager, or officer of the distributor by telephone or facsimile and demand payment by a cash equivalent such as a certified check or postal money order;

(iii) If the bank clears the check or payment is otherwise received prior to the prescribed time period for payment, no further action is required; and

(iv) If the prescribed time period for payment has passed and the dishonored check is not replaced prior to such, the manufacturer shall comply with the procedures set forth in WAC 230-12-340 for failure to make timely payment under trade account terms.))

[Statutory Authority: RCW 9.46.070 (14) and (20). 97-20-026, 230-12-350, filed 9/22/97, effective 1/1/98.]

Washington State Code Reviser's Office