WSR 14-09-039

PROPOSED RULES

[Filed April 11, 2014, 11:56 a.m.]

Preproposal statement of inquiry was filed as WSR 13-24-054.

Title of Rule and Other Identifying Information: Amending WAC 230-03-025 Applying for a manufacturer's special sales permit and new section WAC 230-16-187 Accounting records for manufacturer's special sales permit holders.

Hearing Location(s): Grand Mound Great Wolf Lodge, 20500 Old Highway 99 S.W., Grand Mound, WA 98531, (360) 273-7718, on July 11, 2014, at 9:00 a.m. NOTE: Meeting dates and times are tentative. Visit our web site at www.wsgc.wa.gov and select public meeting about ten days before the meeting to confirm meeting date/location/start time.

Date of Intended Adoption: July 11, 2014.

Submit Written Comments to: Susan Newer, P.O. Box 42400, Olympia, WA 98504-2400, e-mail Susan.Newer@wsgc.wa.gov, fax (360)486-3625, by July 1, 2014.

Assistance for Persons with Disabilities: Contact Michelle Rancour by July 1, 2014, TTY (360) 486-3637 or (360) 486-3453.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The proposed change would provide clarity as to which businesses would be required to get a manufacturer's license and which would qualify for a manufacturer's special sales permit.

Staff is adding language to answer questions received from applicants about this permit:

Staff is also proposing a new rule outlining recordkeeping requirements for permit holders.

Statutory Authority for Adoption: RCW 9.46.070(4).

Statute Being Implemented: Not applicable.

Name of Proponent: Washington state gambling commission, governmental.

Name of Agency Personnel Responsible for Drafting: Susan Newer, Lacey, (360) 486-3466; Implementation: David Trujillo, Director, Lacey, (360) 486-3512; and Enforcement: Mark Harris, Assistant Director, Lacey, (360) 486-3579.

Rules Package: WAC 230-03-025 Applying for a manufacturer's special sales permit and 230-16-187 Accounting records for manufacturer's special sales permit holders.

Involvement of Small Businesses: We currently have no active special sales permit holders. Instead, we notified former special sales permit holders. They were provided notification of the proposed changes on March 25, 2014. Additionally, notification included discussion during study sessions in February and March 2014. We also filed the CR-101 on November 26, 2013, under WSR 13-24-054.

If filed for discussion in April 2014, the rules package will be discussed at the April and May 2014 study sessions. Comments will be solicited at the open, public meeting of the gambling commission on April 10, 2014. The rules package was published in the March 2014 edition of the Focus on Gambling newsletter. The rules package will also be posted on our web site for viewing by the general public. This process provided small businesses opportunities to comment on the development of the rules.

1. Description of the Reporting, Recordkeeping and Other Compliance Requirements of the Proposed Rule: We closely control the use and possession of gambling equipment, as defined in WAC 230-03-200. Manufacturer special sales permit holders are authorized to sell gambling equipment they manufacture. With the rule changes proposed, special sales permit holders will be required to keep the following accounting records: Sales invoices of all gambling equipment sales in the format we require, agreements relating to the sale or lease of gambling equipment, check register, cash receipts, and copies of all financial data that supports tax reports to governmental agencies.

Gambling equipment must be approved by us and is tracked through identification stamps (I.D. stamps) that the special sales permit holders purchase from us. The I.D. stamps are affixed to the gambling equipment they produce for sale to licensees. These I.D. stamps are a way for us to know the gambling equipment in use is approved. The permit holders must keep records of the I.D. stamps they purchase and attach to equipment as outlined in our rules.

Special sales permit holders will also have to comply with the manufacturing requirements of gambling equipment outlined in chapter 230-16 WAC. These requirements protect the public from being defrauded and prevent cheating and other schemes.

This rules package will also require special sales permit holders to submit activity reports to us twice a year, in which they report the gross sales of gambling equipment in Washington.

2. Kinds Of Professional Services That a Small Business is Likely to Need in Order to Comply: All businesses, as an ordinary course of doing business, maintain a check register, sales invoices, cash receipts register, etc. Special sales permit holders will be required to maintain these same accounting records.

In addition to these accounting records, special sales permit holders will need to record I.D. stamps purchased and affixed to gambling equipment and submit two reports to us a year containing their gross gambling equipment sales per quarter.

Given that each business owner has a different skill level and the volume of business will vary, a bookkeeper may be needed to maintain the accounting records and complete the activity report for the business.

Each special sales permit holder will have varying sales volume based on the type of gambling equipment they manufacture, and may not exceed $25,000 in gambling equipment sales in the permit year. For example, one roulette wheel sale may account for a $25,000 sale, whereby it would take multiple sales of punch boards or pull-tabs to get to $25,000. For special sales permit holders with a larger volume of sales, there will, of course, be more records to maintain.

3. The Actual Costs to Small Businesses of Compliance, Including Costs of Equipment, Supplies, Labor and Increased Administrative Costs: We cannot determine the actual costs to small businesses of complying with the additional gambling equipment compliance, reporting and recordkeeping requirements as proposed by this rule package because there are too many variables based on the specific gambling equipment manufactured and competency or experience of the staffing of the business.

Future special sales permit holders may already have knowledgeable staff, such as a bookkeeper, to comply with recordkeeping and accounting functions and with the gambling equipment approval process.

If the future special sales permit holder does not have knowledgeable staff, then they would likely need to hire a bookkeeper to assist them with the recordkeeping and accounting functions. We cannot determine the actual costs to small businesses for hiring a bookkeeper to assist with the recordkeeping and accounting functions because there are too many variables that would play into determining the costs, such as experience level needed, size of the company, sales volume, and location of business.

If a future special sales permit holder does not have the equipment necessary to comply with gambling equipment standards, we cannot determine the actual costs to small businesses to comply. Variables that prevent us from determining the actual costs for compliance include, but are not limited to, the type of gambling equipment manufactured, the level of changes or reconfiguration of existing manufacturing equipment needed to comply, ability to lease new manufacturing equipment versus purchase, etc.

4. Whether Compliance with the Rule, Based on Feedback Received from Licensees, will Cause Businesses to Lose Sales or Revenue: We have not yet received feedback from former permit holders indicating that compliance with this rule will cause businesses to lose sales or revenue.

The manufacturer's special sales permit is a one-time, one year permit for gross sales of gambling equipment during the permit year to be more than $25,000. This affords small businesses an opportunity to see if the market in Washington will support future sales before getting a more expensive manufacturer's license.

Over the last ten years, we have issued twenty permits. One permit holder got a manufacturer's license after their permit expired and three permit holders received a fundraising equipment distributor's license after their permit expired.

5. A Determination of Whether the Proposed Rule will have a Disproportionate Impact on Small Businesses: The statutory method for determining disproportionate impact is: The costs of compliance for a small business must be compared with the cost of compliance for ten percent of businesses that are the largest businesses required to comply with the proposed rule using one or more of the following as a basis for comparing costs:

We cannot make this determination because we do not track the size of the businesses that apply for special sales permits. We cannot determine the costs, if any, to comply with the gambling equipment standards in the state because it depends upon the type of gambling equipment they will produce. Lastly, we do not know if a potential special sales permit holder will already maintain the records we require as a normal course of their business or have to hire additional help.

The permit is only valid for one year and limits gross sales to $25,000 during the permit year.

In the last ten years, we have issued twenty special sales permits. Four were to companies out of the country, such as the United Kingdom, Russia, and England. Nine were out-of-state, but in the United States. The remaining seven were to companies located in Washington.

a. Reducing, modifying, or eliminating substantive regulatory requirements: We have proposed reduced recordkeeping requirements for special sales permit holders than what is required for manufacturers.

b. Simplifying, reducing, or eliminating recordkeeping and reporting requirements: We have proposed reduced recordkeeping requirements for special sales permit holders compared to what is required from manufacturers.

c. Reducing the frequency of inspections: Unless we receive a complaint, we do not have routine inspections we perform on special sales permit holders. The special sales permit is a one-time, nonrenewable permit.

d. Delaying compliance timetables: Reporting violations are given additional compliance time through the Paperwork Reduction Act.

e. Reducing or modifying fine schedules for noncompliance: For reporting requirements, first-time reporting violations are afforded seven days to come into compliance prior to being assessed civil or administrative penalties.

f. Any other mitigation techniques including those suggested by small businesses or small business advocates: We delayed the effective date of the proposed rule package to allow potential special sales permit holders more time to comment and gain an understanding of the new rules.

7. A Description Of How the Gambling Commission will Involve Small Businesses in the Development of the Rule: The proposed special sales permit rule change was published in the March 2014 edition of our Focus on Gambling newsletter and was discussed at the February and March 2014 commission study session meetings, which were open to the public. We plan on discussing the rule at the April 2014 study session. The public will be able to provide public testimony on the rules package at the commission meeting on April 10, 2014. On March 25, 2014, we sent notification letters of the proposed rules package to six former special sales permit holders to solicit their feedback. The proposed rules package is also posted on our web site for public comment.

8. A List Of Industries That will be Required to Comply with the Rule: See code 7132.

9. An Estimate of the Number of Jobs That will be Created or Lost as the Result Of Compliance with the Proposed Rule: Keeping in mind that the special sales permit is a one-time permit that is only valid for one year and/or gross sales up to $25,000 during the permit period, the number of jobs that would be potentially created or lost would be minimal.

A copy of the statement may be obtained by contacting Susan Newer, Rules Coordinator, Washington State Gambling Commission, P.O. Box 42400, Olympia, WA 98504, phone (360) 486-3466, fax (360) 486-3625, e-mail Susan.Newer@wsgc.wa.gov.

A cost-benefit analysis is not required under RCW 34.05.328. The Washington state gambling commission is not an agency that is statutorily required to prepare a cost-benefit analysis under RCW 34.05.328.

April 11, 2014

Susan Newer

Rules Coordinator