WSR 98-18-010

PROPOSED RULES

GAMBLING COMMISSION

[Filed August 21, 1998, 3:01 p.m.]

Original Notice.

Preproposal statement of inquiry was filed as WSR 98-15-004, with a published date of August 5, 1998.

Title of Rule: Sale of gambling equipment, devices, supplies, paraphernalia, and related services--Credit prohibited--Exceptions, WAC 230-12-340.

Purpose: This amendment would allow distributors to grant up to thirty-day credit terms for the sale of bingo paper and related supplies.

Statutory Authority for Adoption: RCW 9.46.070.

Summary: See Purpose above.

Reasons Supporting Proposal: Distributors have traditionally sold bingo paper and related supplies on credit to nonprofit organizations. In 1997, this rule changed to prohibit the sale on credit of all gambling equipment, including bingo paper. Some nonprofit organizations do not have full-time employees available to pay for bingo paper on a COD basis. This amendment would help ease the impact of the increased regulation in this area, yet still meet the intent of the original rule.

Name of Agency Personnel Responsible for Drafting: Susan Arland, Lacey, (360) 438-7654 ext. 374; Implementation: Ben Bishop, Lacey, (360) 438-7640; and Enforcement: Sherri Winslow, Lacey, (360) 438-7654 ext. 301.

Name of Proponent: Staff, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: See Purpose and Reasons Supporting Proposal above.

Proposal Changes the Following Existing Rules: See Purpose and Reasons Supporting Proposal above.

No small business economic impact statement has been prepared under chapter 19.85 RCW. Proposal is exempt under RCW 19.85.025(2), therefore, a small business economic impact statement is not required.

Section 201, chapter 403, Laws of 1995, does not apply to this rule adoption. This agency does not choose to make section 201, chapter 403, Laws of 1995, apply to this rule adoption.

Hearing Location: Silverdale on the Bay Hotel, 3037 Bucklin Hill Road, Silverdale, WA 98310, (360) 698-1000, on October 9, 1998, at 9:30 a.m.

Assistance for Persons with Disabilities: Contact Susan Green by October 2, 1998, TDD (360) 438-7638, or (360) 438-7654 ext. 302.

Submit Written Comments to: Susan Arland, Mailstop 42400, Olympia, WA 98504-2400, fax (360) 438-8652, by October 2, 1998.

Date of Intended Adoption: October 9, 1998.

August 20, 1998

Susan Arland

Public Information Officer

OTS-2296.2

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

WAC 230-12-340 Sale of gambling equipment, devices, supplies, paraphernalia, and related services--Credit prohibited--Exceptions. The use of credit in the sale of gambling equipment, devices, related supplies or paraphernalia, and services is prohibited. Except as authorized by this section, all sales of such shall be transacted on a cash basis. The following definitions, restrictions, and procedures apply to this section:

((~~What definitions apply to this section?~~))

(1) For purposes of this section, the following definitions apply:

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

(b) 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;

(c) "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 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 for all sales made on or after January 1, 1998.

((~~What transactions are exempt from the requirements of this section?~~))

(2) 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) Purchases of goods and services from manufacturers or distributors when paid for by checks 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 (3) 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 when such notes are issued under the conditions set forth in this section;

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

(e) 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; ((~~and~~))

(f) 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.

((~~Can distributors purchase gambling-related inventory or services on other than a cash basis?~~))

(3) 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:

((~~What restrictions apply to trade accounts?~~))

(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.

((~~What must a manufacturer or distributor do when a distributor fails to make payments for trade account purchases within the prescribed time period?~~ ))

(4) 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 and the commission 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 in writing 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 dollar amount of the delinquent account;

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

(v) A statement of whether the distributor has filed a complaint regarding billings and whether the amount owed is in dispute;

(vi) Any agreements between the parties to clear the debt, including terms, payment schedule, and any third party guarantors of the debt;

(vii) The interest rate or service charge, if such is charged;

(viii) Whether a security interest in the inventory or any other assets of the licensed distributor or individual owners of the distributor has been obtained or is in effect; and

(ix) Any other information requested by the commission.

((~~What action will the commission take after being notified in writing that a distributor has failed to make timely payment on a trade account?~~))

(5) If the director does not receive notice that the debtor distributor has corrected the conditions which caused the default prior to the end of the seventh business day after initial notice was received, all licensed manufacturers and distributors will be notified that such distributor has been restricted to cash basis terms. Initial notification shall be by telephone or facsimile on the next business day, followed by written notification within ten days. The manufacturer or distributor shall immediately notify the commission by telephone or facsimile upon receipt of payment. If notified prior to the end of the seventh business day after initially notifying the commission, the director will stop all proceedings and allow the reporting manufacturer or distributor to continue trade account terms without taking further action.

((~~What action shall manufacturers and distributors take after notification by the director that a distributor has been restricted?~~))

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

((~~How long will the restrictions last?~~))

(7) Any distributor that has been restricted by the director under this section shall remain restricted until all delinquent accounts with any reporting manufacturer or distributor are current and the director has been notified of such. The director shall utilize the following guidelines and procedures for removing trade account sales restrictions:

(a) First delinquent payment within a calendar year - The director shall notify all manufacturers by telephone or facsimile no later than the next business day after receiving notification that a delinquent distributor is current and that trade account sales may continue. Written notification shall be made within ten days; or

(b) Second and subsequent violations within a calendar year - The director may restrict a distributor to a cash basis for a period not to exceed sixty days beginning on the date of notification that a delinquent distributor is current. In this event, the director shall notify the delinquent distributor and all manufacturers and distributors in writing of the date when trade account terms may be continued.

((~~What are the procedures and restrictions for gambling-related purchases occurring prior to January 1, 1998?~~))

(8) Gambling-related products or services purchased by distributors prior to January 1, 1998, shall be paid in full no later than March 31, 1998. Any distributor failing to comply with this requirement shall be restricted to making purchases on a cash basis until all such accounts are paid in full. The director shall utilize the procedures set forth in subsections (5), (6), and (7) of this section to impose or remove restrictions imposed under this subsection: Provided, That creditor manufacturers and distributors may convert amounts owed by distributors at January 1, 1998, into a promissory note utilizing the procedures and restrictions set forth in this section.

((~~What are the procedures and restrictions for conversion of trade debt outstanding at the effective date of this section to a promissory note?~~))

(9) Manufacturers and distributors who elect to convert amounts owed from distributors at the effective date of this section to a promissory note shall utilize the following procedures and restrictions:

(a) Written notification of conversion to a promissory note, including a copy of such note, must be received by the commission no later than March 31, 1998;

(b) The promissory note shall not grant the manufacturer the ability to influence the management of the distributor's business: Provided, That in the case of legal bankruptcy, the terms and conditions of a bankruptcy order shall govern;

(d) Manufacturers or distributors electing to grant promissory notes authorized by this section shall make such provisions available to all distributors with outstanding balances at the effective date of this section under the same conditions and terms;

(e) Terms of the promissory note shall require the following:

(i) Minimum monthly payment of the principal;

(ii) Interest rate, if any is imposed;

(iii) Full description of all collateral; and

(iv) Adequate details of the procedures to be followed for late payments and/or default;

(f) A creditor manufacturer or distributor shall immediately notify the commission if a distributor fails to abide by the terms of the note and the process being pursued to correct the situation. The director may, depending upon circumstances, impose restrictions set forth in subsections (5), (6), and (7) of this section on purchases under trade account terms for the delinquent distributor.

((~~What are the restrictions and procedures governing the use of capital lease agreements?~~))

(10) 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.

[Statutory Authority: RCW 9.46.070 (14) and (20). 97-20-026, � 230-12-340, filed 9/22/97, effective 1/1/98.]