On Nov 16th, the Board members present unanimously presented the following objections and remediations:

11VAC20-20-10

“Immediate family” means as follows:

For all charitable gaming other than electronic gaming, one’s spouse, parent, child, sibling, grandchild, grandparent, mother or father-in-law, or stepchild.

For electronic gaming, (1) spouse; and (2) any other person residing in the same household as an officer or employee and who is a dependent of the officer or employee or of whom the officer or employee is a dependent.

Charities should not be treated more poorly than casinos. It is understood that the update with respect to bingo requires going through the APA process, which should be undertaken. Nonetheless, this update to treat charities on par with casinos may, and should, be made regarding electronic gaming. 

“Reasonable and proper business expenses” means the same term as defined in Section 18.2-340.16 of the Code of Virginia. Salaries and wages of employees whose primary responsibility is to provide services for the principal benefit of an organization’s members shall not qualify as a business expense.

The Code provides that the Commissioner may qualify this as a business expense. To fail to do so is to fail to understand or care for the operation of charities. Certainly fraternal organizations pay staff to execute upon their fraternal function for their members and should do so.

11VAC20-20-20.D.2.

For electronic gaming, the minimum percentage shall be 25% 40% of its electronic gaming adjusted gross receipts.

Use of proceeds is intended help track that gaming proceeds are used for charity, not to squash charities.

11VAC20-20-20.E.

E. If an organization fails to meet the minimum use of proceeds requirement for charitable gaming other than electronic gaming, its permit may shall be suspended or revoked however the department shall not suspend or revoke the permit for charitable gaming of any organization solely because of its failure to meet the required percentage without having first provided the organization with an opportunity to implement a remedial business plan.

VDACS does not have authority to change regulations for bingo.

11VAC20-20-20.H.

H. If an organization fails to meet the minimum use of proceeds requirement for electronic gaming:

1. The social organization’s authorization to conduct electronic gaming may shall be revoked or suspended. However, the department shall not suspend or revoke the permit for charitable gaming of any organization solely because of its failure to meet the required percentage without having first provided the organization with an opportunity to implement a remedial business plan.

Why make revocation or suspension automatic? Why not enact a remediation plan process as there was with respect to bingo? Is VDACS trying to be punitive?

2. The qualified organizations permit for the conduct of electronic gaming only shall be revoked or suspended.

It is unclear what this provision is in reference to.

3. If an organization becomes dissolved for any reason, then the department shall either suspend or revoke its authorization to conduct electronic gaming.

It is unclear why this provision would be necessary. How could a dissolved organization have authorization to do anything?

4. If the authorization is suspended, the department shall set the terms of the suspension, which shall include the length of the suspension and a requirement that, prior to reinstatement of the permit, the organization shall submit a remedial business plan, approved by the department, to address the conditions that resulted in the suspension.

5. If an organization fails to meet the minimum use of proceeds requirement after having been suspended, the organization’s authorization shall be revoked. An organization whose permit is revoked shall be eligible to reapply for an authorization one year from the date of revocation. If the permit is revoked, the organization is required to reapply for an authorization and if the authorization was revoked less than 18 months prior to reapplying for a permit, then the organization shall submit a remedial business plan, approved by the department, to address the conditions that resulted in the revocation. The department, at its discretion, may issue the authorization if it is satisfied that the organization’s remedial business plan will result in meeting the use of proceeds requirement.

The rule in the first sentence is already addressed in subsection 1. The remainder of this provisions is adequately addressed in subsection G of this section, and there isn’t a clear justification to apply a different process.

11VAC20-20-30.G

Any contract or any other agreements with landlords, etc.

Language is insufficiently clear to put the public on notice. What would such “other agreements” that are not “contracts” include?

11VAC20-20-40.

C. If an organization’s charitable gaming permit is denied pursuant to 11VAC20-20-20 and 11VAC20-20-50, then its request for a new or renewal authorization to operate and conduct electronic gaming shall be denied by the department.

There may be reasons to deny a bingo permit that is not applicable to electronic gaming.

11VAC20-20-40.E.

1. A social organization shall designate a continuous area one or more areas within its primary location as its social quarters. A social organization’s social quarters shall not include any area that is included in the public space leased to a qualified organization so that the qualified organization may operate and conduct electronic gaming.

2. A social organization shall designate a continuous area one or more areas within its primary location as its public space. A social organization’s public space shall not include any area that is included in its social quarters. A social organization may lease its public space to a qualified organization so that the qualified organization may operate and conduct electronic gaming.

The Code permits non-continuous spaces. Why would VDACS create this restriction? If feels like VDACS just wants to pile on more and more restrictions wherever possible.

3. The primary location shall have a unique physical address established by the United States Postal Service and a certificate of occupancy issued by the city, county, or town where the building is physically located.

Each applicant is already required to disclose its address on its application, enabling the Agency to conduct its inspections. Why add more requirements? It feels like VDACS just wants to pile on more and more restrictions wherever possible.

4. The social organization’s principal place of business, as registered with the State Corporation Commission, shall be its primary location so long as the principal place of business is where the organization conducts its business. The operation and conduct of electronic gaming alone does not constitute the conduct of business for the purpose of determining a social organization's primary location. If the social organization is not registered with the State Corporation Commission, then the social organization’s primary location shall be (i) the location where the organization conducts its business and (ii) if requested by the department, confirmed by the affiliated national or state organization as the social organization’s primary location.

5. Upon request of the department, the social organization shall provide sufficient documentation to identify its primary location. If the social organization is unable or unwilling to provide such documentation, then the department shall may deny the social organization’s application for authorization to operate and conduct electronic gaming in accordance with 11VAC20-20-50.

11VAC20-20-40.K.

A social organization authorized to operate and conduct electronic gaming shall expend, at a minimum, 40% of its electronic gaming adjusted gross receipts for those lawful religious, charitable, community, or educational purposes for which the organization is specifically chartered or organized.

This is duplicative.

11VAC20-20-40.M.8.

M. A social organization authorized to operate and conduct electronic gaming shall:

8. Not violate a provision of or fail to meet a requirement of the Charitable Gaming Law or a regulation adopted pursuant thereto.

This is too broad and open ended, and therefore onerous and unreasonable. It matters because Section P provides for revocation for failure to comply with Section M. The Agency is certainly responsible to oversee compliance with the law, however there are surely incidents of inadvertent, technical non-compliance that should not result in suspension or revocation.

11VAC20-20-40.N.3-4.

N. In addition to the requirements established in subsection M of this section, a social organization authorized to operate and conduct electronic gaming that is a fraternal organization shall: Maintain eligibility for its federal tax exempt status by continuing to meet the IRS criteria for that tax exemption

1. Serve a fraternal purpose;

2. Have a substantial program of fraternal activities, as defined by the IRS;

3. Be distinguishable from its chartering parent organization; and

4. Be largely self-governing and have its own officers, bylaws or other governing documents, and its own general financial independence from its parent organization.

What does this mean? Isn’t compliance with IRS rules sufficient? Are these meant to create rules for fraternals that differ from IRS tax exempt laws? If so, it is unclear why VDACS should have an interest in doing so, and what those differences are.

11VAC20-20-50.I.

I. If an organization fails to meet the minimum use of proceeds requirement, after having been suspended, the organization’s its authorization to operate and conduct electronic gaming may be suspended or shall be revoked. However, the department shall not suspend or revoke the permit of any organization solely because of its failure to meet the required percentage without having first provided the organization with an opportunity to implement a remedial business plan. An organization whose authorization is revoked shall be eligible to reapply for an authorization at the end of one year from the date of revocation. If the authorization is revoked, the organization is required to reapply for an authorization and if the authorization was revoked less than 18 months prior to reapplying for an authorization, then the organization shall submit a remedial business plan, approved by the department, to address the conditions that resulted in the revocation. The department, at its discretion, may issue the authorization if it is satisfied that the organization’s remedial business plan will result in meeting the use of proceeds requirement.

What would be the justification for making these regulations more punitive? Did the system currently in place providing for a remedial plan not work in any way? Is this just another way for the Agency to be more punitive towards the charities?

11VAC20-20-50.S.

Multiple sessions shall be permitted in a single premises as long as the sessions are distinct from one another and are not used to advertise or do not result in the awarding of more in prizes than is permitted for a single qualified organization. All leases for organizations to conduct charitable gaming or electronic gaming in a single premises shall ensure each session is separated by an interval of at least 30 minutes. Bingo sales for the subsequent session may take place during the 30-minute break once the building is cleared of all patrons and workers from the previous session. No other sales of charitable gaming supplies or electronic gaming may occur during the 30-minute break.

What would be the justification for making these regulations more punitive? Is this just another way for the Agency to be more punitive towards the charities?

11VAC20-20-70.D-E

D. All receipts from each session of bingo games, network bingo games, raffles, instant bingo, pull- tabs, seal cards, or electronic gaming shall be deposited by the second business day following the session at which they were received.

E. Raffle proceeds unrelated to a session shall be deposited into the qualified organization's charitable gaming bank account or a bank account authorized pursuant to subsection A of this section no later than the end of the calendar week following the week during which the organization received the proceeds.

What authority is granted to VDACS to promulgate a regulation regarding raffles?

11VAC20-20-90.

A. In addition to the records required by § 18.2-340.30 D of the Code of Virginia, qualified organizations conducting a session of bingo, electronic gaming, instant bingo, pull-tabs, seal cards, or raffle shall maintain a system of records for a minimum of three years following the close of the fiscal year, unless otherwise specified, for each session on forms prescribed by the department, or reasonable facsimiles of those forms approved by the department, that include:

6. An admissions control system for a session involving bingo and instant bingo, seal cards, and pull-tabs that provides a cross-check on the number of players in attendance and admission sales. This may include a ticket control system, cash register, or any similar system.

What authority is granted to VDACS to promulgate a regulation regarding instant bingo, pull-tabs, seal cards or raffles?

11VAC20-20-100

C. For electronic gaming, the annual report shall be accompanied by the audit and administration fee of one-half of one percent of the adjusted gross receipts and an additional fee of one-quarter of one percent for the fiscal year unless the fee has been remitted with quarterly reports, remitted by the manufacturer pursuant to § 18.2-340.31 of the Code of Virginia. While the manufacturer may pay the audit and administration fee for the organization, it is the sole responsibility of the organization to ensure the fee is paid in full.

The Code does not place this onus on the charities. Why would VDACS!?

11VAC20-20-110

C. Expenditures of charitable gaming funds for social or recreational activities or for events, activities, or programs that are open primarily to an organization's members and their families shall not qualify as use of proceeds unless substantial benefit to the community is demonstrated. Notwithstanding the foregoing, expenditures of charitable gaming funds for fraternal events, activities, or programs that are open primarily for a social organization’s members and their guests shall qualify as use of proceeds.

This is the primary purpose of social organizations. To fail to include this modification is a failure to understand fraternal organizations.

11VAC20-20-120

F. Other than with respect to electronic gaming, no member of an organization involved in the management, operation, or conduct of charitable gaming or electronic gaming shall provide any services to a landlord or a landlord’s agents or employees or be remunerated in any manner by the landlord of the premises or such landlord’s agents or employees where an organization is operating or conducting its charitable gaming or electronic gaming.

The preexisting regulation was a poorly codified rule, as, for example, it is unreasonable to restrict a landlord from engaging a plumber who happens to be a member of a charitable organization to provide plumbing services. Let’s not further this as we draft new rules.

11VAC20-20-120

H. The lease agreement between a social organization authorized to operate and conduct electronic gaming and a qualified organization that intends to lease or rent the social organization’s public space in order to operate and conduct electronic gaming:

1. Shall not require the qualified organization to acquire, lease, obtain, purchase, rent, or use an electronic gaming device from a specific manufacturer;

2. Shall not provide for the employment or compensation of any member of the social organization for the purpose of organizing, managing, or conducting electronic gaming;

3. Shall establish a fixed rental or lease payment amount that reflects the fair market rental value, as defined in § 18.2-340.16 of the Code of Virginia. The fixed rental or lease payment amount shall not be based on a percentage of the qualified organization’s electronic gaming receipts or the number of players at its electronic gaming session;

4. Shall not include a clause or condition that restricts the qualified organization from operating and conducting electronic gaming at the premises of another social organization; and

5. Shall not authorize the qualified organization to operate and conduct electronic gaming in the social organization’s social quarters.

I. A social organization that is permitted and authorized to operate and conduct electronic gaming that leases its premises to a qualified organization so that the qualified organization may operate and conduct electronic gaming:

1. Shall not restrict a qualified organization’s ability to conduct electronic gaming at the premise of another social organization;

2. Shall not lease or rent its social quarters to a qualified organization for the purpose of operating and conducting electronic gaming;

3. Shall not enter into any agreement that employs or otherwise compensates any person from the qualified organization to participate in the management, operation, or conduct of electronic gaming; and

4. Shall only lease or rent its premises by means of a fixed rental or lease payment amount that is established in the written agreement and reflects the fair market rental value, as defined in § 18.2-340.16 of the Code of Virginia. The fixed rental or lease payment amount shall not be based on a percentage of the qualified organization’s receipts from electronic gaming or the number of players at its electronic gaming session.

This looks like an earlier draft of what is now presented as subsection H.

11VAC20-20-170.C.

8. Violates any provision of the Charitable Gaming Law or regulation adopted pursuant thereto.

This is too broad and open ended, and therefore onerous and unreasonable.

 

Respectfully submitted,

Charles Lessin

Chairman

Charitable Gaming Board of the Commonwealth of Virginia