Executive Summary: As the Commonwealth of Virginia works to finalize rules and regulations for the play and taxation of skill game machines, it is critical that each of the issues raised in this document are addressed. Each issue, the suggested amendment, and the Distributor Comments are intended to provide clarity on key issues to benefit all skill game machine distributors. The changes and clarifications sought in this document ensure we maximize revenues for the Commonwealth of Virginia and small business owners particularly in the wake of the Covid-19 pandemic.

In this comments, we raise the immediate issues which require amendments. The justification and reasoning behind those changes are detailed below. It is critical that each skill game machine distributor clearly understands the proposed regulations and operates in a manner that conforms with the law and all applicable regulations.

ISSUE #1 & SUGGESTED AMENDMENT:

Current Regulation and Suggested Redline Changes to: 3VAC5-80-80 - Movement of Skill Game Machines

1. Skill game machines may be relocated from one qualified location to another qualified location or warehoused and subsequently placed in any qualified location provided however; from July 1, 2020 through September 30, 2020, a distributor may not relocate skill game machines in excess of 40% of the total number of skill games initially registered and available for play on June 30, 2020, per month; and from October 1, 2020 through July 1, 2021, a distributor may not relocate skill game machines in excess of 20% of the total number of skill games initially registered and available for play on June 30, 2020, per month, by any distributor.

Distributor Comments

The regulation as proposed appears to track the movement of skill game machines that are legitimately placed, taxed, and labeled as required by other proposed regulations. 

As the regulations are proposed, 3VAC5-80-80 does not increase the tax, change the number of games, or enhance the ability of the taxing authority to monitor skill game machines. 

This regulation greatly increases the bureaucracy needed to regulate this industry, but; does not enhance the enforcement of taxation. Properly labeled machines are already subject to reporting monthly and machines that are not properly labeled or placed in qualified locations are already penalized in other proposed regulations. 

Additionally, as we are all aware, neither the administration nor the legislature, could anticipate then, nor anticipate now, the depth and the breadth of damage being caused daily to local businesses. With most restaurants and bars still shutdown, neither location owners nor skill game distributors can effectively or economically plan when or if these businesses will reopen.

Consequently, skill game machine distributors will need additional time to assess the market and must be afforded the flexibility to freely return games to and from their warehouse facilities back to the marketplace as the economy and restaurant and bars begin to reopen. Current language contained within the proposed regulations initiates an artificial cap on the number of skill game machines available for movement out of a warehouse or between locations. These proposed regulations would leave all skill game distributors with no choice but to drastically reduce the number of skill game machines available for play on June 30, 2020.

We would suggest the above red-line language revisions which increases the percentage of games that can be moved during the first three months to remove skill game machines not available for play from the market and give any Distributor greater flexibility to return skill game machines to and from the market. Beginning on October 1, the amended language would allow for 20% of the total number of skill games initially registered and available for play on June 30, 2020, per month, to be moved or relocated. Increasing the ability to move skill game machines increases the ability for the industry to adapt to unforeseen market concerns, like another Covid-19 outbreak.

ISSUE #2 & SUGGESTED AMENDMENT:

3VAC5-80-130 - Referral to commonwealth attorney.

In the event that the authority determines that an illegal gambling device is located in a retail licensed establishment or truck stop, such skill game may constitute illegal gambling activity pursuant to § 18.2-331 of the Code of Virginia, and the authority shall refer such allegation to the Commonwealth's Attorney for the jurisdiction in which the skill game is located.

Distributor Comments

In order to protect the market and ensure compliance with all regulations and laws, it is crucial that 3VAC5-80-130 more clearly explain that any skill game operated for play by the public which awards any prize redeemable for cash in the Commonwealth must be operated within an ABC retail establishment or truck stop. Any games outside of those establishments shall be considered illegal and the owners of those games and establishments are undermining the legislation and as such will be presented to the Commonwealth Attorney for prosecution. Without absolute rigid enforcement of this clause, nefarious Manufacturers, Operators, and Locations would simply open without an ABC license, or drop their current ABC license in order to operate without paying the tax per terminal.

This behavior would be a large stain on the efforts by the Administration, the Legislature, the Tax Department and the ABC greatly diminishing their efforts to help small businesses in Virginia. 

ISSUE #3 & SUGGESTED AMENDMENT:

Suggested Redline Amendment to: 3VAC5-80-60 - Labeling of skill game machines

1. No later than July 20, 2020, the distributor of each skill game placed in an ABC retail licensed establishment or truck stop that they have registered pursuant to 3VAC5-80-50 shall cause to be adhered to each skill game labels as prescribed by the Authority Bureau of Law Enforcement. The authority shall provide the required labels. All labels shall be adhered on the front and rear top panel of all skill games in a conspicuous and visible location to the authority, its law enforcement agents, and players of the game. For added compliance, a third sticker must be adhered inside the locked front door panel. Any skill game without the requisite labels adhered to the skill game machine by July 20, 2020, shall be in violation of this chapter.

Distributor Comments

Having participated in multiple regulatory game labeling or stickering programs across the nation and where asset chain of custody is important to maintain, we have found it practical for many reasons to affix three labels to the same piece of property with the same identity number for skill game machines.

We suggest placement on:

2. 1. 1. Front of the terminal for easy view of inspection.
      2. Inside the locked front door panel. This label is protected from vandalism.
      3. Rear top panel of the terminal which is somewhat protected from vandalism.

The cost to for the additional stickering is de minimis and will eliminate any excuse not to have a sticker on a game which is out for play in the market. Further we believe labels with QR codes embedded will help law enforcement verify authenticity and they are more difficult to copy or produce fraudulently.

ISSUE #4 & SUGGESTED AMENDMENT:

Suggested Redline Amendment to: 3VAC5-80-50 - Initial registration and monthly reporting.

3. Each distributor shall, beginning in the month of August 2020, and no later than the 20th of the succeeding month file with the Authority Bureau of Law Enforcement on such form prescribed by the authority the following requisite information.

Distributor Comments

 The legislation states that the taxation for skill games begins July 1^st, 2020 through June 30^th, 2021. All other businesses file their state sales taxes on the 20^th of the month. By using the 20^th of each month for both Tax Payments and Records submission this allows for the normal business practice of making skill game machine collections every two weeks and as such allows time for accurate reconciliation and tax payments. Any date earlier would not allow for the collection and remittance or accurate data. Payments and

Record submission for July would be on August 20^th and repeat monthly for 11 consecutive months.

ISSUE #5:

3VAC5-80-70 - Initial registration and monthly reporting.

3. No distributor shall locate more than six skill game machines at any ABC retail licensed establishment or more than 12 skill game machines at any truck stop.

Distributor Comments

During the legislative process, we had proposed keeping the number of skill games in locations to 5 terminals within any retail location and 10 terminals within any truck stop. It is our belief the number proposed in the regulations is sufficient. Raising this number substantively has the potential to create destination gaming facilities which was not the intention of this emergency legislation. Rather, the intent was to help those local small business which were affected. We believe increasing the number of terminals that have been proposed in these regulations would foster the growth of mini-casinos or slots parlors.