Bill Summary for S 498 (2021-2022)

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Summary date: 

Apr 5 2021

Bill Information:

View NCGA Bill Details2021
Senate Bill 498 (Public) Filed Thursday, April 1, 2021
Intro. by Johnson.

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Bill summary

Enacts Article 9, Video Gaming Terminals, to GS Chapter 18C. Organizes the Article into four Parts. Part 1 sets forth 13 defined terms. 

Part 2 authorizes the NC State Lottery Commission (Commission) to regulate the placement and operation of video gaming terminals (VGTs), defined as a device that is any electronic computerized video machine operated upon the insertion of cash, player's club card, or other form of promotional credit; is available to play; and which uses a video display and microprocessors in which the player can receive free plays or credits that can be redeemed for cash, excluding machines for amusement purposes only. Specifies that the Article does not grant the NC Education Lottery (Lottery) to use or operate VGTs. Requires the Commission to make available a VGT permit to be affixed to all approved VGTs, placement of which represents that the machine has been registered and approved for operation in the state. Requires the Commission to issue VGT permits annually each fiscal year. Requires manufacturers, licensed operators, and retail establishments to make VGTs and associated equipment available for inspection by the Commissioner. Requires game software to be certified by an independent lab prior to VGT permit issuance. Deems any terminal or machine that does not display a VGT permit illegal and subject to confiscation by any law enforcement officer. Provides parameters for decal placement; requires each station of a device to have a valid decal, as appropriate. Provides for permit issuance upon payment of the $150 annual terminal fee per terminal charged to licensed operators and retailers.

Establishes general restrictions as follows. Prohibits licensed operators from operating more than 12 VGTs within a 100-foot radius. Prohibits operation of 12 VGTs in any single fraternal establishment or any single truck stop establishment, as those terms are defined, and eight VGTs in any single retail establishment other than a fraternal establishment or truck stop establishment. Restricts VGT play to adults over 21. Prohibits local zoning designed to tax, relocate, limit, restrict, or eliminate VGTs or licenses, permits, or certifications for VGT manufacturers, operators, or location retailers. Caps the total amount of VGTs authorized to operate in the state at 34,000.

Requires segregated accounting of net terminal revenue, defined as money inserted into a VGT minus any prizes paid, due to the Commission by licensed retailers; deems net terminal revenue Commission property. Authorizes the Commission to require a retailer to establish a single, separate electronic funds transfer account. Provides for superiority of net terminal revenue due to the Commission over debts and demands of insolvent persons. Directs Commission action upon receipt of net terminal revenue, including the Commission retaining 15%, and providing, within five business days, 40% each to the licensed retailer and the licensed operator, and 5% to the licensed manufacturer. Directs the Commission to request for proposal a central monitoring system (CMS) from at least two suppliers of CMSs who are not licensed under the Article, and to use commercially reasonable efforts to adopt and implement a CMS as soon as possible, but no later than two years after the date the act becomes law. Provides for six parameters that must be enacted upon CMS adoption regarding linking a communication network through all VGTs.

Directs the Commission to issue manufacturer licenses, operator licenses, and retailer licenses associated with VGTs. Enumerates five licensure disqualifications, including felony conviction within the preceding 10 years, failure to meet the 21-year-old age requirement, or tax delinquency. Provides further licensure qualifications, including furnishing all required documentation specified, submission to a background investigation, and compliance with ethics standards provided. Places the burden of proof for establishing qualification upon the applicant. 

Establishes additional disqualifications for a retailer license, including that the establishment would be exclusively engaged in the business of possessing VGTs, or the person who resides in the same household as a member of the Commission, the Director, or any other Commission employee. Bars retail licensee from having any interest in any person or immediate family of a person with an operator license or manufacturer license. Requires licensed retailers to be allowed to possess only a VGT retailer license and not an operator or manufacturer license. Enumerates additional information that retailers must include in their applications. Requires a retailer to contract with only one licensed operator per location. Requires that a licensed retailer must hold an active license to sell beer, wine, liquor, or tobacco products. 

Sets annual fees at $50,000 for a manufacturer license, $25,000 for an operator license (with the above mentioned $150 annual terminal fee per terminal), and $1,000 for a retailer license (with the above mentioned $150 annual terminal fee per terminal), and allows for an additional one-time application fee of up to $1,000. Provides for nonpayment to constitute grounds for license revocation. Deems licenses renewable annually and not transferable or assignable. Requires annual terminal fees to be allocated to the county where the terminal is located to be used to mitigate the increased burden placed upon local communities from the impact of the regulated machines. 

Establishes criteria for entities seeking to become licensed operators, including incorporation or formation in the state for at least three consecutive years prior to the filing of an application. Requires licensed operators to purchase eight specified components from licensed manufacturers. Prohibits an operator from creating, developing, or assembling their own VGTs. Restricts operation to eight machines per retail location. Requires licensed operators to prepare monthly accounting reports for each VGT. Further requires licensed operators to file locations of establishments in which VGTs are located and requires such establishments to be licensed. Bars from licensure establishments located within 500 feet of a church, public school, or nonpublic school at the time of licensure.

Prohibits a licensed manufacturer from creating, developing, or assembling any major component exclusively for one operator. 

Part 3 provides for permitted VGTS, including video poker, video blackjack, and video games based on or involving matching different pictures, words, numbers, or symbols. Requires licensed operators to submit monthly reporting to the Commission on each terminal, with specified content. Requires the minimum payout to a user over the lifetime of the VGT to be 85%. 

Requires written contracts between licensed operators and licensed retailers, which must include three specified terms, including a minimum five-year term and equal shares of net terminal revenue after taxes. Prohibits offering anything of value to a licensed retailer or employee in exchange for allowing the licensed operator to place VGTs in the establishment.

Part 4 grants the Commission and any law enforcement agency enforcement authority under the Article, including inspection of an establishment of a licensee at any time during normal business hours. Makes it a Class 1 misdemeanor to tamper with or damage a VGT with the intent to interfere with proper operation, or manipulate the outcome, payoff, or operation of a VGT with the intent to do the same. Makes it a Class 2 misdemeanor and grounds for license termination for a licensed operator to intentionally falsely report or fail to report the amount due required by the Commission. Makes intentional violation of GS 18C-206(a) (regarding VGT location restrictions) a Class 2 misdemeanor and subjects the licensee to termination of the license. Establishes a $5,000 mandatory penalty for licensed operators who intentionally violate GS 18C-208 (governing VGT permits).

Requires game software and other Commission-required components for all VGTs to be submitted by the licensed manufacturer to an independent, nationally recognized testing lab to test for compliance with industry standards and Commission rules and regulations. 

Adds to the Commission's powers and duties under GS 18C-114 to include adopting rules to implement GS Chapter 18C, including establishing reasonable regulation of VGTs. Adds authority to charge new Article 9 applicants fees. 

Makes conforming changes to except new Article 9 activities and machines from the general prohibitions of electronic machines and video gaming machines under GS 14-306.4 and GS 14-306.1A.