16 TAC §402.568
The Texas Lottery Commission adopts new §402.568, concerning
distribution of proceeds for charitable purposes, with changes to the proposed
text published in the July 15, 1997 issue of the
Texas Register
(22 TexReg 6548). The changes are to correct a drafting
mistake in subsection (a) and to delete the phrase "prevailing market conditions"
in subsection (f). Subsection (a) incorrectly included the phrase "gross
percent of" in the phrase "six percent of gross percent of gross receipts."
The phrase "gross percent of" is eliminated. The agency does not believe
this is a substantive charge since "gross percent of gross receipts" is equivalent
to "gross receipts." Subsection (f) now contemplates, in part, the reduction
or disallowance of any cost of goods expense item which is not reasonable
and necessarily expended in connection with the conduct of any game of bingo.
The new section allows licensed authorized organizations to have a more
accurate amount of net proceeds derived from the conduct of bingo available
for distribution for charitable purposes, as contemplated by House Bill 2086,
75th Legislature, Regular Session.
The new section requires licensed authorized organizations to make charitable
distributions, defines certain terms, requires licensed distributors to furnish
certain information to licensed authorized organizations, and authorizes
the bingo operations director to reduce or disallow a particular cost of
goods expense item.
Comments were received regarding the proposed provision that allows the
bingo operations director to reduce or disallow any cost of goods expense
item which is not adequately supported or is not consistent with prevailing
market conditions. Several commenters indicated that the phrase "prevailing
market conditions" is too broad, undefined, subject to fluctuation based
on the specific market, and, in essence, envisions or encourages ratesetting
by the Commission. Several commenters believe the Commission has exceeded
its statutory authority in rejecting a cost of goods expense item which is
inconsistent with prevailing market conditions because the commenters believe
pertinent provisions of the Bingo Enabling Act grant the Commission authority
to set prices at the retail level but not at the wholesale level.
One commenter objects to the requirement that the cost of goods expense
item be "adequately supported" if the phrase "adequately supported" encompasses
more than the enumerated items in 402.568(e) because the commenter believes
there has been no notice of what constitutes "adequate support" for justifying
a Commission action to reject or reduce a cost of goods expense item.
One commenter believes the proposed requirement to furnish on all invoices
the serial number of all disposable bingo paper sold would have an adverse
effect on distributors and manufacturers and therefore, does not agree with
the proposed rule's representation that there will be no effect on small
businesses. This commenter suggests that if the Commission believes the requirement
to include serial numbers on invoices is necessary for auditing purposes,
the requirement should be "phased-in" over a six month period in order to
enable distributors who do not already include the serial numbers on invoices
to make the necessary preparations to do so. Another commenter supported
the proposed requirement of including serial numbers on invoices.
Commenters against certain provisions of the rule: K&B Sales, Inc.
d/b/a Goodtime Bingo, Thompson Allstate Bingo Supply, Inc., and Bingo Interest
Group.
While the agency acknowledges that there may be an impact on distributors
who do not already include serial number information on invoices, the agency
believes the benefits of improved accountability and audit capabilities outweigh
any impact of complying with this requirement. The agency also agrees with
the commenter's suggestion that a "phase-in" period should exist. However,
the agency believes that such a "phase-in" can occur during the time between
adoption and an effective date for the rule of October 1, 1997.
The agency agrees with the comments regarding the use of the phrase "prevailing
market conditions" in subsection (f) and revises that section to read as
follows: "The director of the bingo operations division or his designee may
reduce or disallow any cost of goods expense item which is not adequately
supported or is not reasonable and necessarily expended in connection with
the conduct of any game of bingo." The agency believes that this language
is more specific, less ambiguous, not subject to fluctuation based on the
specific market, and is supported by the Bingo Enabling Act, §19(c).
The new section is adopted under Texas Civil Statutes, Article
179d, §16(a) and Texas Government Code, §467.102 which provide
the Texas Lottery Commission with the authority to adopt rules for the enforcement
and administration of the Bingo Enabling Act and the laws under the Commission's
jurisdiction, and the Texas Government Code, Chapter 2001, which provides
for the adoption of administrative rules.
§402.568.Distribution of Proceeds for Charitable Purposes.
(a)
Before the end of each quarter, each licensed authorized
organization shall disburse for charitable purposes an amount not less than
35 percent of the organization's adjusted gross receipts from the last preceding
quarter, less the amount of authorized expenses not to exceed six percent
of gross receipts.
(b)
If a licensed authorized organization fails to meet the
requirements of this rule for a quarter, the commission in applying appropriate
sanctions may consider whether, taking into account the amount required to
be distributed during that quarter and the three preceding quarters and the
charitable distributions for each of those quarters, the organization has
distributed a total amount sufficient to have met the 35 percent requirement
for that quarter and the three preceding quarters combined.
(c)
For purposes of this rule, adjusted gross receipts means
gross receipts less the amount of cost of goods sold by an organization and
the prizes paid in the preceding quarter.
(d)
Cost of goods sold by an organization is the actual cost
of disposable bingo paper, instant bingo tickets, or pull-tab bingo games
purchased by the organization in the preceding quarter. The cost of goods
sold shall accurately reflect all discounts and returns realized by the organization.
Each licensed authorized organization shall maintain, for a period of not
less than four years, all invoices, credit memos, and all other supporting
documentation for substantiating the cost of goods sold.
(e)
For all disposable bingo paper, instant bingo tickets,
and pull-tab bingo game sales made, returns accepted, and all other transactions,
each licensed distributor shall furnish the licensed authorized organization
a detailed invoice, credit memo, or other document, which shall include the
following information:
(1)
The authorized organization's name, address, and Texas
taxpayer identification number;
(2)
The address to which the shipment was delivered;
(3)
The date of sale or credit;
(4)
The quantity sold or credited;
(5)
The conditions of the sale or credit; and,
(6)
If the transaction involves disposable bingo paper:
(A)
The series number and serial number; and
(B)
The cut and collation.
(7)
If the transaction involves instant bingo tickets
or pull- tab bingo games:
(A)
The form number; and,
(B)
The serial/series number for each deal. Each distributor
shall maintain a copy of the documents described in this subsection for a
period of not less than four years.
(f)
The director of the bingo operations division or his designee
may reduce or disallow any cost of goods expense item which is not adequately
supported or is not reasonable and necessarily expended in connection with
the conduct of any game of bingo.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Issued in Austin, Texas, on September 8, 1997.
TRD-9711962
Kimberly L. Kiplin
General Counsel
Texas Lottery Commission
Effective date: October 1, 1997
Proposal publication date: July 15, 1997
For further information, please call: (512) 344-5123