Part 9. TEXAS LOTTERY COMMISSION

Chapter 401. ADMINISTRATION OF STATE LOTTERY ACT

Subchapter B. LICENSING OF SALES AGENTS

The Texas Lottery Commission proposes amendments to 16 TAC §§401.152, 401.153, 401.155, 401.156, 401.157, and 401.159 , repeal of §§401.151, 401.154, and 401.158; and adds new rules §§401.158 and 401.160. The proposed rulemaking is on rules contained within Subchapter B. Specifically, the proposed amendments make the rules consistent with existing law and clarify current agency practices and procedures relating to the licensing of sales agents.

The proposed repeal to delete the existing 16 TAC §401.151 is because the language in the rule is redundant to language in the State Lottery Act. 16 TAC §401.154 is being repealed because the language in this rule is better suited to be incorporated into other rules. For example, subsections (a) and (b) are being moved to §401.153(e) and subsection (c) is moved to §401.152(d). 16 TAC §401.158 is being revised so significantly that it is more efficient to repeal the rule and propose new rule, §401.158. The new rule §401.158 is proposed to incorporate, in one rule, the reasons for disciplinary action against a licensee. 16 TAC §401.160 sets out a standard penalty chart the agency will use in determining an appropriate administrative penalty against a licensee.

Government Code §2001.039, and the General Appropriations Act, Article IX, §9-10.13, 76th Legislature (1999), requires each state agency to review and consider for readoption each rule adopted by that agency pursuant to the Government Code, Chapter 2001 (Administrative Procedures Act). 16 TAC Chapter 401 has been reviewed in its entirety and the Commission determined that reasons for adopting certain sections continue to exist. The certain sections that have been readopted pursuant to Commission Order No. 00-0004, dated January 28, 2000, are set out in Exhibit "A" to the Order. The notice of the proposed rule review was published in the November 12, 1999, issue of the Texas Register (24 TexReg 10149). No comments were received regarding the agency's rule review of Chapter 401. The proposal of this rulemaking is consistent with and, in part, the result of the agency's rule review.

Bart Sanchez, Financial Administration Director, has determined for each year of the first five years the sections are in effect there will be no foreseeable additional fiscal implications for state or local government as a result of enforcing or administering these rules. There is no anticipated impact on small businesses, micro businesses or local or state employment as a result of implementing these sections.

Gary Grief, Lottery Operations Director, has determined that each of the first five years the sections as proposed are in effect, the public benefit anticipated as a result of the proposed amendments, repeal, and new rules will be the elimination of redundant or obsolete language, updating of rules to current agency practice, and providing guidance to licensees, administrative law judges, and the commission regarding the imposition of administrative penalties against licensees.

Written comments on the proposed amendments, repeal, or new rules may be submitted to Kimberly L. Kiplin, General Counsel, Texas Lottery Commission, P.O. Box 16630, Austin, Texas 78761-6630.

16 TAC §§401.151, 401.154, 401.158

(Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Texas Lottery Commission or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The repeals are proposed under Government Code, Section 466.015 which authorizes the Commission to adopt all rules necessary to administer the State Lottery Act and to adopt rules governing the establishment and operation of the lottery, and under Government Code, Section 467.102 which authorizes the Commission to adopt rules for the enforcement and administration of the laws under the Commission's jurisdiction.

The repeals affect Government Code, Chapter 466.

§401.151.General Rules.

§401.154.Issuance of License; Terms.

§401.158.Suspension or Revocation of License.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 29, 2002.

TRD-200202647

Kimberly L. Kiplin

General Counsel

Texas Lottery Commission

Earliest possible date of adoption: June 9, 2002

For further information, please call: (512) 344-5113

16 TAC §§401.152, 401.153, 401.155 - 401.160

The amendments and new rules are proposed under Government Code, Section 466.015 which authorizes the Commission to adopt all rules necessary to administer the State Lottery Act and to adopt rules governing the establishment and operation of the lottery, and under Government Code, Section 467.102 which authorizes the Commission to adopt rules for the enforcement and administration of the laws under the Commission's jurisdiction.

The amendments and new rules affect Government Code, Chapter 466.

§401.152.Application for License.

(a) An applicant for a license under this subchapter must apply to the Commission [ division ] using forms provided by the Commission [ division ]. The director may determine not to consider any application unless all requested information has been supplied by the applicant.

(b) The executive director or his/her designee shall develop all forms and related documents including, but not limited to, an application form, release form to obtain a credit report, and/or any other background information relating to the applicant required to determine the applicant's eligibility for a license and whether the granting of a license to the applicant will best serve the public convenience. An applicant must disclose all criminal convictions for those individuals of whom an investigation is authorized under the [ Texas ] Government Code, §466.201, and which are requested in the application.

(c) An applicant shall, under penalty of perjury, complete, sign, date, and submit all forms and related information and documents required. By signing and submitting the application form, the applicant agrees to allow the director to investigate the credit, criminal, and tax background of the applicant and other matters as authorized under the State Lottery Act, Government Code, Chapter 466 .

[ (d) Every license application submitted to the director under this subchapter shall be accompanied by an application fee in an amount to be established by the director. If the director denies an application based on a factor listed in §401.153(a) of this title (relating to Qualifications for License), the director shall refund one half of the application fee to the applicant. If the director denies an application based on another factor, the director shall not refund any part of the application fee.]

(d) [ (e) ]Every license application submitted to the director under this subchapter shall be accompanied by security as authorized by the [ Texas ] Government Code, §466.014(e), in a form and amount determined by the director. The director may reduce or waive the amount of security required, if feasible, after consideration of the possible loss to the state from the operation of the applicant in connection with the lottery, whether the applicant is a minority business as defined by Government Code, §466.107, or any other factor the director finds relevant. If the director determines that the purposes of the Act would be best served through establishment and maintenance of a pooled fund for purposes of reimbursing the division for losses arising from the operation of licensed sales agents, the director may require security in the form of a mandatory contribution by each applicant. Any amount so contributed shall be refunded by the director to the applicant upon denial of the related application for any reason. The amount of any such contribution may, at the director's discretion, be refunded after receipt of a license by an applicant under this subchapter, if the licensee does not sell a ticket while licensed. Once a licensee has begun ticket sales under said license, that licensee's contribution under this subsection may not be refunded. Depending upon the losses required to be reimbursed by such a fund, the director may require additional contributions to such a fund as a condition of any license application, including a license renewal application.

(e) [ (f) ] All applications submitted under this subchapter shall be available for public inspection during business hours, provided that criminal history information and other information confidential by law shall not be available for inspection. Any person seeking to inspect any application shall furnish a written request to the director specifically stating the information sought to be inspected. The director may respond to such requests orally or in writing in order to arrange for the inspection of the requested documents after a reasonable time is allowed for the division to review the documents and delete confidential information.

§401.153.Qualifications for License.

(a) Before issuing a license to any person under this subchapter, the director shall consider:

(1) the financial responsibility and security of the applicant and the business or activity in which the applicant is engaged. Consideration of this factor may include the analysis of the applicant's credit record, compliance with tax laws of other jurisdictions, status of permits and licenses, results of criminal background check, adequacy of security procedures against theft, whether the location is fixed and permanent, whether the applicant can provide appropriate security, and any other factor that may assist the director in such evaluation;

(2) the public accessibility of the applicant's place of business or activity. Consideration of this factor may include analysis of the applicant's hours of operation, proximity to major transit routes, proximity to large employers, public parking availability, and any other factor that may assist the director in such evaluation;

(3) the sufficiency of existing sales agents to serve the public convenience. Consideration of this factor may include analysis of number and proximity of other sales agents in a given market area, and/or number of "minority businesses" (as that term is defined in the [ Texas ] Government Code, §466.107(b)) licensed in a given market area, with the possibility that additional licenses for any given market area may be denied if the area is determined to be adequately served by existing licensees;

(4) whether individuals under 18 years of age constitute a majority of the applicant's customers or as customers provide a majority of the applicant's sales volume;[ and ]

(5) the volume of expected lottery sales at the applicant's place of business or activity; and

(6) [ (5) ] any other factor that is helpful in determining whether the applicant's experience, character, and general fitness are such that the applicant's participation as a sales agent will not detract from the integrity, security, honesty, or fairness of the operation of the lottery. An example of the type of factor considered in this regard is the analysis of the type of product sold or form of service provided by the applicant.

(b) The director may grant or deny an application for a license under this subchapter based on any one or more factors listed in subsection (a) of this section. In addition, the director shall deny an application for a license under this subchapter upon a finding that the applicant:

(1) has been convicted of a felony, criminal fraud, gambling or a gambling-related offense, or a misdemeanor involving moral turpitude, if less than 10 years has elapsed since the termination of the sentence, parole, mandatory supervision, or probation served for the offense;

(2) is or has been a professional gambler. A "professional gambler" is a person whose profession is, or whose major source of income derives from, playing games of chance for profit;

(3) has been finally determined to be:

(A) delinquent in the payment of a tax or other money collected by the comptroller, the Texas Workforce Commission, or the Texas Alcoholic Beverage Commission;

(B) in default on a loan made under Chapter 53, Education Code;

(C) in default on a loan guaranteed under Chapter 57, Education Code; or

(D)

any reasons listed in Chapter 232, Family Code as cause for license suspension;

[(3) is delinquent in the payment of any state tax at any time after the application is filed but before the director acts to grant or deny the license];

(4) has a spouse, child, brother, sister or parent residing as a member of the same household in the principal place of residence of a person described in paragraph (1), (2), or (3) of this subsection;

(5) has violated the Act or a rule adopted by the commission in furtherance of the State Lottery Act;

(6) is not an individual, and an individual described in one or more of paragraphs (1)-(5) of this subsection:

(A) is an officer or director of the applicant;

(B) holds more than 10% of any class of issued and outstanding stock in the applicant;

(C) holds an equitable ownership interest greater than 10% in the applicant;

(D) is a creditor of the applicant to the extent of more than 10% of the applicant's outstanding debt at any time after the application is filed but before the director acts to grant or deny the license;

(E) is the owner or lessee of a business that the applicant conducts or through which the applicant will conduct a ticket sales agency;

(F) shares or will share in the profits, other than stock dividends, of the applicant or sales agent;

(G) participates in managing the affairs of the applicant; or

(H) is an employee of the applicant who is or will be involved in selling tickets or handling money from the sale of tickets;

(7) provided false or misleading information on the application form, or failed to provide information required as part of the application;

(8) failed to provide fingerprint identification for individuals for which such identification is requested in a form acceptable to the division following the division's request for such identification;

(9) has previously had a sales agent's license revoked, unless the director is satisfied the person will comply with the State Lottery Act and the rules under this chapter [ subchapter ]; or

(10) failed to certify to the director the applicant's compliance with the federal Americans With Disabilities Act.

(c) Without limiting the foregoing grounds for denial of a license under this subchapter, the director shall deny a license to any person whose location for the sales agency is either:

[ (1) a racetrack at which wagering is authorized under the Texas Racing Act (Texas Civil Statutes, Article 179e);]

(1) [ (2) ] a location licensed for games of bingo under the Bingo Enabling Act (Occupations Code, Chapter 2001 [ Texas Civil Statutes, Article 179d ]);

(2) [ (3) ] on land owned by the State of Texas; or a political subdivision of this state and on which is located a public primary or secondary school, an institution of higher education, or an agency of the state; or

(3) [ (4) ] a location for which a person holds a wine and beer retailer's permit, mixed beverage permit, mixed beverage late hours permit, private club registration permit, or private club late hours permit issued under the Alcoholic Beverage Code, Chapter 25, 28, 29, 32, or 33.

(d) Any applicant whose application is denied under this subchapter, or who is granted a license the terms of which are more restricted than those applied for, shall be notified by the director in writing of the denial or restriction and of the reasons therefor. The applicant may appeal the director's decision in accordance with rules adopted by the commission for that purpose.

(e) A license issued under this chapter may by its terms limit the type of games and/or method of sales authorized by the license. A determination of appropriate limitations on any license are within the director's sole discretion, provided that the director shall furnish the licensee with a written explanation or the reasons for any such limitations.

§401.155.Expiration of License.

[ (a) A license issued under this subchapter shall expire upon the earliest to occur of the following:]

[ (1) two years following the date of issuance, unless an earlier expiration date is specified in the license;]

[ (2) suspension of the license;]

[ (3) revocation of the license;]

[ (4) death of the licensee, if an individual;]

[ (5) dissolution of a sales agent that is not an individual; or]

[ (6) bankruptcy or receivership of a sales agent.]

[ (b) ] Upon expiration of the license, the licensee must immediately surrender upon demand to an authorized representative of the commission [ division ] the license and all commission [ division ] property, return to the commission [ division ] all unsold tickets in accordance with normal commission procedures [ division policy ], pay any funds owed to the commission [ division ] by an authorized method, and take such further action as required by the director.

[ (c) If a license expires under subsection (a)(4), (5), or (6) of this section and the sales agent's successor in interest desires to operate the sales agency, the successor must file an application for an extended license not later than the 30th day after the date the license expired. The application must state the basis for the applicant's claim to be the successor in interest to the sales agent, and must contain a certification that the applicant would be eligible for a license under this subchapter. The director shall permit a qualified applicant to operate under an extended license for not more than one year or until a new license is issued to the applicant, whichever occurs first.]

§401.156.Renewal of License.

(a) A license issued under this subchapter may be considered for renewal by filing a renewal application with the commission [ director ]. In order to be considered, a sales agent must file a renewal application and pay the renewal fee before the sales agent's license expires. [ Information not filed with the director before the sales agent's license expires may not be accepted for consideration in connection with the applicant's renewal application. ]

(b) The renewal application shall be on forms provided by the commission [ division ] upon request. All provisions in this subchapter governing the applicant's completion and submission of a license application and conditions of the license granted shall apply equally to the application for and renewal of a license. Factors considered by the director and grounds for denying the renewal of a license may include those listed in §401.153(a) or (b) of this title (relating to Qualifications for License) and those listed under §401.158(b) of this title (relating to Suspension or Revocation of License).

(c) Every application for renewal of a license submitted under this subchapter shall be accompanied by a renewal fee in an amount to be established by the director. If the director denies an application for renewal based on a factor listed in §401.153(a) of this title (relating to Qualifications for License), the director shall refund one half of the renewal application fee to the applicant. If the director denies an application based on another factor, the director may not refund any part of the renewal application fee.

(d) Every application for renewal of a license submitted under this subchapter shall be accompanied by security in an amount and in such form as the director determines to be in the best interests of the lottery. If the director determines that such security is best provided through mandatory contributions by licensees to a pooled fund established and maintained to reimburse the state for losses resulting from the operation of sales agents, the amount of such security shall be determined based on the director's estimate of expected required reimbursement to the state from such losses incurred during the term of the renewal.

(e) A renewal license issued under this section shall be valid for a term set by the commission [ director ], unless it expires sooner.

§401.157.Provisional License.

In addition to and without limiting the director's ability to issue licenses [ pursuant to §401.154 of this title (relating to Issuance of License; Terms) ], the director may issue provisional licenses to applicants to become sales agents. Examples of the reason a provisional license may be issued include but are not limited to a special event and the pendancy of a background check conducted pursuant to Government Code, Chapter 466. A provisional license shall expire on the date specified on the license. A provisional license is subject to suspension or revocation in accordance with procedures established by rules issued by the commission under this title upon the commission's finding of any factor under §401.153(b) of this title (relating to Qualifications for License), §401.158 of this title (relating to Suspension or Revocation of License), or §401.159 of this title (relating to Summary Suspension of License).

§401.158.Suspension or Revocation of License.

(a) The commission may suspend or revoke any license issued under this subchapter if the commission finds that any factor listed as grounds for denial of a license under §401.153(b) of this title (relating to Qualifications for License) or any factor listed in subsection (b) of this section apply to the licensee. The commission shall inform the sales agent in writing of the decision to suspend or revoke a license for any of these reasons. In addition, in the event of a license suspension under this section, the director of the Lottery Operations Division shall also inform the licensee of the terms under which the suspended license may be reissued.

(b) Without limiting the commission's ability to consider factors listed in §401.153(b) of this title as grounds for suspension or revocation of a license issued under this subchapter, the commission may also suspend or revoke a license for reasons including, but not limited to, any of the following:

(1) licensee engages in telecommunication or printed advertising that the director determines to have been false, deceptive or misleading;

(2) licensee conditions redemption of a Lottery prize upon the purchase of any other item or service;

(3) licensee imposes a restriction upon the redemption of a Lottery prize not specifically authorized by the director;

(4) licensee fails to follow instructions and procedures for the conduct of any particular lottery game, lottery special event or promotion;

(5) licensee and/or its employee(s) exhibit discourteous treatment including, but not limited to, abusive language toward customers, commission employees or commission vendors;

(6) licensee fails to establish or maintain reasonable security precautions with regard to the handling of lottery tickets and other materials;

(7) licensee endangers the security and integrity of the lottery games operated by the commission;

(8) licensee violates any directive or instruction issued by the director;

(9) licensee violates any express term or condition of its license not specifically set forth in this subchapter;

(10) licensee incurs four (4) notices of nonsufficient fund transfers or non-transfer of funds within a 12-month period;

(11) licensee sells an instant ticket from a game that has closed after the date designated for the end of the game;

(12) licensee fails to pay a valid prize in the amount specified on the validation slip generated on the licensee's terminal or to pay the authorized amount;

(13) licensee fails to pay a valid prize the licensee is required to pay;

(14) licensee refuses or fails to sell lottery tickets during all normal business hours of the lottery retailer during all normal business hours of the license during on-line game operating hours;

(15) licensee refuses to and/or fails to properly cancel a Pick 3 ticket;

(16) licensee fails to return an exchange ticket to a prize claimant claiming a prize on a multi-draw ticket if an exchange ticket is produced by the licensee's terminal;

(17) licensee fails to keep accurate and complete records of all tickets from confirmed, active, and settled packs that have not sold;

(18) licensee fails to offer a minimum of two instant ticket games for sale if two or more instant games are available from the Lottery;

(19) licensee fails to order or accept delivery of the required minimum number of lottery tickets or fails or refuses to meet minimum sales criteria;

(20) licensee fails to meet any requirement under the §401.368, Instant Ticket Vending Machine rule, if the licensee has been supplied with an ITVM by the commission;

(21) licensee fails to take readily achievable measures within the allowed time period to comply with the barrier removal requirements regarding ADA;

(22) licensee fails to prominently post license;

(23) licensee knowingly sells a ticket or pays a lottery prize to another person who is:

(A) an officer or an employee of the commission;

(B) an officer, member, or employee of a lottery operator;

(C) an officer, member, or employee of a contractor or subcontractor that is excluded by the terms of its contract from playing lottery games;

(D) the spouse, child, brother, sister, or parent of a person described by subparagraph (A), (B) or (C) of this paragraph who resides within the same household as that person;

(24) licensee intentionally or knowingly sells a ticket at a price the licensee knows is greater than the price fixed by the executive director;

(25) licensee sells tickets issued to a licensed location at another location that is not licensed;

(26) licensee intentionally or knowingly sells a ticket by extending credit or lends money to enable a person to buy a ticket;

(27) licensee intentionally or knowingly sells a ticket to a person that the licensee knows is younger than 18 years;

(28) licensee intentionally or knowingly sells a ticket and accepts anything for payment not specifically allowed under the State Lottery Act;

(29) licensee sells tickets over the telephone or via mail order sales, establishes or promotes a group purchase or pooling arrangement under which tickets are purchased on behalf of the group or pool and any prize is divided among the members of the group or pool, and the person intentionally or knowingly:

(A) uses any part of the funds solicited or accepted for a purpose other than purchasing tickets on behalf of the group or pool; or

(B) retains a share of any prize awarded as compensation for establishing or promoting the group purchase or pooling arrangement;

(30) licensee intentionally or knowingly alters or forges a ticket;

(31) Licensee intentionally or knowingly influences or attempts to influence the selection of the winner of a lottery game;

(32) licensee intentionally or knowingly claims a lottery prize or a share of a lottery prize by means of fraud, deceit, or misrepresentation; or aids or agrees to aid another person or persons to claim a lottery prize or a share of a lottery prize by means of fraud, deceit, or misrepresentation;

(33) licensee intentionally or knowingly tampers with, damages, defaces, or renders inoperable any vending machine, electronic computer terminal, or other mechanical device used in a lottery game, or fails to exercise due care in the treatment of commission property;

(34) licensee induces another person to assign or transfer a right to claim a prize, offers for sale the right to claim a prize, or offers, for compensation, to claim the prize of another person;

(35) licensee intentionally or knowingly makes a statement or entry that the person knows to be false or misleading on a required report;

(36) licensee fails to maintain or make an entry the licensee knows is required to be maintained or made for a required report;

(37) licensee knowingly refuses to permit the director of the Lottery Operations Division, the executive director, commission, or the state auditor to examine the agent's books, records, papers or other objects, or refuses to answer any question authorized under the State Lottery Act;

(38) licensee intentionally or knowingly makes a material and false or incorrect, or deceptive statement, written or oral, to a person conducting an investigation under the State Lottery Act or a rule adopted by the commission;

(39) licensee commits an offense of conspiracy as defined in the State Lottery Act;

(40) licensee sells or offers for sale any interest in a lottery of another state or state government or an Indian tribe or tribal government, including an interest in an actual lottery ticket, receipt, contingent promise to pay, order to purchase, or other record of the interest; or

(41) licensee has violated a provision of the State Lottery Act, Government Code, Chapter 466 or a rule adopted under the State Lottery Act.

§401.159.Summary Suspension of License.

(a) In addition to the authority to suspend a sales agent's license pursuant to §401.158 of this title (relating to Suspension or Revocation of License), the director of the Lottery Operations division may suspend a sales agent's license subject to the limited notice and hearing procedures established under other rules to be adopted by the commission under this title for that purpose, if the director finds that the action is necessary to maintain the integrity, security, honesty, or fairness of the operation or administration of the lottery or to prevent financial loss to the state, and:

(1) licensee [ the sales agent ] fails to deposit money received from ticket sales under the State Lottery Act, [ §5.01 ( ]Texas Government Code, §466.351[ ) ];

(2) an event occurs that would render the sales agent ineligible for a license under §401.153(b) of this title (relating to Qualifications for License);

(3) licensee fails to notify the commission of any change in the information contained in the sales agent's most recent application for a license or renewal of a license within ten (10) days of the date of the change; [ the sales agent refuses to permit the director of the lottery Operations Division, the executive director, or the state auditor to examine the agent's books, records, or other objects or refuses to answer any question authorized under the State Lottery Act, §2.02(h) (Texas Government Code, §466.014(h)); ]

(4) the director of the Lottery Operations Division discovers [ learns ] the licensee [ sales agent ] has failed to disclose information that would, if disclosed, render the licensee [ sales agent ] ineligible for a license under §401.153(b) of this title.

(b) A summary suspension properly commenced under rules adopted by the commission under this title is effective at the time the notice is served. If notice is personally served, the licensee shall immediately surrender the license to the commission or its representative. If notice is served by mail, the licensee shall immediately return the license to the commission. In addition, at the time the licensee is served with notice under this subsection, the licensee may be required by the director of the Lottery Operations Division to surrender upon demand to an authorized representative of the commission all commission property and commission vendor property , return all unsold tickets in accordance with normal commission policy, pay funds owed to the commission by an authorized method, and take such further action as required by the director.

§401.160.Standard Penalty Chart.

(a) The commission, through the director of the Lottery Operations Division, may offer settlements to persons charged with violating the provisions of the State Lottery Act or rules of the commission. Settlement of those cases, unless otherwise provided for elsewhere in this rule, shall be in compliance with the following standard penalty chart. A settlement will be in the form of an Agreement and Consent Order of the commission.

(b) A repeat violation by a licensee justifies the penalty for a second or third violation if it occurs within 12 months of the first violation. Violations need not be the same or similar in nature to previous violations to be considered repeat violations.

(c) A penalty for an alleged repeat violation shall not be assessed unless the alleged violation occurs after the licensee has been notified, in writing, of the first alleged violation. Notwithstanding the preceding sentence, if an alleged violation is discovered during an undercover operation, then no notice of any prior alleged violations may be necessary to assess a penalty for a repeat violation. The requirement that written notice be given to a licensee shall not be interpreted to require that a notice of hearing for the violation be delivered to the licensee.

(d) The list of violations in the standard penalty chart is not an exclusive list of violations of the commission or rules of the commission. The commission is authorized to assess penalties for any violation of any of the foregoing statutes or rules for which a penalty is not provided on the chart. Any penalty assessed for a violation not provided for on the standard penalty chart shall be approved by the director of the Lottery Operations Division or his/her designee prior to its assessment.

(e) Any person responsible for assessing a penalty for a violation may deviate from the standard penalty chart if mitigating circumstances are involved and consideration will be given to all the factors listed in 16 TAC §401.158. If a recommendation deviating from the standard penalty chart is made, it must be made in writing and be filed with the case report. Final approval shall be made by the director of the Lottery Operations Division or his/her designee.

(f) The standard penalty chart does not bind an administrative law or the commission as to penalties for any violation determined to have occurred by the facts presented in an administrative hearing and the record of that proceeding shall be the determining factor as to the sufficiency of the penalty assessed.

(g) Based upon consideration of the following factors, the commission may impose penalties other than the penalties recommended in §401.158:

(1) Severity of the offense;

(2) Danger to the public;

(3) Number of repetition of offenses;

(4) Number of complaints previously found justified against the licensee;

(5) Length of time the licensee has held a license;

(6) Actual damage, physical or otherwise, caused by the violations;

(7) Deterrent effect of the penalty imposed;

(8) Attempts by licensee to correct or stop violations or refusal by licensee to correct or stop violations;

(9) Penalties imposed for related offenses; or

(10) Any other mitigating or aggravating circumstances.

Figure: 16 TAC §401.160 (g)(10)

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 29, 2002.

TRD-200202646

Kimberly L. Kiplin

General Counsel

Texas Lottery Commission

Earliest possible date of adoption: June 9, 2002

For further information, please call: (512) 344-5113

16 TAC §402.554

(Editor's note: The text of the following section proposed for repeal will not be published. The section may be examined in the offices of the Texas Lottery Commission or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Texas Lottery Commission proposes the repeal of section 16 TAC §402.554, relating to instant bingo. The rule provided for play of pull-tab bingo in Texas. Contemporaneous with the proposal to repeal this section, the Commission is proposing a new section 16 TAC §402.554 because the changes to the rule are so substantial that it is less confusing to the reader of the rules to propose a new rule.

Bart Sanchez, Financial Administration Director, Texas Lottery Commission has determined that for each year of the first five-year period the repeal is in effect there will be fiscal implications for state or local government as a result of enforcing or administering the section but that fiscal impact will be offset by the anticipated fiscal impact of proposing the new §402.554 contemporaneous with proposing this repeal.

Mr. Sanchez has also determined that for each year of the first five-year period the repeal is in effect there will be no cost to small businesses. There will be no impact on local employment.

William L. Atkins, Charitable Bingo Operations Director, Texas Lottery Commission has determined that for each year of the first five-year period the repeal is in effect, the public benefit anticipated as a result of enforcing or administering the repeal will be to propose a new section §402.554 that will provide new game styles and generate additional revenue for charitable organizations and the State of Texas.

Comments on the proposal may be submitted to Kimberly L. Kiplin, General Counsel, Texas Lottery Commission, P.O. Box 16630, Austin, Texas 78761-6630.

The repeal is proposed under the Government Code, §467.102 and the Occupations Code, §2001.054 which provide the Commission with the authority to adopt rules for the enforcement and administration of the laws under the Commission's jurisdiction.

The proposed repeal implements Occupations Code, Chapter 2001.

§402.554Instant Bingo.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 26, 2002.

TRD-200202613

Kimberly L. Kiplin

General Counsel

Texas Lottery Commission

Earliest possible date of adoption: June 9, 2002

For further information, please call: (512) 344-5113

16 TAC §402.554

The Texas Lottery Commission proposes new section 16 TAC §402.554 relating to pull-tab bingo. Specifically, the new section identifies the different forms of pull-tab bingo that can be played in Texas. The new section sets out the standards that must be met for approval of pull-tab bingo tickets, the reasons for disapproval of pull-tab bingo tickets, manufacturing requirements, sales and redemption requirements, authority to inspect the tickets, records requirements, and the different styles of play.

Bart Sanchez, Financial Administration Director, has determined for each year of the first five years the section is in effect there will not be additional fiscal implications for state or local government as a result of enforcing or administering the rule. The Commission does not anticipate any additional cost to the state or local government as a result of enforcing or administering the rule. While the Commission anticipates that the adoption of the rule will result in the potential increase of pull-tab sales, the Commission is not able to estimate that amount of additional revenue to the organizations conducting bingo or the state. Based on information received, there are indications that sales, prizes awarded, and prize fees collected would increase thereby resulting in additional revenue to the state; but, the overall fiscal impact can not be quantified at this time. There is no anticipated adverse impact on small businesses, micro businesses or local or state employment as a result of implementing the section.

William L. Atkins, Director, Charitable Bingo Operations Division, has determined that each of the first five years the section as proposed is in effect, the public benefit anticipated as a result of the proposed new section is to authorize different play styles of pull-tab tickets that will have the potential to generate additional revenue for charitable organizations that will be distributed for charitable purposes and additional revenue to the State of Texas. Also, bingo players will have the opportunity to play new game styles.

Written comments on the proposed new rule may be submitted to Kimberly L. Kiplin, General Counsel, Texas Lottery Commission, P.O. Box 16630, Austin, Texas 78761-6630. The Texas Lottery Commission will also conduct a hearing to receive comment on the proposed new rule on May 31, 2002 at 9:00 a.m. at the Texas Lottery Commission, Commission Auditorium, First Floor, 611 E. Sixth Street, Austin, Texas.

The proposed new rule is proposed under Occupations Code, Section 2001.054 which authorizes the Commission to adopt rules to enforce and administer the Bingo Enabling Act, under Government Code, Section 467.102 which authorizes the Commission to adopt rules for the enforcement and administration of the laws under the Commission's jurisdiction, and under Occupations Code, Section 2001.051(b) which grants the Commission broad authority to exercise strict control and close supervision over all bingo conducted in Texas so that bingo is fairly conducted and the proceeds derived from bingo are used for an authorized purpose.

The new rule implements Occupations Code, Chapter 2001.

§402.554.Pull-Tab Bingo.

(a) Definitions. The following words and terms, shall have the following meanings, unless the context clearly indicates otherwise:

(1) Bingo Ball Draw. A pulling of a bingo ball(s) to determine the winner of an event ticket by either the number or color on the ball(s).

(2) Deal. A separate and specific pull-tab bingo game or series of pull-tab bingo tickets of the same serial number.

(3) Face. The front of a pull-tab bingo ticket, which displays the artwork of a specific game. The front of the pull-tab bingo ticket includes, but is not limited to, the name of the game, the price of the game and the payout structure of the game.

(4) Flare. A poster or placard that must display:

(A) a form number of a specific pull-tab bingo game;

(B) the name of the pull-tab bingo game;

(C) the total card count of the pull-tab bingo game;

(D) the cost per pull-tab bingo ticket;

(E) the number of prizes to be awarded and the corresponding prize amounts of the pull-tab bingo game; and,

(F) the name of the manufacturer or trademark.

(5) Form Number. The unique identification number assigned by the manufacturer to a specific pull-tab bingo game. A form number may be numeric, alpha, or a combination of numeric and alpha characters.

(6) High Tier. The top paying pull-tab prize amounts greater than $5.00, as designated on the face of the pull-tab ticket and on the game's flare.

(7) Last Sale. The purchaser of the last pull-tab in a deal with this feature is awarded a prize or a registration for the opportunity to win a prize.

(8) Merchandise. Any non-cash item(s) provided to a licensed organization by a licensed distributor that is used as a prize.

(9) Paddle Wheels. Devices that determine event ticket winner(s) by a spin of a wheel.

(10) Pay-Out Amounts. The total sum of all possible prize amounts in a pull-tab bingo game.

(11) Payout Schedule. A printed schedule prepared by the manufacturer that displays:

(A) the name of the pull-tab bingo game;

(B) the form number of the pull-tab bingo game;

(C) the total card count of the pull-tab bingo game;

(D) the cost per pull-tab bingo ticket;

(E) the number of prizes to be awarded and the corresponding prize amount for each category of the pull-tab bingo game;

(F) the number of winners for each category of prize;

(G) the profit of the pull-tab bingo game; and,

(H) the percentage of payout and the percentage of profit of the pull-tab bingo game.

(12) Payout Structure. The printed information that appears on the face of a pull-tab bingo ticket. This display shows the winnable prize amounts, the winning patterns required to win a specific prize, and the number of winners for each category of prize.

(13) Prize. An award of collectible items, merchandise, cash, bonus pull-tabs, and additional pull-tabs, individually or in any combination.

(14) Prize Amount. The value of cash and/or the fair market value of a non-cash item(s), as determined by a licensed manufacturer, which is awarded as a prize. A collectible item is considered a non-cash item for determining allowable prize amounts.

(15) Reverse. The back of a pull-tab bingo ticket that has a perforated break-open tab(s) that when opened reveals one or more numbers and/or symbols that appear under the tab(s).

(16) Serial Number. The unique identification number assigned by the manufacturer identifying a specific deal of pull-tab bingo tickets. A serial number may be numeric, alpha, or a combination of numeric and alpha characters.

(17) Symbol. A graphic representation of an object other than a numeric or alpha character.

(b) Approval of pull-tab bingo tickets.

(1) A pull-tab bingo ticket may not be sold in the state of Texas, nor furnished to any person in this state nor used for play in this state until that pull-tab bingo ticket has received approval for use within the state of Texas by the commission. The manufacturer at its own expense must present their pull-tab bingo ticket to the commission for approval.

(2) All pull-tab bingo ticket color artwork with a letter of introduction must be presented to the commission's Austin, Texas location for review. The manufacturer must submit one complete color positives or hardcopy sets of the color artwork for each pull-tab bingo ticket and its accompanying flare. The color artwork may be submitted in an electronic format prescribed by the commission in lieu of the hardcopy submission. The submission must include the payout schedule. The submission must show the face and reverse sides of a pull-tab bingo ticket and must be submitted on an 8 1/2" x 11" size sheet. The color artwork will show the actual size of the ticket and a 200% size of the ticket. The color artwork will clearly identify all winning and non-winning symbols. The color artwork will clearly identify the winnable patterns and combinations.

(3) The color artwork for each individual ticket must:

(A) display in no less than 26-point diameter circle, an impression of the commission's seal with the words "Texas Lottery Commission" engraved around the margin and a five-pointed star in the center;

(B) contain the name of the game in a conspicuous location on the face of the pull-tab bingo ticket;

(C) contain the form number assigned by the manufacturer in a conspicuous location on the face of the pull-tab bingo ticket;

(D) contain the manufacturer's name or trademark in a conspicuous location on the face of the pull-tab bingo ticket;

(E) disclose the amount of prize winnings per category and number of prizewinners for each category, the number of individual tickets contained in the deal, and the cost per pull-tab bingo ticket that must not exceed $1.00 in a conspicuous location on the face of the pull-tab bingo ticket;

(F) display a serial number where it will be printed in a conspicuous location on the face of the pull-tab bingo ticket. The color artwork may display the word "sample" or number "000000" in lieu of the serial number;

(G) contain graphic symbols that preserve the integrity of the commission. The commission will not approve any pull-tab bingo ticket that displays images or text that could be interpreted as depicting alcohol beverages, weapons, profane language, provocative, explicit or derogatory images or text. All text or images are subject to final approval by the commission; and,

(H) be accompanied with the color artwork of the pull-tab bingo tickets reverse side. This color artwork must display each color that will be printed on the pull-tab bingo ticket's reverse side.

(4) Upon approval of the color artwork, the manufacturer will be notified by the commission to submit one (1) deal, for testing. The deal must be submitted for testing to the commission at the manufacturers own expense. If necessary, the commission may request that additional deals be submitted for testing.

(5) If the color artwork is approved and the pull-tab bingo deal(s) pass the commission's testing, the manufacturer will be notified of the approval. This approval only extends to the specific pull-tab bingo game and the specific form number cited in the commission's approval letter. If the pull-tab bingo ticket is modified in any way, with the exception of the series number, it must be resubmitted to the commission for approval.

(6) The commission may require resubmission of an approved ticket at any time.

(7) If an approved pull-tab bingo game is discontinued or no longer manufactured for sale in Texas, the manufacturer of this game must provide the commission written notification within ten days of this change. The notification must include the name of the pull-tab bingo game and the form number of the pull-tab bingo ticket. The written notification may be sent to the commission via facsimile, e-mail, delivery services and postal delivery.

(c) Disapproval of pull-tab bingo tickets.

(1) Upon inspection of a pull-tab bingo ticket by the commission and if it is deemed not to properly preserve the integrity or security of the commission including compliance with the art work requirements of this rule, the commission may disapprove a pull-tab bingo ticket. All pull-tab bingo tickets that are disapproved by the commission may not be displayed or sold in the state of Texas by licensed manufacturers. Disapproval of and prohibition to use, purchase, sell or otherwise distribute such a pull-tab bingo ticket is effective immediately upon notice to the manufacturer by the commission.

(2) If modified by the manufacturer all disapproved pull-tab bingo tickets may be resubmitted to the commission. At any time the manufacturer may withdraw any disapproved pull-tab bingo tickets from further consideration.

(3) The commission may disapprove a pull-tab bingo game at any stage of review, which includes artwork review and security testing, or at any time in the duration of a pull-tab bingo game. The disapproval of a ticket is administratively final.

(d) Manufacturing requirements.

(1) Manufacturers of pull-tab bingo tickets must manufacture, assemble, and package each deal in such a manner that none of the winning pull-tab bingo tickets, nor the location, or approximate location of any winning pull-tab bingo ticket can be determined in advance of opening the deal by any means or device. Nor should the winning pull-tab bingo tickets, or the location or approximate location of any winning pull-tab bingo ticket be determined in advance of opening the deal by manufacture, printing, color variations, assembly, packaging markings, or by use of a light. Each manufacturer is subject to inspection by the commission, its authorized representative, or designee.

(2) Winning pull-tab bingo tickets must be randomly distributed and mixed among all other pull-tab bingo tickets of the same serial number in a deal regardless of the number of packages, boxes, or other containers in which the deal is packaged. The position of any winning pull-tab bingo ticket of the same serial numbers must not demonstrate a pattern within the deal or within a portion of the deal.

(3) Each deal of pull-tab bingo tickets must contain a packing slip inside the deal. This packing slip must substantiate the name of the manufacturer, the serial number for the specific deal, the date the deal was packaged, and the name or other identification of the person who packaged the deal.

(4) Each deal's package, box, or other container shall be sealed at the manufacturer's factory with a seal including a warning to the purchaser that the deal may have been tampered with if the package, box, or other container was received by the purchaser with the seal broken.

(5) Each deal's serial number shall be clearly and legibly placed on the outside of the deal's package, box or other container or be able to be viewed from the outside of the package, box or container.

(6) The flare for the deal shall be located on the outside of each deal's sealed package, box, or other container.

(7) Manufacturers must seal or tape, with tamper resistant seal or tape, every entry point into a package, box or container of pull-tab bingo tickets prior to shipment. The seal or tape must be of such construction as to guarantee that should the container be opened or tampered with, such tampering or opening would be easily discernible.

(8) All high tier winning pull-tab bingo tickets must utilize a secondary form of winner verification.

(9) Each individual pull-tab bingo ticket must be constructed so that, until opened by a player, it is substantially impossible, in the opinion of the commission, to determine its concealed letter(s), number(s) or symbol(s).

(10) No manufacturer may sell or otherwise provide to a distributor and no distributor may sell or otherwise provide to a licensed authorized organization of this state or for use in this state any pull-tab bingo game that does not contain a minimum prize payout of 65% of total receipts if completely sold out.

(11) A manufacturer in selling or providing pull-tab bingo tickets to a distributor shall seal or shrink-wrap each series completely in a clear wrapping material in such a way that it will be apparent if the series is opened prior to use by the licensed authorized organization.

(12) Pull-tab bingo tickets must:

(A) be constructed of cardboard and glued or otherwise securely sealed along all four edges of the pull-tab bingo ticket and between the individual perforated break-open tabs on the ticket. The glue must be of sufficient strength and type so as to prevent the separation of the face from the reverse sides of a pull-tab ticket;

(B) have letters, numbers or symbols that are concealed behind perforated window tabs; and allow such letters, numbers or symbols to be revealed only after the player has physically removed the perforated window tabs;

(C) prevent the determination of a winning or losing pull-tab bingo ticket by any means other than the physical removal of the perforated window tabs by the player: and,

(D) have the commission's seal placed on all pull-tab bingo tickets by only a licensed manufacturer.

(13) Paddle wheels must be submitted to the commission for approval. As a part of the approval process, the following requirements must be demonstrated to the satisfaction of the commission:

(A) wheels must be able to spin four times with reasonable effort;

(B) wheels must only contain the same number or symbols as represented on the event ticket; and,

(C) locking mechanisms must be installed on wheel(s) to prevent play outside the organization's licensed time(s).

(e) Sales and redemption.

(1) All winning pull-tab bingo tickets must be presented for payment during the authorized organization's licensed times at which the pull-tab bingo ticket is purchased. Immediately upon payment a licensed authorized organization must punch a hole with a standard hole punch through or otherwise mark or deface each winning pull-tab bingo ticket of $5.00 or more.

(2) A licensed organization may sell or redeem winning pull-tab bingo tickets on the premises specified in its bingo license only:

(A) during the organization's licensed times; or

(B) during a required intermission between the bingo occasions of two organizations.

(3) Licensed conductors may not display or sell any pull-tab bingo ticket which has in any manner been marked, defaced, tampered with, or which otherwise may deceive the public or affect a person's chances of winning.

(4) A licensed organization may not withdraw a game of pull-tab bingo tickets from play until the entire series is completely sold out or all winning pull-tab bingo tickets of $5.00 prize winnings or more have been either cashed, or redeemed, or the bingo occasion ends.

(5) A licensed authorized organization may not commingle different deals of pull-tab bingo tickets.

(6) A licensed organization may sell bundled different pull-tab bingo tickets from different deals during their licensed times. A licensed organization may bundle pull-tab bingo tickets of different deals and different games and may sell these bundled pull-tab bingo tickets during their licensed times.

(7) The licensed organization's gross receipts from the sale of pull-tab bingo tickets must be included in the reported total gross receipts for the organization. Each deal of pull-tab bingo tickets must be accounted for in sales, prizes or unsold cards.

(f) Inspection. The commission, its authorized representative or designee may examine and inspect any individual pull-tab bingo ticket or series of tickets and may pull all remaining pull-tab bingo tickets in an unsold deal.

(g) Records.

(1) Any licensed authorized organization or distributor selling pull-tab bingo tickets must maintain a purchase log showing:

(A) the date of the sale, the form number and corresponding serial number of the purchased pull-tab bingo tickets; and,

(B) the name, address, and taxpayer number of the distributor from whom the pull-tab bingo tickets were purchased.

(2) Licensed authorized organizations must show the sale of pull-tab bingo tickets, prizes that were paid and the serial number of the tickets on the daily cash report. The aggregate total sales for the organization must be recorded on the cash register.

(3) Licensed authorized organizations must maintain a perpetual inventory of all pull-tab bingo games. They must account for all sold and unsold pull-tab bingo tickets and pull-tab bingo tickets designated for destruction. The licensed authorized organization will be responsible for the gross receipts, prizes and prize fee associated with the unaccounted for pull-tab bingo tickets.

(4) As long as a specific pull-tab bingo game serial number is in play, all records, reports, and receipts relating to this specific pull-tab bingo game serial number must be retained on the licensed premises for examination by the commission.

(5) If a deal is removed from play and marked for destruction then all winning pull-tab bingo tickets and unsold pull-tab bingo tickets of the deal must be retained by the licensed authorized organization for a period of four years from the date the deal is taken out of play or until the destruction of the deal is witnessed by a representative of the commission

(6) Manufacturers and distributors must provide the following information on each invoice and other document used in connection with a sale of pull-tab bingo tickets:

(A) date of sale;

(B) quantity sold;

(C) cost per each series; of pull-tab bingo game sold;

(D) serial number of each pull-tab bingo game's deal;

(E) name and address of the purchaser; and,

(F) Texas taxpayer number of the purchaser.

(7) All licensed organizations must retain these records for a period of four years.

(h) Style of Play. The following pull-tab tickets are authorized by this rule. A last sale feature can be utilized on any pull-tab ticket.

(1) Sign-up Board. A form of pull-tab bingo that is played with a sign-up board. Sign-up board tickets that contain a winning numeric, alpha or symbol instantly win the stated prize or qualify to advance to the sign-up board. The sign-up board that serves as the game flare is where identified winning sign-up board ticket holders may register for the opportunity to win the prize indicated on the sign-up board.

(2) Sign-up Board Ticket. A sign up board ticket is a form of pull-tab bingo played with a sign-up board. A single window or multiple windows sign-up board ticket reveals a winning (or losing) numeric, alpha or symbol that corresponds with the sign-up board.

(3) Tip Board. A form of pull-tab game where perforated tickets attached to a placard that have a predetermined winner under a seal.

(4) Coin Board. A placard that contains prizes consisting of coin(s). Coin boards can have a sign-up board as part of its placard.

(5) Coin Board Ticket. A form of pull-tab bingo that when opened reveals a winning number or symbol that corresponds with the coin board.

(6) Event Ticket. Pull-tabs used as event tickets must contain more than two (2) instant winners. Event ticket winner(s) are determined by some subsequent action such as a drawing of ball(s), spinning wheel, opening of a seal on a flare(s) or any other method so long as that method has designated numbers, letters, or symbols that conform to the randomly selected numbers or symbols.

(7) Instant Ticket. A form of pull-tab bingo that have pre-determined winners and losers and have immediate recognition of the winners and losers.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 26, 2002.

TRD-200202614

Kimberly L. Kiplin

General Counsel

Texas Lottery Commission

Earliest possible date of adoption: June 9, 2002

For further information, please call: (512) 344-5113