A BILL TO BE ENTITLED
AN ACT to direct the lottery commission to regulate the placement and operation of video game terminals in this state.
The General Assembly of North Carolina enacts:
SECTION 1.(a)  Chapter 18C of the General Statutes is amended by adding a new Article to read:
"Article 9.
"Video Gaming Terminals.
"Part 1. General Provisions.
"§ 18C‑200.  Definitions.
The following definitions apply in this Article:
(1)	Central monitoring system. – The system that maintains on a real‑time basis the financial, integrity, and security controls on VGTs and associated equipment and provides administrative services for its operation.
(2)	Independent testing laboratory. – An independent, nationally recognized testing laboratory approved by the Commission for use in testing whether a VGT complies with the standards set forth in this Article.
(3)	Fraternal establishment. – The location where (i) a qualified fraternal organization that derives its charter from a national fraternal organization or (ii) a veteran's organization that derives its charter from a national veterans organization regularly meets.
(4)	License. – Authorization granted by the Commission permitting an applicant to engage in the defined activities of VGTs.
(5)	Manufacturer. – An individual, partnership, corporation, trust, association, joint venture, limited liability company, or other business entity that manufactures, assembles, services, or produces VGTs or their major components.
(6)	Net terminal revenue. – Money inserted into a VGT minus any prizes paid.
(7)	Operator. – An individual, partnership, corporation, trust, association, joint venture, limited liability company, or other business entity that owns or services a VGT for which a VGT permit has been issued by the Commission and that places VGTs or associated equipment for public use in this State.
(8)	Permit. – A permanently affixed tag or sticker issued to a licensed operator for each VGT approved by and registered with the Commission.
(9)	Playing station. – A VGT or portion of a VGT that allows a player to operate the device independently of, or simultaneously with, another player.
(10)	Point of sale. – Accounting and reporting system to be used to accurately report the accounting of each VGT.
(11)	Retailer. – An establishment under contract with a licensed operator to allow the placement of VGTs.
(12)	Truck stop establishment. – A facility that (i) is at least a three‑acre facility with a convenience store, (ii) has separate diesel islands for fueling commercial motor vehicles, and (iii) sells at retail more than 10,000 gallons of diesel or bio‑diesel fuel per month.
(13)	Video gaming terminal (VGT). – 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 may receive free plays or credits that can be redeemed for cash. The term does not include a machine that is for amusement purposes only.
"§§ 18C‑201 through 18C‑204.  Reserved for future codification purposes.
"Part 2. Authority, Revenues, Licenses, and Permits.
"§ 18C‑205.  Regulation.
The Commission shall have authority to regulate the placement and operation of VGTs as provided in this Article. Nothing in this Article is intended to grant authority for the use or operation of VGTs by the Lottery.
"§ 18C‑206.  General restrictions.
(a)	An operator licensed pursuant to this Article shall not operate or make available for play more than 12 VGTs within a 100‑foot radius. In addition, the following types of locations shall not operate or make available for play the following number of VGTs:
(1)	Twelve VGTs in any single fraternal establishment or any single truck stop establishment.
(2)	Eight VGTs in any single retail establishment other than a fraternal establishment or truck stop establishment.
(b)	Individuals under the age of 21 years may not play a VGT.
(c)	A city or county may not exact zoning or other ordinances designed to tax, relocate, limit, restrict, or eliminate VGTs or licenses, permits, or certifications for VGT manufacturers, operators, or location retailers.
(d)	No more than 34,000 VGTs may be placed into operation in this State.
"§ 18C‑207.  Ownership of VGT net terminal revenue; expenses for operation of VGTs.
(a)	The Commission shall require licensed retailers to place all net terminal revenue due to the Commission in a segregated account in an institution insured by the Federal Deposit Insurance Corporation not later than the close of the next banking day after the date of the collection of the net terminal revenue by the licensed retailer until the date the net terminal revenue is paid over to the Commission. Net terminal revenue shall be deemed to be the property of the Commission. The Commission may require a licensed retailer to establish a single, separate electronic funds transfer account, if available, for the purpose of receiving net terminal revenue from the licensed retailer, making payments to the Commission, and receiving payments from the Commission. Unless otherwise authorized by the Commission, a licensed retailer shall establish a separate bank account for net terminal revenue which shall be kept separate and apart from all other funds and assets and shall not be commingled with any other funds or assets. In the event a person receiving net terminal revenue becomes insolvent, the net terminal revenue due to the Commission from the insolvent person shall have preference over all debts or demands. After receipt by the Commission of net terminal revenue from a licensed retailer, the Commission shall do all of the following:
(1)	Retain a sum equal to fifteen percent (15%) of the net terminal revenue.
(2)	Provide, within five business days of receipt, a sum equal to forty percent (40%) of the net terminal revenue to the licensed retailer for the cost associated with allowing the VGTs to be placed.
(3)	Provide, within five business days of receipt, an amount equal to forty percent (40%) of the net terminal revenue to the licensed operator for the cost of purchasing, securing, operating, and servicing the machines.
(4)	Provide, within five business days of receipt, an amount equal to five percent (5%) of the net terminal revenue to the licensed manufacturer.
(b)	The State finds that there is a compelling State interest in ensuring the most efficient, accurate, and honest regulation of VGTs in this State. The Commission shall promptly request for proposal a central monitoring system from at least two suppliers of central monitoring systems who are not licensed manufacturers, operators, or retailers in this State. The Commission shall use commercially reasonable efforts to adopt and implement the central monitoring system as soon as possible, but no later than two years after the effective date of this Article. When the central monitoring system is adopted, then the following must be enacted:
(1)	The central monitoring system shall be linked by a communications network through which all VGTs in a location shall connect to a single point of commerce and must not use a slot machine interface board or "SMIB" for the purpose of accounting and reporting to the State. In no event shall the terminal approved by the Commission limit participation to only one manufacturer or one type of VGT.
(2)	Within 12 months after the procurement of a central monitoring system and certification of that system, all VGTs shall be linked by a communications network to the central monitoring system for purposes of monitoring and reading device activities as provided for in this section. When the Commission is satisfied with the operation of the central monitoring system, it shall certify the effective status of the central monitoring system and notify all licensees of such certification.
(3)	When the VGT is able to be linked to the central monitoring system, the VGT must adhere to the standards adopted by the Commission with regard to the hardware and software requirements of the central monitoring system.
(4)	The central monitoring system shall be designed and operated to allow the monitoring and reading of all VGTs for the purpose of compliance with regard to their obligations to the State. The central monitoring system shall be located within and administered by the Commission.
(5)	The central monitoring system shall not provide for the monitoring or reading of personal or financial information concerning patrons of VGTs.
(6)	Any entity that acts as a supplier for the Commission in building, operating, maintaining, or contracting to build, operate, or maintain a central monitoring system shall be prohibited from obtaining a license as a manufacturer, operator, or retail location.
"§ 18C‑208.  Video game terminal permit required.
(a)	The Commission shall make available a VGT permit that shall be affixed to all approved VGTs in a location in a manner set forth by the Commission. The placement of the VGT permit represents that the machine has been registered and approved for operation in the State.
(b)	The Commission shall issue the VGT permits annually at the beginning of each fiscal year.
(c)	Manufacturers, licensed operators, and retail establishments must make VGTs and associated equipment available for inspection by the Commission. No VGT shall be issued a permit unless the game software is certified by an independent testing laboratory.
(d)	Any terminal or machine that does not display the VGTs permit as required by this section is illegal and subject to confiscation by any law enforcement officer.
(e)	No device may be placed in operation without having a valid decal affixed prominently on the front of the device where it is visible at all times so law enforcement or representatives of the Commission need not move a device to see the decal. After the first of the year, the previous year's decals must be removed entirely, or covered entirely by placing the current year's decal over it. If a device has more than one playing station, each station must have a valid decal.
(f)	The VGT permit shall be issued upon payment of the terminal fee pursuant to G.S. 18C‑212(b).
"§ 18C‑209.  Types of licenses.
The Commission shall issue the following types of licenses associated with VGTs:
(1)	Manufacturer license.
(2)	Operator license.
(3)	Retailer license.
"§ 18C‑210.  Minimum qualifications for licensure.
(a)	The Commission may not approve an applicant if any of the following apply:
(1)	The applicant has been convicted of a felony in any state or federal court of the United States within 10 years of issuance of the license or employs officers or directors who have been convicted of a felony or any gambling offense in any state or federal court of the United States within 10 years of issuance of the license.
(2)	The applicant is less than 21 years of age.
(3)	The applicant has falsified the application.
(4)	The applicant is not current in filing all applicable tax returns to this State and in payment of all taxes, interest, and penalties owed to this State, excluding items under formal appeal under applicable statutes. Upon request of the Director, the Department of Revenue shall provide this information about a specific person to the Commission.
(5)	The applicant fails to provide all information and documentation requested by the Commission.
(b)	The applicant must furnish all information, documents, certifications, consents, waivers, individual history forms, and other materials required or requested by the Commission for purposes of determining qualification for that type of license. If the applicant is a public company, the applicant must file with the Commission a copy of any disclosure statement involving ownership of the public company required to be filed with the United States Securities and Exchange Commission.
(c)	The applicant must submit to a background investigation, including each partner, director, officer, and all stockholders of five percent (5%) or more of any business entity, except for institutional investors.
(d)	The burden of proof for establishing qualification under this section shall be on the applicant.
(e)	No licensee or applicant to be a licensee shall pay, give, or make any economic opportunity, gift, loan, gratuity, special discount, favor, hospitality, or service, including food and beverages of greater than one hundred dollars ($100.00), to the Director, to any member or employee of the Commission, or to any member of the immediate family residing in the same household as one of these individuals.
"§ 18C‑211.  Retailer qualifications; restrictions.
(a)	In addition to the criteria set out in G.S. 18C‑210, the Commission may not approve an application for a VGT retailer license if the applicant meets any of the following criteria:
(1)	Is a person whose establishment would be engaged exclusively in the business of possessing VGTs.
(2)	Is a person who resides in the same household as a member of the Commission, the Director, or any other employee of the Commission.
(b)	No person with or applying for a retail license shall have an interest in any person or immediate family member of a person with an operator's license or manufacturer's license.
(c)	A licensed retailer must be allowed to possess only a VGT retailer license and must not possess an operator license or manufacturer license.
(d)	The applicant for a VGTs retailer's license shall provide, in addition to other information required by the Commission, all of the following information:
(1)	Name of the licensed establishment.
(2)	Address of the licensed establishment.
(3)	Phone number of the licensed establishment.
(4)	Name, address, and phone number of each owner of the licensed establishment.
(e)	A VGT retailer is required to enter into a written contract with only one licensed operator per location.
(f)	A VGT retailer must also hold an active license to sell beer, wine, liquor, or tobacco products.
"§ 18C‑212.  Fees.
(a)	The Commission shall charge each applicant for a manufacturer's license an annual fee of fifty thousand dollars ($50,000).
(b)	The Commission shall charge each applicant for an operator's license an annual fee of twenty‑five thousand dollars ($25,000) and an annual terminal fee of one hundred fifty dollars ($150.00) per terminal.
(c)	The Commission shall charge each applicant for a retailer license an annual fee of one thousand dollars ($1,000) per retail location and an annual terminal fee of one hundred fifty dollars ($150.00) per terminal.
(d)	In addition to the annual license fees, the Commission may charge a one‑time license application fee not to exceed one thousand dollars ($1,000).
(e)	Failure to pay the specified fees shall be cause for revocation of the entity's license.
(f)	All licenses issued by the Commission are renewable annually unless sooner cancelled or terminated. No license issued by the Commission is transferable or assignable.
(g)	The annual terminal fees collected under subsection (c) of this section shall be allocated to the county where the terminal is located and shall be used to mitigate the increased burden placed upon local communities from the impact of the regulated machines.
"§ 18C‑213.  Requirements and limitations on operators.
(a)	In order to be licensed as an operator, the business, corporation, or entity shall meet the following criteria:
(1)	Has an office located in the State.
(2)	Is qualified to do business according to the Secretary of State's Office for at least three consecutive years prior to the filing of an application for licensure.
(3)	Incorporation or formation in the State for at least three consecutive years prior to the filing of an application for licensure.
(4)	The majority of owners must have resided in the State for at least three consecutive years prior to the filing of an application for licensure.
(b)	Licensed operators must purchase from licensed manufacturers the following major components:
(1)	Cabinet.
(2)	Game board/motherboard.
(3)	Game software.
(4)	Bill acceptors.
(5)	Printers.
(6)	Card reading/cashless devices.
(7)	Monitors.
(8)	Point of sale systems.
(c)	An operator may not create, develop, or assemble their own VGTs for operation within this State and they must purchase all major components from a licensed manufacturer.
(d)	Operators must not place into operation more than eight machines per retail location.
(e)	A licensed operator shall prepare a monthly report of accounting information from each VGT as determined by the Commission.
(f)	Licensed operators shall file with the Commission the location of any establishment in which permitted VGTs are located, and those locations shall be licensed establishments. The Commission shall not issue any license for an establishment located within 500 feet of a church, public school, or any nonpublic school as defined by Parts 1 or 2 of Article 39 of Chapter 115C of the General Statutes at the time of licensure.
"§ 18C‑214.  Limitation on manufacturers.
A licensed manufacturer shall not create, develop, or assemble any major component exclusively for one operator.
"§§ 18C‑215 through 18C‑219.  Reserved for future codification purposes.
"Part 3. Video Gaming Terminals.
"§ 18C‑220.  Video gaming terminal requirements.
(a)	Permissible games include, but are not limited to, the following:
(1)	Video Poker.
(2)	Video Blackjack.
(3)	A video game based on or involving the matching of different pictures, words, numbers, or symbols.
(b)	No later than the 15th day of each month, the operator must submit a report to the Commission in a format designated by the Commission. The report shall include at least all of the following information, per terminal:
(1)	Amount of cash received.
(2)	Amount of prizes paid out.
(3)	Amount of net terminal revenue.
(c)	The minimum payout to a user over the lifetime of the VGT shall be eighty‑five percent (85%).
"§ 18C‑221.  Contract required.
(a)	The Commission shall require written contracts that are signed among each licensed operator and licensed retailer for which the VGTs are placed.
(b)	The contract between the licensed operator and the licensed retailer must specify the following:
(1)	The licensed retailer is reimbursed from the net terminal revenue from the operation of the VGT for prizes paid out to successful players.
(2)	Net terminal revenue from the operation of the VGT after the deduction of any taxes must be shared equally between the licensed operator and the licensed retailer.
(3)	The term of the contract between the licensed operator and the licensed retailer must be a minimum of five years.
(c)	A licensed operator shall not offer any item of value to a licensed VGTs retailer or an employee of a licensed VGTs retailer in exchange for allowing the licensed operator to place VGTs in the licensed VGTs retailer's establishment.
"§§ 18C‑222 through 18C‑229.  Reserved for future codification purposes.
"Part 4. Enforcement.
"§ 18C‑230.  Enforcement.
The Commission and any law enforcement agency shall have enforcement authority under this Article.
"§ 18C‑231.  Inspection of premises, records, activities.
At any time during normal business hours, the Commission or any law enforcement agency may inspect an establishment of a licensed VGTs retailer, licensed operator, or a licensed manufacturer. The inspection may include the examination of licenses, equipment, and permits related to the operation.
"§ 18C‑232.  Criminal offenses.
(a)	Any person who tampers with or damages a VGT with intent to interfere with the proper operation of that terminal, or any person who, with intent to manipulate the outcome, payoff, or operation of a VGT, manipulates the outcome, payoff, or operation of a VGT by physical tampering or any other means, is guilty of a Class 1 misdemeanor.
(b)	A licensed operator who intentionally falsely reports or fails to report the amount due required by the Commission is guilty of a Class 2 misdemeanor and is subject to termination of his or her license by the Commission.
(c)	Any person who intentionally violates G.S. 18C‑206(a) is guilty of a Class 2 misdemeanor and is subject to termination of his or her license by the Commission.
(d)	Any licensed operator who intentionally violates G.S. 18C‑208 shall incur a five thousand dollar ($5,000) fine for each violation.
"§ 18C‑233.  Independent testing laboratories.
The game software, and any other component required by the Commission, for all VGTs must be submitted by the licensed manufacturer to an independent, nationally recognized testing laboratory to test for compliance with industry standards and Commission rules and regulations."
SECTION 1.(b)  G.S. 18C‑114 reads as rewritten:
"§ 18C‑114.  Powers and duties of the Commission.
(a)	The Commission shall have the following powers and duties:
…
(8)	To charge a fee of potential contractors, lottery contractors, and applicants under Article 9 of this Chapter, to not exceed the cost of the criminal record check of the potential contractors and lottery contractors.
…
(12a)	To adopt rules to implement this Chapter, including establishing reasonable regulation of video game terminals.
(13)	Any other powers necessary for the Commission to carry out its responsibilities under this Chapter.
…."
SECTION 1.(c)  G.S. 14‑306.4 reads as rewritten:
"§ 14‑306.4.  Electronic machines and devices for sweepstakes prohibited.
(a)	Definitions. – For the purposes of this section, the following definitions apply:
(1)	"Electronic machine or device" means a mechanically, electrically or electronically operated machine or device, that is owned, leased or otherwise possessed by a sweepstakes sponsor or promoter, or any of the sweepstakes sponsor's or promoter's partners, affiliates, subsidiaries or contractors, that is intended to be used by a sweepstakes entrant, that uses energy, and that is capable of displaying information on a screen or other mechanism. This section is applicable to an electronic machine or device whether or not:
a.	It is server‑based.
b.	It uses a simulated game terminal as a representation of the prizes associated with the results of the sweepstakes entries.
c.	It utilizes software such that the simulated game influences or determines the winning or value of the prize.
d.	It selects prizes from a predetermined finite pool of entries.
e.	It utilizes a mechanism that reveals the content of a predetermined sweepstakes entry.
f.	It predetermines the prize results and stores those results for delivery at the time the sweepstakes entry results are revealed.
g.	It utilizes software to create a game result.
h.	It requires deposit of any money, coin, or token, or the use of any credit card, debit card, prepaid card, or any other method of payment to activate the electronic machine or device.
i.	It requires direct payment into the electronic machine or device, or remote activation of the electronic machine or device.
j.	It requires purchase of a related product.
k.	The related product, if any, has legitimate value.
l.	It reveals the prize incrementally, even though it may not influence if a prize is awarded or the value of any prize awarded.
m.	It determines and associates the prize with an entry or entries at the time the sweepstakes is entered.
n.	It is a slot machine or other form of electrical, mechanical, or computer game.
…
(d1)	Nothing in this section shall be construed to make illegal any activity conducted pursuant to Article 9 of Chapter 18C of the General Statutes.
(e)	Each violation of this section shall be considered a separate offense.
(f)	Any person who violates this section is guilty of a Class 1 misdemeanor for the first offense and is guilty of a Class H felony for a second offense and a Class G felony for a third or subsequent offense."
SECTION 1.(d)  G.S. 14‑306.1A reads as rewritten:
"§ 14‑306.1A.  Types of machines and devices prohibited by law; penalties.
(a)	Ban on Machines. – It shall be unlawful for any person to operate, allow to be operated, place into operation, or keep in that person's possession for the purpose of operation any video gaming machine as defined in subsection (b) of this section, except for the exemption for a federally recognized Indian tribe under subsection (e) of this section for whom it shall be lawful to operate and possess machines as listed in subsection (b) of this section if conducted in accordance with an approved Class III Tribal‑State Compact applicable to that tribe, as provided in G.S. 147‑12(14) and G.S. 71A‑8.
…
(f)	Machines described in G.S. 14‑306(b)(1) and Article 9 of Chapter 18C of the General Statutes are excluded from this section."
SECTION 2.  This act is effective when it becomes law.