SECTION 3.601. Definitions, Changes in Ownership, Gross Receipts Regulations, and Record Keeping Requirements

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Gross receipts--The total sum of money derived from the operation of a coin-operated machine which vends music, skill, or pleasure.

(2) Issue a license--A license issued on an applicant's original application or a license issued on an application for renewal.

(3) License--A general business license, import license, or repair license issued by the comptroller.

(4) Machine or amusement machine--All machines that vend or dispense music, or are operated for skill or pleasure. A machine in an independent cabinet with a separate central control mechanism shall be considered a separate machine in regard to occupation tax requirements. A machine that is no longer functional, and that has been permanently taken out of service, will not be considered to be a coin-operated machine operated for music, skill, or pleasure. In this context permanently taken out of service means that it is no longer financially practical to operate the machine and the machine will be used only for parts.

(5) Machines designed exclusively for children--Machines that can only be used for skill or pleasure by a child under 12 years of age.

(6) Owner of a registration certificate--An owner who possesses a valid registration certificate issued by the comptroller.

(7) Permit--The decal issued by the comptroller to an owner of a coin-operated machine evidencing the payment of the occupation tax.

(8) Person--Any natural person, association of natural persons, trustee, receiver, partnership, corporation, organization, or the manager, agent, or employee of any of them.

(9) Video game--An electronic mechanism played for skill or pleasure by means of images on a screen. Each cabinet that holds a game of skill or pleasure by means of images on a screen constitutes an independent operation subject to the occupation tax.

(b) Changes in ownership. Changes in ownership are reported in the following manner:

(1) if any partner of a partnership; trustee of a trust; receiver of a receivership; officer or director of a corporation; shareholder owning 10% or more of the outstanding shares of a corporation; individual applicant or licensee; officer, director or member of an association or other entity changes since the last ownership information was filed with the comptroller, written notification of the ownership change must be filed with the comptroller within 10 days of the ownership change;

(2) if any information on an application changes since the last application was filed or any information changes since the comptroller was notified of an information change, including the change of ownership of any permitted machine owned by the registration certificate holder or general business license holder, written notification of the change must be filed with the comptroller within 10 days of the change;

(3) if the owners of a corporation change, a written notification of the change must be filed with the comptroller within 10 days of the change. The business entity may continue to operate under its existing license or registration certificate;

(4) if partners in a partnership change or a business entity dissolves, the successor in interest must request a temporary extension of a license or file an application for a new license. A successor in interest is one who assumes the ownership interest of a business entity but does not include the purchaser of the assets of the entity. To request a temporary extension of a license, the successor in interest must file with the comptroller a certification by the county judge of the county in which the business is located that the person requesting the extension is successor in interest. In the case of a sole proprietor, only when there is a successor in interest as the result of the death of the licensee can there be an extension of a license. The death of this licensee must be certified by a county judge of the county in which the business is located, or by the judge of the probate court in the county in which the estate of the deceased licensee is probated. In all other instances, the entity assuming a sole proprietor's interest must obtain a license. At the time of renewal of a license that has been extended, the successor in interest must file an original license application; and

(5) if a sole proprietor owner of a registration certificate dies, the successor in interest must notify the comptroller in writing. The successor in interest may then continue to use the registration certificate until its expiration at which time the successor in interest must file an original application for a registration certificate. In all other instances, the successor in interest of the owner of a registration certificate shall file an application for a new registration certificate.

(c) Gross receipts regulations. The following regulations apply to gross receipts:

(1) distribution of gross receipts from amusement machines. The term "gross receipts from an amusement machine" is defined to be the total sum of money derived from the operation of a coin-operated machine that vends music, skill, or pleasure. No licensee shall enter into a contract or offer to contract with a bailee or lessee (location operator) of an amusement machine to compensate the bailee or lessee in excess of 50% of the gross receipts from an amusement machine, except that a licensee may refund a bailee or lessee of an amusement machine all money accepted by an amusement machine due to its malfunction. Before any money may be refunded under this exception, the name, address, and telephone number of the person who deposited money in the malfunctioning machine together with the sum of money deposited by him must be supplied to the licensee;

(2) collection records of distribution of gross receipts from an amusement machine. Complete and separate records showing the distribution of the gross receipts for each location that an amusement machine is operated shall be made on each and every occasion the licensee or one of his employees collects money from the cash box of an amusement machine placed in operation. These records showing the distribution of the gross receipts for each location that an amusement machine is operated shall be kept by a licensee at his designated address. These records shall be kept by the licensee for a period of two years; and

(3) entry to cash boxes of amusement machines. No licensee shall allow the bailee or lessee of an amusement machine to open or gain entry in any manner to the cash box except a coin-operated machine equipped with an income meter that totals or computes the sum of money deposited in the machine in dollars and cents. All keys to the cash box of a coin-operated machine other than a machine expressly exempt by this rule shall at all times remain in the possession of the licensee or his employees.

(d) Record keeping requirements. The following requirements are imposed on record keeping:

(1) in addition to all other record keeping requirements, each licensee shall maintain at the designated address, for inspection at all times by the comptroller, a record of each and every amusement machine purchased, received, possessed, controlled, handled, exhibited, or operated by him in this state as long as the licensee owns the machine and for two years after the date the licensee ceases to own the machine. Under this section the following information shall be shown in the licensee's records:

(A) the full name and address of the owner of each and every machine, or if other than an individual, the principal officers or members thereof and their addresses;

(B) the date each machine was acquired or received in Texas;

(C) the make, type, and serial number of each and every machine;

(D) the date each machine was first placed in operation;

(E) the date of the first and most recent registration of each machine;

(F) the location or locations of each machine including county, city, and street, or directions if location is a rural route and box number;

(G) every change in ownership of each machine including written notification as described in subsection (b)(2) of this section;

(H) the distribution of the gross receipts for each location that a machine is located and the receipts from each machine;

(I) the date each machine was taken out of operation, the reason the machine was taken out of operation, and the location of a machine taken out of operation or the description of the final disposition of a machine; and

(J) all contracts made with location owners;

(2) depreciation schedules and federal income tax returns must be maintained for four years to be in compliance with the sales tax statutes; and

(3) purchase invoices for the machines must be maintained for four years to be in compliance with the sales tax statutes.

Source Note: The provisions of this §3.601 adopted to be effective December 17, 1996, 21 TexReg 11806; amended to be effective April 13, 2005, 30 TexReg 2097