ILLINOIS GAMING ACT
The Illinois Video Gaming Act Summary
On July 13, 2009, the State of Illinois enacted legislation legalizing the use of video gaming terminals in liquor licensed establishments which include truck stop establishments, fraternal establishments, and veterans establishments. A video gaming terminal is any electronic game machine that, upon insertion of cash, is available to play or simulate the play of a video game, including but not limited to Illinois video poker, line up, and blackjack, (as authorized by the Illinois Gaming Board) utilizing a video display. Players may receive free games or credits that can be redeemed for cash. Video gaming devices that fall outside of this definition will be illegal to possess, constituting a felony, under Illinois law.
The enacted legislation specifies strict licensing requirements for Video gaming manufactures, distributors, suppliers, terminal operators, establishments and individuals who service video gaming terminals.
Manufacturers, Distributors and Suppliers
According to the legislation, manufacturers and distributors must each be licensed and may only sell to those distributors and terminal operators which also hold a valid license issued under the Act. A manufacturer is defined as a legal entity that manufactures or assembles video gaming terminals. A distributor is defined as a legal entity that buys, sells, leases, or distributes video gaming terminals, major components or parts of video gaming terminals to or from terminal operators.
Manufacturers may sell only to distributors, and distributors may contract only with licensed terminal operators. Neither a manufacturer nor distributor may be licensed as a video gaming terminal operator or own, manage or control an establishment.
A terminal operator is a licensed legal entity that owns, services, and maintains video gaming terminals for placement in establishments. Terminal operators are licensed under the Illinois Video Gaming Act and licensed to place video gaming terminals for use in licensed establishments. Terminal operators may not give anything of value, including loans or financing arrangements, to an establishment as an incentive or inducement to locate a video gaming terminal in a establishment.
Establishments defined by the Illinois Video Gaming Act include: licensed liquor establishments, licensed truck stop establishments, licensed fraternal establishments, and licensed veterans establishments. A licensed establishment is defined as any licensed retail establishment where alcoholic liquor is served for consumption on or within that establishments premises.
The Illinois Video Gaming Act requires owners of establishments to enter into written use agreements with the terminal operators prior to the placement of video gaming terminals within an establishment. An establishment may operate up to 5 video gaming terminals on its premises at any time and may only contract with a licensed operator to place and service the equipment.
Establishment must possess a valid up-to-date Illinois liquor license issued by the Illinois Liquor Control Commission. The liquor license must be valid and in effect at the time a video gaming terminal is made available to the public for play at that location.
To become licensed, an establishment must submit an application to the Illinois Gaming Board. If liquor license holder is determined to; have a background, including a criminal record, reputation, habits, social or business associations, or prior activities that pose a threat to the public interests of the State or to the security and integrity of video gaming they may have their application denied. Licenses are renewable annually and are not transferable or assignable.
A tax of 30% is imposed on net terminal income, where net terminal income is defined as money put into a video gaming terminal minus credits paid out to players, and shall be collected by the Illinois Gaming Board (IGB). Of the tax collected, five-sixths shall be deposited into the Capital Projects Fund and one-sixth shall be deposited into the Local Government Video Gaming Distributive Fund. Of the after-tax profits from a video gaming terminal, 50% shall be paid to the terminal operator and 50% shall be paid to the licensed establishment, licensed truck stop establishment, licensed fraternal establishment, or licensed veterans establishment (‘Licensed Location’), notwithstanding any agreement to the contrary.
Additionally the IGB has mandated that a 0.7275% Central Communication System Fee should be shared equally between the terminal operator and the Licensed Location. This means that a Licensed Location will receive 34.63625% of the net terminal income. Revenues generated from the play of video gaming terminals must be deposited by the terminal operator, who is responsible for tax payments, in a specially created, separate bank account maintained by the video gaming terminal operator to allow for electronic fund transfers. The Illinois Video Gaming Act 30 tax on net terminal income must be reported and remitted to the Illinois Gaming Board within 15 days after the 15th day of each month and within 15 days after the end of each month by the video terminal operator. A terminal operator may not own or have a substantial interest in more than 5% of the video gaming terminals licensed in Illinois. Terminal operators that are found to have violated one or more of these requirements will be guilty of a Class 4 felony and subject to termination of their license.
Terminal operators are required by law to split after-tax profits 50/50 with their establishment partners.