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

   1. (1) Association--A horse or greyhound association licensed by the commission to conduct races with pari-mutuel wagering or the authorized agent of such an association.

      1. (A) Class 1 association--An association licensed by the commission as a Class 1 association for the purpose of conducting horse races with pari-mutuel wagering.
      2. (B) Class 2 association--An association licensed by the commission as a Class 2 association for the purpose of conducting horse races with pari-mutuel wagering.
      3. (C) Class 3 association--An association licensed by the commission as a Class 3 association for the purpose of conducting horse races with pari-mutuel wagering.
      4. (D) Class 4 association--An association licensed by the commission as a Class 4 association for the purpose of conducting horse races with pari-mutuel wagering.
      5. (E) Greyhound association--An association licensed by the commission for the purpose of conducting greyhound races with pari-mutuel wagering.
      6. (F) Receiving association--A licensed racetrack association in this state that has been allocated live dates simulcasting or a simulcast race meeting, or a facility not located in this state that is authorized to conduct wagering under the law of the jurisdiction in which it is located.
      7. (G) Sending association--A licensed association for racing in this state or out-of-state from which a race is transmitted.
   2. (2) Commission--The Texas Racing Commission or an authorized agent of the Texas Racing Commission.
   3. (3) Common pool--A pool in which the wagers received at a receiving location are combined with the wagers received at a sending racetrack.
   4. (4) Communications facilities--Facilities which include all wire, radio, optical, satellite, or other electromagnetic systems and the modems, phone systems, and other equipment used to transmit voice, data, and images.
   5. (5) Comptroller--The Comptroller of Public Accounts or an authorized agent of the Comptroller of Public Accounts.
   6. (6) Live pari-mutuel pool--The total amount of money wagered by patrons on the result of a particular live race or combination of live races within the enclosure of the racetrack association where the race is being run.
   7. (7) Simulcast--The telecast or other transmission of live audio and visual signals of a race, transmitted from a sending track to a receiving location, for the purpose of wagering conducted on the race at the receiving location.
   8. (8) Simulcast pari-mutuel pool--The total amount of money wagered by patrons at a licensed racetrack association in Texas on the result of a particular simulcast race or combination of simulcast races.
   9. (9) Simulcast race meeting--The dates to conduct simulcast pari-mutuel wagering only, while conducting no live races.
   10. (10) State approved depository--A bank approved as a depository of state funds by the State Depository Board.
   11. (11) Totalisator company--A company selling, leasing, servicing, maintaining, or operating automated electronic computer hardware and software to calculate, record, display, and store pari-mutuel wagering information.

2. (b) Collection/deposit of the state's share from live and simulcasting pari-mutuel wagering revenues; reports to the comptroller.

   1. (1) Reporting and payment of the state's share of simulcast pari-mutuel pools shall be in accordance with this subsection.

      1. (A) The sending association is responsible for reporting and payment of the state's share from pari-mutuel wagering revenues derived from simulcast intrastate common pools.
      2. (B) Each association is responsible for reporting and payment of the state's share from pari-mutuel wagering revenues derived from simulcast intrastate separate pools and simulcast interstate, separate, or common pools.
      3. (C) The sending association must provide a copy of each simulcasting agreement or amendment(s) to the comptroller within 72 hours after such agreement or amendment(s) is approved by the commission. If interstate simulcasting is involved, the agreement or amendment(s) must be provided by the association located in Texas.
   2. (2) In each locality with licensed Class 1, Class 2, or greyhound associations, the state treasurer has agreed to open an interest-bearing account in a local state-approved depository to be used for deposit of the state share of pari-mutuel wagering proceeds.
   3. (3) After each racing day, a representative of a Class 1, Class 2, or greyhound association shall deposit to the state account by 10 a.m. of the next banking day the state's total share from the live and simulcasting pari-mutuel pools for all races on which wagers were placed since the last deposit.

   4. (4) All deposits to the state account must be in cash or by check drawn on an association account in the state-approved depository bank or by telephone transfer from an association account in the state-approved depository bank.

      1. (A) Upon making the deposit, Class 1, Class 2, and greyhound associations shall report by telephone to a data collection center designated by the state treasurer the information shown on a pari-mutuel wagering deposit report form promulgated by the comptroller. They shall also transmit a copy of the completed form to the comptroller by telephone line and high-resolution facsimile equipment.
      2. (B) Class 3 and Class 4 associations must transmit a check covering the amount of the state's share to the comptroller by 10 a.m. of the next banking day after the performance by express mail for one-day delivery. The check must be attached to the performance pari-mutuel summary report.

   5. (5) After each racing performance, information must be reported to the comptroller.

      1. (A) Live pari-mutuel pools. At the close of each racing performance, the association shall complete the Texas Pari-mutuel Performance Summary Report. This report shall be filed for each racing date authorized by the commission even if no races are held.
      2. (B) Interstate simulcast pools. At the close of each racing performance, if the association is receiving the races from an out-of-state destination, the pari-mutuel wagering revenues derived from these races shall be reported on the Texas Pari-mutuel Performance Summary Report and the Texas Pari-mutuel Performance Supplemental Report. This report shall be filed for each racing day authorized by the commission even if no races are held.
      3. (C) Intrastate simulcast common pools. At the close of each racing performance, the sending association shall report the pari-mutuel wagering revenues on the Texas Pari-mutuel Performance Summary Report and the Texas Pari-mutuel Supplemental Report. The receiving association shall also complete the Texas Pari-mutuel Performance Supplemental Report. The pari-mutuel wagering revenues shall be derived from simulcast intrastate combined pari-mutuel pools. These reports shall be filed for each racing day authorized by the commission even if no races are held.
      4. (D) Intrastate simulcast separate pools. At the close of each racing performance, the receiving association shall complete the Texas Pari-mutuel Performance Summary Report and the Texas Pari-mutuel Performance Supplemental Report. This report shall be filed for each racing date authorized by the commission even if no races are held.
      5. (E) Class 1, Class 2, and greyhound associations shall transmit a copy of the completed reports to the comptroller by facsimile equipment no later than 10 a.m. of the next banking day following a performance. Class 3 and Class 4 associations must transmit the completed report(s) to the comptroller along with the payment of the state's share by 10 a.m. of the next day by overnight or express mail.
   6. (6) If problems exist in telephone transmission or other breakdown in the facsimile equipment and copies of the reports cannot be transmitted by telephone transmission and facsimile equipment because of these problems, then associations shall send such reports to the comptroller by overnight mail or overnight private delivery service.
   7. (7) Originals of the reports of which copies have been transmitted to the comptroller by facsimile equipment shall be preserved in chronological order with other association records. Class 3 and Class 4 associations shall preserve copies of the reports that have been mailed to the comptroller, in chronological order, at association offices located at the track or at such other location as may be agreed to in writing by the comptroller. These reports shall be available for audit inspection.

3. (c) Associations with pari-mutuel wagering to post bond or other security.

   1. (1) Associations will be responsible for the state's share of the pari-mutuel pool from the time a ticket is sold and the money is collected until the money is deposited to the state account.
   2. (2) All associations shall be bonded or otherwise secured in an amount estimated by the comptroller to be five times the highest daily state's share of the pari-mutuel pool for the period covered by the bond. The bond will cover the state's share of the pari-mutuel pool.
   3. (3) In order for the comptroller to establish an appropriate amount for the bond or other security to be posted, associations shall provide the information that the comptroller requests.

   4. (4) The bond or other security shall be approved by and filed with the comptroller.

      1. (A) The comptroller may require the posting of new or additional bond or security if:

         1. (i) the comptroller determines the amount of bond or other security deposited to be inadequate; or
         2. (ii) the comptroller determines that an association is delinquent in payment of an amount due; or
         3. (iii) a surety gives the comptroller written notice of its intent to withdraw as surety.
      2. (B) If the amount of security posted is determined to be in excess of requirements, the comptroller will allow as much of the bond or security as is determined to be in excess of requirements to be cancelled or withdrawn.
      3. (C) Should the comptroller decide either that the security posted is inadequate or that it is in excess of requirements, the association shall receive written notice.
      4. (D) If new or additional bond or other security is required, the association shall furnish it within the time specified by the notice.
   5. (5) The comptroller will accept as security: cash, cashiers checks, surety bonds, irrevocable bank letters of credit, United States Treasury bonds that are readily convertible to cash, and irrevocable assignments (on forms approved by the comptroller) of federally insured accounts in banks, savings and loan institutions, and credit unions. The comptroller will not accept corporate stocks and bonds or personal guarantees as security.
   6. (6) All surety bonds posted must be executed and issued by a surety company authorized to do business in the State of Texas on a form approved by the comptroller. The surety bond must be signed by an attorney-in-fact appointed by the surety, and a notarized copy of the appointment shall be attached.

   7. (7) A bond or other security must be in effect at all times while an association is conducting pari-mutuel wagering. The comptroller will release the bond or other security upon determination that:

      1. (A) there is no payment, penalty, or interest due and payable to the State of Texas;
      2. (B) the association has ceased to conduct pari-mutuel wagering; and
      3. (C) its license has been revoked or relinquished and will not be renewed.

4. (d) Equipment required; responsibilities of companies contracting to provide equipment.

   1. (1) Each association licensed for pari-mutuel wagering shall use totalisator company equipment and software that satisfies the recordkeeping and reporting requirements of the comptroller. The association must provide a copy of the totalisator contract or amendment(s) to the comptroller within 72 hours after such contract or amendment(s) is approved by the commission.

      1. (A) The minimum electrical specifications for the race association's computer room must include a dedicated electrical outlet for each processor. The outlet should be three-wire, with a good earth ground, with no more than five volts AC between neutral and ground.
      2. (B) The association must install two separate devices which will cause the tote system to stop betting. The primary device will be installed accessible to association stewards or judges to be used to issue the stop betting command during normal operations. The second device (backup) is to be installed in the totalisator room and used by the pari-mutuel manager or the totalisator operator to issue the stop betting command in cases where hardware malfunction or human error does not cause the tote system to stop betting at the appropriate time.
      3. (C) The totalisator system must have the capability of restricting the cancelling of wagers to the last four tickets issued by a machine (to be cancelled by that machine). If the ticket is not in the last four, it must be cashed through designated cash/sell terminals only with the appropriate approvals. All manually cashed wagers, cancelled wagers, and refunds issued must be recorded by the totalisator system for each cash/sell terminal. A detailed printed report of these transactions must be generated upon request of the comptroller, including a summary of each transaction type.
      4. (D) A ticket cannot be cancelled by the cashier after it has been purchased and the patron has left the ticket window.
      5. (E) The totalisator system must record all transactions of each sell/cash terminal by terminal. A printed copy of these transactions for each sell/cash terminal must be generated if requested by the comptroller.
      6. (F) The totalisator system must restrict access to sell/cash terminals through assigned user passwords to facilitate cashier accountability.
      7. (G) All tickets that were either manually refunded or cancelled must be preserved for audit inspection with information identifying the number of the window or machine where it was paid, the teller that cashed it, and whether it was cashed by the totalisator system or by manual override of the totalisator system. If these tickets are not present and this information is not provided during the audit, the association will be responsible for reimbursing the state for any money it would have received had the ticket not been cashed.
      8. (H) A waiver may be granted from these requirements for totalisator systems temporarily installed at Class 3 and Class 4 associations upon a showing to the comptroller's satisfaction that unnecessary expense would be incurred in complying with the requirements, and that the system can be made to function properly without meeting these requirements.
   2. (2) A totalisator company is subject to inspection and regulation by the comptroller to insure the integrity of the information obtained by use of its software and equipment. The association shall be held accountable for any loss of state money due to totalisator company error.
   3. (3) The totalisator company must orally notify the comptroller upon any change, enhancement, or upgrade in the computer hardware or software that affects the calculation of the pari-mutuel tax or information referenced in paragraph (8) of this subsection. The totalisator company shall also promptly submit this information in writing to the comptroller.
   4. (4) Totalisator equipment and software must be installed on-site and a series of system checkout programs designated by the comptroller must be executed by the totalisator company. At Class 1, Class 2, and greyhound associations this shall occur at least 48 hours before the start of each racing meeting. No changes shall be made in the programming after the tests are completed without the permission of the comptroller.
   5. (5) In addition to the information referenced in paragraph (4) of this subsection, the comptroller may at any time, without prior notice, test or have tested the totalisator equipment or software and the communications facilities.
   6. (6) Any malfunction of equipment hardware, software, or communications facilities which results in loss or delay of required report data and any processor downtime, regardless of whether it results in loss or delay of required report data, shall immediately be reported by the association to the comptroller when the performance pari-mutuel summary report form is filed.
   7. (7) In addition, a separate written report shall be filed with the comptroller within seven days after the malfunction occurs containing a full and complete sworn statement from an authorized association official which identifies the cause of malfunction and the data, if any, lost as a result.

   8. (8) A totalisator system must be able to produce and provide to the comptroller upon request:

      1. (A) in a format prescribed by the comptroller, a copy of the data necessary to recreate the wagering activity of any race performance that the comptroller may wish to review;
      2. (B) a copy of the system log in a format prescribed by the comptroller;
      3. (C) a copy of the compiled version of all system programs (object coding) in a format prescribed by the comptroller; and
      4. (D) other computer files as specified by the comptroller.

5. (e) Audit; appeal of audit findings.

   1. (1) Within 150 days after the close of each meet, each Class 1, Class 2, or greyhound association shall have a full financial audit performed at its expense by an independent certified public accountant licensed by the State of Texas and a copy shall be kept on file at the association and furnished to the comptroller on request.
   2. (2) The comptroller may audit to verify information reported by the association using any commonly accepted auditing method, including, but not limited to, any auditing method used by the comptroller to verify information and reports filed pursuant to the Tax Code.
   3. (3) All computer tapes, computer programs, and books and records used to record, display, calculate, or report the state's share shall be maintained by the association or the totalisator company and shall be stored in chronological order in a disaster-proof environment to insure the integrity of the data and made available for inspection in a format compatible with the comptroller's equipment at any time without advance notice. Class 1, Class 2, and greyhound associations shall maintain their records at an association office at the track. Class 3 and Class 4 associations shall preserve the originals of these records at association offices located at the track or at such other location as may be agreed to in writing by the comptroller.
   4. (4) The said records shall be kept at least four years unless the comptroller gives written authority for earlier disposal. Any record relating to a comptroller audit that is still open or which has been challenged by the association shall be kept until the audit is final and all disputed issues are finally resolved.
   5. (5) An association may dispute any audit findings of the comptroller through the same procedures available to dispute audit findings under the Tax Code. Such procedures are hereby adopted by reference in this section.

6. (f) Sanctions.

   1. (1) The comptroller will immediately certify to the commission the violation by the association or its agents of a rule promulgated by the comptroller; the failure or refusal of an association to pay all or any part of funds due the state or to file reports when due; the failure or refusal of an association to allow inspection of reports and records; the failure or refusal of an association to allow testing of the totalisator equipment or software or the communications facilities; the failure or refusal of an association to post bond in the amount required; or the failure or refusal of an association to keep and retain the records required by the comptroller.
   2. (2) If any payment to the state is due, the comptroller will also notify the association and its sureties by a written demand for payment. If payment is demanded and is not made by the date specified in the demand notice, the comptroller will forfeit as much of the bond or security then in effect as may be necessary to pay the proper amount due.
   3. (3) Concurrently, the comptroller will pursue the additional remedies authorized by law.

7. (g) Notification of live and simulcast race dates to the comptroller.

   1. (1) Each association shall notify the comptroller in writing of any makeup or replacement race date(s) approved by the commission prior to that date.
   2. (2) Each calendar year, each association, whether sending or receiving, shall provide to the comptroller in writing a schedule of simulcast race date(s) prior to the first simulcast race date. This schedule shall include the format of the simulcast pari-mutuel pool and the associations involved. If any changes are made to the simulcast race date(s) after the schedule has been submitted to the comptroller, each association, whether sending or receiving, shall notify the comptroller in writing of the changes prior to the changed simulcast date.

Source Note:The provisions of this §3.641 adopted to be effective December 1, 1989, 14 TexReg 6080; amended to be effective March 18, 1992, 17 TexReg 1653.