Help from Ops PLEASE!!

hotrod797

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So the wife and I are planning to open a small arcade next year, but in the mean time we are doing some "creative storage" with the machines we are building up by placing them at different business's...

I know most everyone does a 50/50 split with the owners, but what type of contracts do you use? Is there anything I should know before doing this? I am in Northern Kentucky but plan on putting machine in KY, OH and IN. Any special laws with redemption type machines?

Thanks in advance for any help you can give me!!
 
I do believe I have read posts from ops here who mentionned having to pay a license to their state..
 
Doing business in 3 diffrent states means abiding by many different tax and zoning laws not only by state, but by individual jurisdictions. Sometimes, fees, amusement taxes, and licenses are paid directly to the state... sometimes to the county or city you do business in. You should check with each individual county you will do business in to see what they require, as well as the individual states.

I don't know about redemption laws in these states, however I have heard that Ohio can be tough on certain kinds of machines. This is just somehing I have heard, so again, check to be sure.

-Mike
 
So the wife and I are planning to open a small arcade next year, but in the mean time we are doing some "creative storage" with the machines we are building up by placing them at different business's...

I know most everyone does a 50/50 split with the owners, but what type of contracts do you use? Is there anything I should know before doing this? I am in Northern Kentucky but plan on putting machine in KY, OH and IN. Any special laws with redemption type machines?

Thanks in advance for any help you can give me!!

You want, no NEED a lawyer. ESPECIALLY with the redemption stuff - my guess is that the laws vary wildly from place to place as to what's legal, and what documentation and fees you have to have to put it in a place.

If I were you, I'd find a local lawyer and start with your locality. Figure out who you have to get licenses/permissions from to operate there, then check surrounding localities and states.

The first thing that occurs to me is that most states want every business to register, get a license and pay taxes (pretty much no matter what the business). That's the first thing to figure out, then you need to find the laws on amusement machines that don't give anything of value, THEN you can try to figure out the redemption stuff (in some localities that may be considered something like gambling, and thus be regulated differently than pure amusement devices like a pac-man).

Good luck!
 
Covering 3 states would NOT be fun for service calls. It's bound to happen. May be more like spending money then making money.
 
I'm agreeing with mdrago. Only thing that would make 3 states somewhat sensible is if your route stays within a 50 mile radius, and you have a semi substantial amount of equipment within that radius. We're fighting for quaters and $1 bills here... if you're driving a truck around the freeway all day to unjam coin slots, it really cuts into your bottom line.

-Mike
 
If you're going big like that too you want to buy Insurance. Some kid breaks his finger rocking the game back and forth and you lose your house.
 
Here's a sample contract (also can be called "Location Agreement" ):

http://www.vending.com/Business_Outlook/Vending_Machine_Business/Vending_Agreement/


Remember that the state, county, and city can have license requirements/fees/taxes that need to be paid. The terms can vary and you may be required to buy monthly or yearly licenses per machine! Don't forget sales tax on the income from the machines.

As to "redemption" types of machines, laws vary considerably from state-to-state. Here in Washington state, redemption machines are very strictly regulated not only by type of machine (specific makes and models are outlawed), but you also must submit to criminal background checks and pay a $1000 per year license fee for EACH machine! Hours of operation of the machines are regulated (no operation during school hours) as well as what locations are acceptable for redemption machines.
 
Covering 3 states would NOT be fun for service calls. It's bound to happen. May be more like spending money then making money.

I live on the Border of all 3 states, I can be in OH or IN within 15 minutes, we are only going to cover roughly a 40 mile radius, But I agree its a pain as far as taxes and business licenses for three states, but I think its what were going to have to do if we want to actually make money...
Thanks for all the advice, I plan to contact a lawyer tomorrow, will post back with my findings!!
 
I agree with all of the above and will only add the following from my experiences:

1) Do not make local agreements with the local General Manager of a National Chains location. All of the Nationals deal will either Vending Management Companies such as Best Vendors or Universal Vendors or the corporate office makes the decision on approved vending operators. I have seen many small op's get stuck in this situation and they get burned when they get the call to pull out as they are not authorized. Also, many of the Franchised businesses fall into this as well. Some franchised businesses expressly prohibit all vending equipment due to the fact that they are often cheated out of the franchise fee due from all sales.

2) Plan on getting a $2mil liability policy. Most places will require it and they will want a rider naming them as an additional insured. Make sure you have errors and omissions and product liability (for bulk & prize redemption). A good case for product liability is the person who claimed that a plush toy they won out of a crane in a K-Mart here in VA had a Hypodermic Needle in it and got pricked with it. Even though it was later found to be a fraud, that location to this day will not let another crane on it's location. Not a fun situation to be in.

3) As stated above, licensing will vary widely by local authorities. My experiences are Boston, MA area requires an Entertainment License that must be voted on by the city council or board of selectman before issue. Baltimore MD area (Depending on County) requires a license and decals for each machine (Bulk racks have 1 sticker for each vending head). Virginia is controlled by each county and their rules vary as well. If the county requires a license, the op must obtain an actual business license to operate in that county and the license fee is basically a tax on the priors years gross receipts. All of the areas that I have dealt with have some sort of limit on the amount of games that may be placed at a location.

4) Redemption is tricky for many areas, but I have not run into situations where skill games have any higher restrictions compared to video games with the exception of certain parts of New Hampshire required Amusement Only disclaimers to be displayed. Some cities and towns in MA require games be powered down when school is in session. Some areas follow the chuckie cheese rule where the value of the prize must be below a certain dollar amount and must be a tangible item with no cash value. As pointed out above, this is where you will need a Lawyer to investigate. I believe NJ still has the Play-Til-You-Win rule and the max charge per game is $2.00.

5) Sales tax is another tricky area. Some games may be exempt unless they vend an actual product or may be exempt if the cost per game is below a certain figure or you could end up paying sales tax for everything. This is where a good tax accountant comes into play.

6) Investigate the bank you wish to use for your business. Check their fee for change deposits. Most banks will claim they require you to bring in your coin rolled and they charge a hefty fee for doing so. However, many banks will allow you to deposit bulk coin deposits at a greatly reduced rate per bag. This can save you 50% or more in fees.
 
As someone who works in tax accounting, this might be more of a hassle than you're thinking. You will probably need to register with the Secretary of State for all 3 states, then you'll be filing a tax return with all 3 states, then whatever cities and counties you are in. Some might have minimum taxes that discourage you from even doing business, it just depends. Also, for some of these smaller locales getting the proper guidance from them on what you need to actually file can be next to impossible. I don't really work with sales tax at all, but I know for the income tax side of things I work on the definition of income for one city differs from others. That being said, I'm sure an accountant in your area could help you out. I know the vast majority of city tax returns we file are all Ohio and Kentucky. Hope it all works out for you as I like to hear about new arcades opening around the country.
 
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