Tax Type
BPOL Tax
Local Taxes
Description
Lottery Ticket Seller; BPOL Tax
Topic
Basis of Tax
Local Power to Tax
Local Taxes Discussion
Date Issued
11-21-1988
[Opinion - Virginia Attorney General: 1988 at 560]
REQUEST BY: Honorable Geraldine M. Whiting Commissioner of the Revenue for Arlington County # 1 Courthouse Plaza 2100 Clarendon Boulevard Arlington, Virginia 22201
OPINION BY: Mary Sue Terry, Attorney General
OPINION:
You ask several questions concerning the local taxation of Virginia lottery ticket sales agents. You first ask whether the appropriate local business license tax1 classification for such sales should be the retail sales classification or the commission merchant classification. You next ask whether a merchant selling lottery tickets should include the tickets as part of his inventory for purposes of local merchants' capital taxation and, if so, upon what cost the tax should be based.
I. Applicable Statutes
A. Local License Taxes
Sections 58.1-3703(A) and 58.1-3704 of the Code of Virginia authorize localities to assess a business license tax on merchants in lieu of the merchants' capital tax. The former statute provides, in part, that "[t]he governing body of any county, city or town may levy and provide for the assessment and collection of county, city or town license taxes on businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged therein within the county, city or town."
Rate limitations based on certain categories of businesses are detailed in § 58.1-3706. These categories include (i) retail sales with a rate limitation of 20c. per $ 100 of gross receipts (§ 58.1-3706(A)(2)) and (ii) all other businesses not specifically listed or excepted in § 58.1-3706 with a rate limitation of 36c. per $ 100 (§ 58.1-3706(A)(4)).
"Commission merchant" is defined in § 58.1-3733 as follows:
Any person engaged in the business of selling merchandise on commission by sample, circular, or catalogue for a regularly established retailer, who has no stock or inventory under his control other than floor samples held for demonstration or sale and owned by the principal retailer, shall be classified as a commission merchant and taxed only on commission income. . . .
Section 58.1-3733 also provides that the "other business" rate limitation of § 58.1-3706(A)(4) applies to commission merchants.
B. Merchants' Capital Tax
Section 58.1-3509 authorizes localities to tax merchants' capital and provides, in part, that "[t]he capital of merchants is segregated for local taxation only."
Section 58.1-3510 defines merchants' capital as "inventory of stock on hand . . . and all other taxable personal property of any kind whatsoever . . . except tangible personal property not offered for sale as merchandise."
II. Sales of Instant Lottery Tickets Are Classified as Retail Sales for Purposes of Local Business License Tax
By definition, commission merchants are those who sell goods on commission by catalogue or sample, without inventory under their control other than floor samples for demonstration or sale which are owned by the principal retailer. Lottery sales agents do not come within this definition because they do not sell by catalogue or sample but, rather, sell the actual product -- lottery tickets.2 It is my opinion, therefore, that the commission merchant classification does not apply to the facts you present.
The category "retail sales" is listed as a license tax classification in § 58.1-3706(A)(2), although this statute does not define the term "retail sales." The Department of Taxation has promulgated guidelines3 which, in § 2-2, define "retail sale" as "the sale of goods, wares and merchandise for any purpose other than resale, but not including sales at wholesale to institutional, commercial and industrial users."
It is my opinion that the sale of an instant lottery ticket, which constitutes the sale of intangible personal property,4 satisfies this definition of retail sales. The sale of an instant lottery ticket is not a wholesale sale and is not for the purpose of resale. It is the sale of goods, wares, and merchandise. The fact that a lottery ticket is intangible personal property has no significance. The BPOL Guidelines do not define the terms "goods, wares, and merchandise," nor do they limit the use of these terms to tangible personal property.5 "Goods, wares, and merchandise" is defined as "[a] general and comprehensive designation of such chattels and goods as are ordinarily the subject of traffic and sale." Black's Law Dictionary 624 (5th ed. 1979).
III. Instant Lottery Tickets are Subject to Merchants' Capital Tax Based on Cost to Merchant
The definition of merchants' capital includes inventory of stock on hand. See § 58.1-3510. Instant lottery tickets are merchants' capital subject to the local merchants' capital tax in § 58.1-35096 because the merchant purchases and holds an inventory of the tickets. The value of the inventory subject to the applicable tax rate is its cost basis7 -- that is, the amount charged to the lottery sales agent by the Lottery Department for the tickets.8
IV. Summary
To summarize, it is my opinion that
(1) the sale of instant lottery tickets is classified as a retail sale for purposes of local license taxation;9 and
(2) the merchants' capital tax is applicable to instant lottery tickets and is to be based on the cost of the tickets to the merchant.
The conclusions in this Opinion are limited to instant ticket lottery games. I express no opinion concerning the license and merchants' capital tax matters discussed above in the context of "on-line" lottery games, since sufficient facts on the role of the lottery sales agents in these "on-line" games is not yet available.
1 Pursuant to § 58.1-4011 of the Code of Virginia, the gross receipts to which the license tax is applied include only the compensation paid to the lottery ticket sales agent.
2 See State Lottery Regulations § 3.10(A) (Aug. 1, 1988) (retailers purchase books of lottery tickets from State Lottery Department).
3 Department of Taxation, Guidelines for Local Business, Professional and Occupational License Taxes (Jan. 1, 1984) ("BPOL Guidelines").
4 "Intangible property" is defined as "property which cannot be touched because it has no physical existence such as claims, interests, and rights." Black's Law Dictionary 1095 (5th ed. 1979). A lottery ticket is intangible in this sense because the ticket merely represents the intangible right of the holder to participate in the game with a chance of entitlement to prizes.
5 Compare § 58.1-602(16) (limits sale to tangible personal property for purposes of the Virginia Retail Sales and Use Tax Act).
6 I am aware of no basis to exempt instant lottery tickets from this tax. The tax exemption in § 58.1-4025 applies to sales tax and not to merchants' capital tax. The exemption of intangible personal property from local taxation pursuant to § 58.1-1100 also specifically excludes merchants' capital.
7 See 1974-1975 Att'y Gen. Ann. Rep. 479 (value of inventory may not be reduced by indebtedness related to it).
8 For example, in the first instant lottery game, "Match 3," the lottery retailer paid a net price of $ 310 for a box of 500 lottery tickets that were sold at retail for $ 1 each. Deducted from the $ 500 retail value was the retailer's five percent discount ($ 25) and $ 165, which was the total amount of small prizes that were paid out by the merchant for each set of 500 tickets.
9 All lottery retailers who do not already have a retail sales license for purposes of local license tax in localities which require such license would be required to one. See BPOL Guidelines, "General Provisions," P5.
Attorney General's Opinion