Tax Type
BPOL Tax
Description
Merchants' Capital Tax;Lottery Sales Agents Selling Instant Lottery Tickets
Topic
Local Power to Tax
Date Issued
01-09-2000
Local License Tax and Merchants' Capital Tax:
Lottery Sales Agents Selling Instant Lottery Tickets
On November 21, 1988, the Attorney General issued an Opinion classifying the sale of an instant lottery ticket as a retail sale for local license tax purposes. The Attorney General also specified that "the merchants' capital tax is applicable to instant lottery tickets and is to be based on the cost of the tickets to the merchant." A copy of the Opinion is attached.
Consequently, localities which impose a license tax should classify lottery sales agents in the retail sales category. This category has a rate limitation of 20¢ per $100 of gross receipts. (Lottery sales agents should not be classified as commission merchants since they do not meet the definition of commission merchants as set forth in §58.1-3733 of the Code of Virginia.) The license tax should be based on the compensation paid to the lottery sales agent by the Lottery Department. The Lottery Board has set this compensation at five percent of the lottery ticket's retail value.
§58.1-3704 of the Code provides that whenever a locality imposes a license tax on merchants it shall be in lieu of a tax on the capital of merchants. If a locality chooses, however, to impose a merchants' capital tax rather than a license tax on merchants, it is the opinion of the Attorney General that instant lottery tickets are part of the merchant's inventory and that they are subject to the merchants' capital tax. For tax purposes, the inventory's value is its cost basis, i.e., the amount the Lottery Department charges the lottery sales agent for the tickets. The merchants' capital tax is levied on the value of the taxpayers capital on January l; but taxpayers may, at their option, average their capital on January 1 of the tax year and August 1 of the preceding year.
The applicability of the local license tax and the merchants' capital tax to lottery sales agents can best be illustrated by using the same numerical example that was set out in the Attorney General's opinion.
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- "...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."
- "...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."
Rulings of the Tax Commissioner