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| M53. Are Michigan lottery dealers required to include the proceeds from retail lottery ticket sales when calculating gross receipts, or are they only required to include the amount of the commission that they receive on such sales? |
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Under the MBT, proceeds from the licensed sale of lottery tickets are excluded from the definition of "gross receipts;" thus, only the commission paid on those sales would be included in a taxpayer's gross receipts. The MBT Act defines "gross receipts" as "[t]he entire amount received by the taxpayer from any activity whether in intrastate, interstate, or foreign commerce carried on for direct or indirect gain, benefit, or advantage to the taxpayer or to others." MCL 208.1111(1). Section 111(1) also contains a list of items that are specifically excluded from the definition of "gross receipts." One such exclusion is the "[p]roceeds from sales by a principal that the taxpayer collects in an agency capacity solely on behalf of the principal and delivers to the principal." MCL 208.1111(1)(a).
Michigan's Lottery Act mandates that the Commissioner of the Bureau of State Lottery "license as agents to sell lottery tickets such persons whom he deems will best serve the public convenience and promote the sale of tickets or shares." MCL 432.17(b). Lottery licensees are similarly referred to in another section of the statute as both "lottery sales agents" and "licensed agents." MCL 432.23. In addition, the administrative rules implementing the Lottery Act state that a lottery sales license "is evidence of an agency that is revocable at will by either the bureau or the retailer." Mich. Admin. Code Rule 432.4. Pursuant to section 35 of the Lottery Act, lottery licensees are required to deposit all monies collected from the sale of lottery tickets in a financial institution designated by the Department of Treasury to the credit of the State of Michigan. MCL 432.35(1). Accordingly, because lottery dealers are statutorily defined as "agents" of the Bureau of State Lottery (and, therefore, the State of Michigan) for the purpose of selling lottery tickets, and the dealers are required to remit back to the State of Michigan all proceeds received from the sales of lottery tickets, such sales proceeds meet the requirements for the exclusion from gross receipts set forth in section 111(1)(a). When calculating gross receipts, MBT taxpayers that are licensed lottery sales agents should not include the proceeds from their sales of lottery tickets on behalf of the State of Michigan.
The contractual agreement entered into between a licensee and the Bureau of State Lottery may provide that the licensee be paid a commission or other remuneration for all valid sales and valid prize payments made by the licensee. Because no exclusion from gross receipts applies to the commissions or other remuneration paid to lottery agents by the Bureau of State Lottery, all such payments are includable in the taxpayer's gross receipts.
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