7 September 2000 GST/HST Interpretation 31714 - PROPOSED LAW [Supplies Made to Under the Video Lottery Terminal (VLT) Program]

Dear XXXXX

This is in response to XXXXX, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies made to XXXXX under the video lottery terminal (VLT) program XXXXX[.]

Background

From the information provided, the following are the facts of the case.

•   XXXXX is authorized to conduct and manage a video lottery scheme XXXXX may enter into an agreement with the owner of a video gaming device for the use of that device. XXXXX, the owner is required to install, transport and service the VLT and to ensure that the VLT is interfaced XXXXX so that XXXXX can have a record of the bets made on the VLT. The VLT owner is also required to ensure that the machine is programmed with VLT games that conform XXXXX.XXXXX - XXXXX may enter an agreement with a siteholder for the placement of a video gaming device on the siteholder's premises. The siteholder is required to allow XXXXX access to the VLT terminal on the siteholder's premises, and to install a separate dedicated telephone line to link the VLT XXXXX In addition, XXXXX requires the siteholder to distribute winnings to persons who play the VLTs.

•   XXXXX provide for the payment of a percentage of the net income of the video gaming device to the owner and siteholder respectively. XXXXX[.]

Ruling Requested

1. The VLT owners are "distributors" as defined in section 188.1 of the Excise Tax Act(ETA) (as proposed to be amended).

2. The siteholders are "distributors" as defined in section 188.1 of the ETA (as proposed to be amended).

3. The percentage share that the VLT owners and siteholders receive is consideration for supplies to XXXXX under the program that are deemed not to be supplies by virtue of subsection 188.1(4) (as proposed to be amended).

Interpretation Given

Due to the fact that amendments have been proposed to the relevant portions of the ETA, we are unable to provide a ruling as requested. However, as agreed to in our telephone conversation, we will provide the following interpretation. Please note that the coming into force date for the proposed amendments referred to in this interpretation is December 17, 1990.

From the facts provided, it is apparent that the supplies provided by the owners and siteholders to XXXXX meet the requirements of parts (a) and (b) of the proposed definition of "specified gaming machine supply". Accordingly, as both the owners and siteholders are making "specified gaming machine supplies" to an "issuer", both would meet the proposed definition of "distributor".

In the letter it was argued that owners and siteholders also meet the definition of "distributor" as persons who "accept, on behalf of the issuer, a bet on a game of chance conducted by the issuer" as per paragraph 188.1(1)(c) of the ETA. Further, it was stated that the siteholders also meet the definition of distributor pursuant to paragraph 188.1(a) based on the argument that they supply rights of the issuer on behalf of the issuer. However, as only a government can conduct a lottery scheme operated through a computer, video device or slot machine pursuant to section 207 of the Criminal Code, and because neither the owners nor the siteholders are agents of the government, it is our opinion that rights issued through the VLTs are issued by XXXXX. It is also our position that the bets made through the VLTs are made directly to XXXXX. Therefore, the owners and siteholders only meet the definition of "distributor" pursuant to paragraph 188.1(d) as stated above.

Although supplies are being provided to XXXXX by the owners and siteholders, subsection 188.1(4) of the ETA (as proposed) sets out that certain supplies made by a "distributor" to an "issuer" are deemed not to be supplies for the purposes of Part IX of the ETA. In particular, proposed paragraph 188.1(4)(a.2) includes "specified gaming machine supplies made to an issuer by a distributor of the issue ..."[.]

Accordingly, based on the proposed amendment, the supplies provided in respect of the VLT program by the owners of the VLTs and by the siteholders would be deemed not to be supplies. Therefore, the owners and siteholders will not have to charge tax on the percentage share of the net income that they receive as consideration for these supplies.

The foregoing comments represent our general views with respect to the proposed amendment to the Excise Tax Act as it relates to the subject matter of your letter. Any change to the wording of these proposed amendments or any future proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0370.

Yours truly,

Brent Fleming
Governments Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate