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TECHNICAL ASSISTANCE ADVISORY 94-002SUBJECT: PERSONAL INCOME TAX -- NONRESIDENTS - WEST VIRGINIA LOTTERY PAYMENTS -- Investment income received by nonresident assignee under assignment of right to receive future West Virginia Lottery payments is not subject to West Virginia personal income tax. This is in reply to your request for issuance of a technical assistance advisory, as provided in W. Va. Code § 11-10-5r, based upon facts submitted in support of that request. The question presented for ruling is whether or not a nonresident individual who purchases an assignment of future West Virginia lottery payments is subject to West Virginia personal income tax on lottery payments received under the assignment during his or her taxable year. Your client contends that the federal adjusted gross income derived from this transaction is not West Virginia source income and, therefore, is not subject to West Virginia personal income tax act. We agree for reasons hereinafter stated.FACTS Individual X is a nonresident of the State of West Virginia and, except for the transaction hereinafter described, has no economic contact with the State of West Virginia. For personal investment reasons, X purchases from a West Virginia Lottery winner, in exchange for a lump-sum payment, some or all of the winner's future periodic payments from the West Virginia Lottery. This purchase of the winner's periodic lottery payments is accomplished under an assignment approved by a court of competent jurisdiction and in conformity with current rules and regulations of the West Virginia Lottery Commission. Upon conclusion of the investment transaction, X will be paid the periodic payments that otherwise, absent this transaction, would have been paid to the original winner of the lottery prize. It is believed that, for federal income tax purposes, the transaction described above is governed by the provisions of Section 72 of the Internal Revenue Code of 1986, as amended. Generally, under these provisions, X will recognize with each periodic payment received from the West Virginia Lottery, both nontaxable recovery of basis and ordinary income. The portion of each periodic payment deemed to be a nontaxable recovery of basis is equal to the ratio determined by the amount that the lump-sum paid to the lottery winner for the right to receive the periodic payments bears to the sum of the total periodic payments purchased. Any amount not deemed to be a recovery of basis will generally be recognized as ordinary income under current law.DISCUSSION and ANALYSIS The West Virginia personal income tax law adopts provisions of the laws of the United States relating to the determination of income for federal income tax purposes. Accordingly, the starting point for determining West Virginia taxable income of a resident individual is his or her federal adjusted gross income for the taxable year. W. Va. Code § 11-21-12(a). Application of the West Virginia personal income tax to nonresident individuals is governed by W. Va. Code §§ 11-21-30 through 11-21-44. More specifically, section 11­21­30 details computation of the tax in the case of nonresidents, and section 11-21-32 defines the income of a nonresident that is subject to taxation by the State of West Virginia, e.g., West Virginia source income. The West Virginia source income of a nonresident individual is determined under the provisions of W. Va. Code § 11-21-32. The general rule is that the West Virginia source income of a nonresident individual is the sum of the net amount of income, gain, loss and deduction entering into his or her federal adjusted gross income for the taxable year, which is derived from or connected with West Virginia sources. See W. Va. Code § 11-21-32(a). Under I.R.C. § 72, a portion of each periodic West Virginia Lottery payment received by X is treated as a return of basis, which is excluded from federal gross income, and the rest is treated as ordinary income which is included in federal gross income. Federal gross income minus allowable deductions results in federal adjusted gross income. West Virginia source income includes: (1) income derived from the ownership of any interest in real or tangible personal property located in this State; and (2) income derived from a business, trade, profession or occupation carried on in this State, including dividends from an S corporation, to the extent provided in section 11-21-37. See W. Va. Code § 11-21-32(b)(1). Income from intangible personal property, including annuities, dividends, interest, and gains from the disposition of intangible personal property, constitute income derived from West Virginia sources only to the extent that such income is from property employed in a business, trade, profession or occupation carried on in this State. W. Va. Code §

11­21-32(b)(2). No language in section 11-21-32 expressly makes lottery proceeds paid to a nonresident West Virginia source income. This is in contrast to the income tax laws of some states which expressly make winnings from their lottery income sourced to their state. See, e.g., Ohio Revised Code Ann. § 5747.20(B)(5). Consequently, a nonresident who wins a West Virginia lottery prize does not pay West Virginia personal income taxes on the prize unless the prize is derived from a business, trade, profession or occupation carried on in this State. Here, the right to receive periodic payments from the West Virginia Lottery enures to X by virtue of the assignment to X of the right to receive such payments by the ordinal winner of the lottery prize. As such, the payments to X are income from intangible personal property which are West Virginia source income only to the extent such income is derived from property employed by X in a business, trade, profession or occupation carried on in this State. See W.

Va. Code § 11-21-32(b)(2). Under the facts presented for purposes of this ruling, the lottery payments to X are not derived from property employed in a business, trade, profession or occupation carried on by X in this State.CONCLUSION Under current law, West Virginia Lottery payments received by a nonresident individual under a lawful assignment of future West Virginia Lottery payments, which he purchased, while a nonresident, as an investment, for a lump-sum, from the original winner of the West Virginia lottery prize, are not West Virginia source income unless the income is derived by the taxpayer from property employed in a business, trade, profession or occupation engaged in or carried on in West Virginia by the nonresident assignee. W.

Va. Code § 11-21-32(b)(2). Here, the nonresident assignee is not engaged, in West Virginia, in a business, trade, profession or occupation. Consequently, the West Virginia Lottery payments received by the nonresident assignee, under the assignment, are not West Virginia source income. The conclusions reached in this advisory are based upon the facts submitted and application of current law. In the event there is a material change in the facts, or if it is determined that material facts were omitted or are materially different from those furnished to us for purposes of this ruling, or there is a material change in the applicable law, the conclusion reached in this advisory may no longer apply. Declaration of Precedential Value. -- Under W. Va. Code § 11-10-5r(b), a technical assistance advisory has no precedential value, except to the taxpayer who requests the advisory, unless the Tax Commission specifically states that it has precedential value. Due to the generic nature of the question presented for ruling, this technical assistance advisory is declared to have precedential value, and may be relied upon by other persons. Publication. -- Under W. Va. Code § 11-10-5r(e), the Tax Commissioner is required to release technical assistance advisories to the public after they are modified to delete identifying characteristics. This advisory will be released as Technical Assistance Advisory 94-002. If you have any question about this advisory, please contact this office.Issued: January 28, 1994 James H. Paige III Secretary/Tax Commissioner