Did the Colorado Lottery have to verify the lawful U.S. presence of every retailer license applicant and every winner cashing a ticket above $599?

Opinion 09-03: Cashing a winning lottery ticket is not a "service" under SVIDA, but a retailer license is a "commercial license" requiring lawful-presence verification

Plain-English summary

Two Colorado statutes intersected with the Lottery's daily operations. The Secure and Verifiable Identity Documents Act (SVIDA) said a public entity providing "services" could only accept secure ID documents. The Restriction on Public Benefits Act (RPBA) said state agencies had to verify that any natural person 18 or older applying for a "state or local public benefit" was lawfully present in the United States. Federal law defined that benefit category to include "any grant, contract, loan, professional license, or commercial license" provided by a state or local government.

The Lottery asked the AG three questions. The AG answered: cashing a $600+ winning ticket was not a "service" under the ordinary meaning the SVIDA imported, because the Lottery was selling a product (a ticket with a chance of winning) and processing redemptions, not providing assistance. So no SVIDA secure-ID requirement applied at ticket cash-out. But a Lottery retailer license was different: federal authority and the U.S. Supreme Court's century-old Lottery Case treated lottery sales as commerce, and Colorado licensees were selected partly for business acumen and engaged in arms-length commercial relationships. The retailer license was therefore a "commercial license" within § 24-76.5-102(3) and 8 U.S.C. § 1621(c), so the RPBA verification rules applied. But verification under § 24-76.5-103(1) only covered natural persons 18 or older; the Lottery did not have to verify the lawful presence of corporate, partnership, or association applicants (or their officers and directors).

Currency note

This opinion was issued in 2009. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The SVIDA and the Restriction on Public Benefits Act have both seen amendments since 2009.

Background and statutory framework

The Colorado Lottery was created by constitutional amendment in 1980 (Colo. Const. art. XVIII, § 7) and stood up by the General Assembly in 1982. It is both a state agency and a government-owned business under § 24-35-202(1)(a). Net proceeds (after the 1992 amendment) flowed to the Great Outdoors Colorado Trust Fund up to a cap, with overflow to other state funds. See In re Great Outdoors Colorado Trust Fund.

Lottery tickets are bearer instruments. Small wins are cashed at retailer outlets. Winning tickets in excess of $599 must be claimed at a Lottery office. Before paying any prize that must be claimed at a Lottery office, the Department of Revenue checks the claimant's SSN or EIN against state offset lists from Human Services and the Judicial Department under § 24-35-212(5)(a) and § 24-35-212.5. Matches result in the prize being held against child-support arrears or court debt offsets.

The SVIDA, codified at § 24-72.1-101 through -106, said a "public entity that provides services shall not accept, rely upon, or utilize an identification document to provide services unless it is a secure and verifiable document." § 24-72.1-103(1). The Lottery is a public entity under the SVIDA.

The Restriction on Public Benefits Act (§ 24-76.5-101 et seq.) was enacted in 2006 and required state agencies to "verify the lawful presence in the United States of each natural person eighteen years of age or older who applies for state or local public benefits." § 24-76.5-103(1). The Act adopted the federal definition of "state or local public benefit" from 8 U.S.C. § 1621(c): "any grant, contract, loan, professional license, or commercial license."

What the AG concluded at the time

Cashing a winning ticket is not a "service"

The SVIDA did not define "services," so the AG used the ordinary meaning per Clynecke v. Waneka. The New Oxford American Dictionary's definition centered on "the action of helping or doing work for someone:...an act of assistance." The AG applied Flood v. Mercantile Adjustment Bureau's rule against absurd readings. Selling and redeeming a ticket was an arms-length sale of a product (a chance to win), not a government service to the buyer. The identification step at large prize redemption was designed to help offset programs collect from the winner, not to assist the winner. So the SVIDA did not require a secure ID at cash-out.

A Lottery retailer license is a "commercial license"

Three pillars supported this conclusion. First, the term "license" was broadly defined in § 24-4-102(7) to include any agency permit, certificate, registration, charter, membership, or statutory exemption. Second, "commercial" was undefined in state law, but Black's Law Dictionary defined commerce as the exchange of goods and services. Third, federal authority controlled the term's meaning: Champion v. Ames had held in 1903 that lottery tickets are subjects of traffic and therefore subjects of commerce, and Pic-A-State Pa, Inc. v. Reno had treated state lotteries as affecting interstate commerce.

The AG acknowledged tension in the case law. KTSP-Taft v. Arizona State Lottery characterized state lotteries as entering "the commercial marketplace of amusement and entertainment." But In re Circle K Corp. and Hartig Drug Co. described state-sponsored lottery ticket sales as outside the typical commercial transaction, with retailers more like tax collectors than typical businesses. The AG resolved the tension by looking to the substantive features of Colorado's licensing scheme: under § 24-35-206(1), licensees were selected for business acumen, financial responsibility, accessibility, and expected sales volume. Rule 2.4 b required licensees to actively promote sales. Those features looked commercial enough to bring the license within the RPBA's scope.

Lawful-presence verification reaches only natural persons

Section 24-76.5-103(1) required verification only of "each natural person eighteen years of age or older who applies for state or local public benefits." Section 24-35-206(4) authorized retailer licenses to "persons, firms, associations, or corporations, profit or nonprofit." So when a corporation, association, or partnership applied for a retailer license, the Lottery did not have to verify the lawful presence of that entity, or of its officers or directors. The verification rule reached only individual-natural-person applicants.

Common questions

Did the Lottery still have to ID a $600+ winner for any other reason?

Yes. Independent of SVIDA, the Lottery used SSN or EIN matching with offset lists per § 24-35-212(5)(a) and § 24-35-212.5 to suspend prize payment when a winner owed child support or court debt. That step required identification information, but the AG concluded the SVIDA's secure-and-verifiable-document requirement did not apply because the underlying transaction was not a "service."

What if a sole proprietor applied for a retailer license?

A sole proprietor is a natural person. Under the AG's reading of § 24-76.5-103(1), the Lottery would have had to verify their lawful U.S. presence at age 18 or older. Corporations, LLCs, and partnerships fell outside the natural-person rule.

Did the AG opine on what happened if a retailer license applicant could not prove lawful presence?

No. The opinion only addressed the trigger question (whether verification was required) and stopped there. The downstream consequences of failed verification were governed by the RPBA's enforcement provisions and the Lottery's own licensing rules.

Did the AG say lottery tickets sold by a retailer would be subject to the SVIDA secure-ID rule at the point of sale?

No. The opinion focused on redemption of large prizes and on the licensing of retailers. It did not address whether the routine sale of a small-value ticket implicated SVIDA, but the same logic (a sale of a product, not a service) would have pointed the same way.

Citations

• Colo. Const. art. XVIII, § 7 — 1980 amendment authorizing the state-operated lottery.
• C.R.S. § 24-72.1-101 to -106 (SVIDA) — public entity providing services must accept only secure and verifiable identification documents.
• C.R.S. § 24-72.1-102(3) — definition of "public entity" under SVIDA.
• C.R.S. § 24-72.1-103(1) — core SVIDA prohibition on accepting non-secure ID for services.
• C.R.S. § 24-76.5-101 to -103 (RPBA) — verification of lawful presence for state or local public benefits.
• 8 U.S.C. § 1621(c) — federal definition of "state or local public benefit" including "commercial license."
• C.R.S. § 24-4-102(7) — broad definition of "license" in Colorado administrative law.
• C.R.S. § 24-35-206(1), (4) — Lottery retailer license eligibility and selection criteria.
• C.R.S. § 24-35-212(5)(a), § 24-35-212.5 — offset programs for prize claims against child support and court debt.
• Champion v. Ames (The Lottery Case), 188 U.S. 321 (1903) — U.S. Supreme Court holding that lottery tickets are subjects of commerce.
• Clynecke v. Waneka, 157 P.3d 1072 (Colo. 2007) — Colorado Supreme Court rule that undefined statutory terms get their ordinary meaning.

Source

• Landing page: https://coag.gov/attorney-general-opinions/
• Original PDF: https://coag.gov/app/uploads/2019/08/No.-09-3-The-Applicability-of-the-Secure-and-Verifiable-Identity-Documents-Act-to-Sales-of-Lottery-Tickets-and-Licensing-of-Lottery-Retailers.pdf

Original opinion text

STATE OF COLORADO

John W. Suthers
Attorney General

DEPARTMENT OF LAW

Cynthia H. Coffman
Chief Deputy Attorney General

Office of the Attorney General
State Services Building
1525 Sherman Street - 7th Floor
Denver, Colorado 80203
Phone (303) 866-4500

Daniel D. Domenico
Solicitor General

FORMAL OPINION OF JOHN W. SUTHERS Attorney General

No. 09-03
AG Alpha No. RL LO AGBCS
June 9, 2009

This opinion, requested by Jack Boehm, Director of the Colorado Lottery Division ("Lottery"), addresses the applicability of sections 24-72.1-101 through -106, C.R.S. (2008) ("Secure and Verifiable Identity Documents Act," hereinafter "SVIDA") and sections 24-76.5-101 through -103, C.R.S. (2008) ("Restrictions on Public Benefits Act," hereinafter "RPBA") to sales of Lottery tickets and licensing of Lottery retailers.

QUESTIONS PRESENTED AND CONCLUSIONS

Question 1: Is the redemption of a winning Lottery ticket in excess of $599 by the Lottery a "service" under section 24-72.1-101, C.R.S. (2008)?
Answer 1: No. The redemption by the Lottery of a winning ticket in excess of $599 by the Lottery is not a "service."

Question 2: Is the license of a Lottery retailer a "state or local public benefit" under section 24-76.5-102(3), C.R.S. (2008)?
Answer 2: Yes. A Lottery retailer license is a "state or local public benefit."

Question 3: Must the Lottery verify the lawful presence of all persons who apply for a Lottery retailer license?
Answer 3: No. The Lottery must verify the lawful presence only of those applicants who are natural persons over eighteen years of age.

DISCUSSION

Question 1

In 1980, Colorado voters amended the Colorado Constitution to authorize the establishment of a state-operated lottery. Colo. Const. art. XVIII, § 7. The amendment originally provided that the net proceeds from the sale of lottery tickets would be allocated to the conservation trust fund for park, recreation, and open space purposes, except as otherwise provided by law. In re Great Outdoors Colorado Trust Fund, 913 P.2d 533, 536 (Colo. 1996). In 1992, the voters amended Article XVIII to allocate the net proceeds, up to a certain limit, to the Great Outdoors Colorado Trust Fund. Id.

The General Assembly established the Lottery in 1982. Section 24-35-202(1)(a), C.R.S. (2008). The Lottery includes a Commission. Section 24-35-207(1), C.R.S. (2008). The Commission has the "full and exclusive authority to promulgate rules related to the lottery." Section 24-35-202(2), C.R.S. (2008); see also § 24-35-208(1)(a), C.R.S. (2008) (Commission has the power "[t]o promulgate rules governing the establishment and operation of the lottery as it deems necessary to carry out the purpose of this part 2").

The Commission has enacted rules governing the redemption of Lottery tickets. Lottery tickets are bearer instruments. Rule 5.5 a, 1 C.C.R. 206-1. The holder of a winning ticket in the amount of $150.00 or less may present the ticket to a Lottery retailer licensee for validation. The holder of a winning ticket in the amount of $151 to $599 may present the ticket to a Lottery retailer licensee which validates the ticket and pays any prize owed. Rule 5.9 a, 1 C.C.R. 206-1. Prizes in excess of $599 must be claimed at a Lottery office. Rule 5.9 c, 1 C.C.R. 206-1.

Prior to the payment of any cash prize required by rule to be paid only at a Lottery office, the claimant must submit his social security or federal employer identification number, if applicable, to the Department of Revenue. The Department must compare the number with those numbers maintained by the Department of Human Services or the Judicial Department for purposes of the state lottery winnings offsets established in sections 26-13-118, C.R.S. (2008) and 16-18.5-106.5, C.R.S. (2008). If the number submitted by the claimant matches a number on the list submitted by Department of Human Services, the Lottery must suspend payment of the prize until the amount of the offset is finally determined and settled. Sections 24-35-212(5)(a) and -212.5, C.R.S. (2008).

Under the SVIDA, "a public entity that provides services shall not accept, rely upon, or utilize an identification document to provide services unless it is a secure and verifiable document." Section 24-72.1-103(1), C.R.S. (2008). The Act defines a "public entity" as "an agency, department, board, division, bureau, commission, council, or political subdivision of the state." Section 24-72.1-102(3), C.R.S. (2008). The Lottery is a public entity under the SVIDA.

The SVIDA does not define the word "services"; therefore, it must be given its ordinary meaning. Clynecke v. Waneka, 157 P.3d 1072, 1077 (Colo. 2007). Words will not be interpreted in a manner that leads to an absurd result or is inconsistent with the intent of the statute. Flood v. Mercantile Adjustment Bureau LLC, 176 P.3d 769, 772 (Colo. 2008).

The ordinary meaning of "service" in this context is "the action of helping or doing work for someone:...an act of assistance." New Oxford American Dictionary at 1558. This explains why sales and redemptions of lottery tickets have never been understood to be a government service or otherwise covered by the SVIDA. The Lottery provides a product, a ticket with some chance of winning, that is purchased for full consideration by any person over eighteen, other than Lottery employees, officials and contractors. Interpreting such arms-length exchanges between a government enterprise and the general public to be a "governmental service" would not fit with the typical understanding of government "services."

The question is whether the presentation of identification for the purpose of redeeming tickets with a prize of more than $599 changes this analysis. I conclude that it does not.

As described above, the identification requirement for large redemptions is not imposed for the purpose of providing government assistance to the claimant. Instead, the Lottery statute and rules mandate that the Lottery must process such claims to assure that the claimant is not awarded a prize in a state-run game of chance while owing money to the Department of Human Services, to the claimant's children, or to the Judicial Department. The requirement is more akin to a collection function than to a service. If the Lottery is performing a "service," as that term is commonly understood, it would be to those persons or entities to whom money is owed and not to the person redeeming the ticket, who stands only to have his winnings reduced.

The redemption of tickets valued in excess of $599 is not a "service" under the SVIDA. Therefore, the SVIDA does not require the Lottery to accept, rely upon, or utilize a secure and verifiable document to process the claim.

Question 2

The Lottery also asks whether the license granted to Lottery retailers is a commercial license, and thereby a "state or local public benefit" under section 24-76.5-102(3), C.R.S. (2008).

The Lottery issues licenses to qualified "persons, firms, associations, or corporations, profit or nonprofit" for the purpose of selling Lottery tickets. Section 24-35-206(4), C.R.S. (2008). Only the Lottery and licensed retailers may sell Lottery tickets. Section 24-35-214(1)(b), C.R.S. (2008). Licensees must "actively promote the sale of Colorado Lottery products and make them available for sale at all times the system is available and at the times that are consistent with the business hours of operation." Rule 2.4 b, 1 C.C.R. 206-1.

In 2006, the General Assembly enacted the Restriction on Public Benefits Act. The RPBA declares, "It is the public policy of the state of Colorado that all persons eighteen years of age or older shall provide proof that they are lawfully present in the United States prior to receipt of certain public benefits." Section 24-76.5-101, C.R.S. (2008). In general, each state agency must "verify the lawful presence in the United States of each natural person eighteen years of age or older who applies for state or local public benefits or for federal benefits for the applicant." Section 24-76.5-103(1), C.R.S. (2008).

State law incorporates the federal definition of "state or local public benefits." Section 24-76.5-102(3), C.R.S. (2008). Federal law defines "state or local public benefits" as "any grant, contract, loan, professional license, or commercial license provided by an agency of a State or local government or by appropriated funds of a State or local government." 8 U.S.C. § 1621(c). Neither federal nor state laws provide a definition of "commercial license."

There is no doubt that the authorization to sell lottery tickets is a "license." "License" is defined to include "the whole or any part of any agency permit, certificate, registration, charter, membership, or statutory exemption." Section 24-4-102(7), C.R.S. (2008).

The more difficult question is whether the sale of lottery tickets is "commercial." It has not been defined in Colorado law, but Black's Law Dictionary defines "commerce" as the "exchange of goods and services, esp. on a large scale involving transportation between cities, states and nations." Black's Law Dictionary 285 (8th ed. 2004).

Further, because the term "commercial license" is part of federal law, reference to federal court interpretations is appropriate. The United States Supreme Court addressed the transport of lottery tickets and the term "commerce" in The Lottery Case (Champion v. Ames), 188 U.S. 321, 23 S. Ct. 321, 47 L. Ed. 492 (1903). There, the defendant was charged with conspiracy to transport lottery tickets across state lines. He claimed that the transport of lottery tickets from one state to another by an express company engaged in carrying packages from state to state did not constitute commerce and could not be regulated by the federal government. To resolve the dispute, the Court first defined "commerce" to include both traffic and commercial intercourse. Id. 188 U.S. at 323, 23 S. Ct. at 346. The Court concluded that "lottery tickets are subjects of traffic and therefore are subjects of commerce." Id. 188 U.S. at 326, 23 S. Ct. at 354; see also, Pic-A-State Pa, Inc. v. Reno, 16 F.3d 1294 (3d Cir. 1996) (state lotteries affect interstate commerce).

In KTSP-Taft Television and Radio Company v. Arizona State Lottery Commission, 646 F. Supp. 300 (D. Ariz. 1986), a television broadcaster sought a preliminary injunction against the Arizona Lottery, alleging that the Lottery's policy limiting the broadcast of certain lottery drawings violated its First Amendment rights. In order to analyze the First Amendment claim, the Court first was required to characterize the nature of the Arizona Lottery. It concluded:

Arizona's citizens have directed, through their ballots, that the state enter into competition for the wagering-entertainment-discretionary dollar of the public. In short, the state's voters have directed that the state enter into the commercial marketplace of amusement and entertainment.

Id. at 312 (emphasis added).

Two cases conclude that a state-run lottery is not engaged in a typical commercial transaction. In In re Circle K Corp., 98 F.3d 484 (9th Cir. 1996), the issue was whether an Arizona lottery retailer in bankruptcy owed money on two percent of the total sales of lottery tickets or two percent of the bankrupt's commission on lottery sales. In deciding that the bankrupt retailer owed two percent of its commission on lottery sales, the Ninth Circuit discussed the nature of the Arizona Lottery. It noted that "state-sponsored lottery ticket sales fall into a class by themselves. They are quite unlike the general run of commercial operations mentioned in the lease." Id. at 486. Thus, "[i]n the hands of the State, lottery proceeds are used for various public purposes in the manner of tax revenues," and the lottery retailer "acts more as a tax collector for the State than as a retailer." Id.; see also Hartig Drug Company v. Hartig, 602 N.W.2d 794, 798 (Iowa. 1999) ("Unlike the typical commercial transaction in a retail business, a business which sells lottery tickets is simply a licensee of the state.").

In Colorado, the Lottery is both a state agency and a government-owned business. Section 24-35-202(1)(b), C.R.S. (2008). Although the Lottery is a state agency and is protected by the Governmental Immunity Act, Robinson v. Colorado State Lottery Division, 179 P.3d 998, 1004 (Colo. 2008), it also has business attributes. Cf. Nicholl v. E-470 Public Highway Authority, 896 P.2d 859, 868-69 (Colo. 1995) (discussing the business and governmental nature of a highway authority). It finances its operations by charging a fee for a product. It is designed to generate a profit, which funds the Great Outdoors Colorado program. The licensees are selected primarily for their business acumen. Each licensee must demonstrate financial responsibility, the accessibility of the place of business, the volume of expected sales, and the ability to represent the Lottery in a manner consistent with the security and integrity of the Lottery. Section 24-35-206(1), C.R.S. (2008). The licensees promote the sale of Lottery tickets. Rule 2.4 b.

Given their duties and responsibilities, Lottery sales agents are more than revenue collectors. They are engaging in commerce through a commercial license issued by the Lottery. As such, their licenses are "commercial licenses" under state and federal law.

Question 3

The third question presented is whether the Lottery must verify the lawful presence of every applicant for a Lottery retailer license.

Licensed retailers include "persons, firms, associations, or corporations, profit or nonprofit." Section 24-35-206(4), C.R.S. (2008). The RPBA states that state agencies "shall verify the lawful presence in the United States of each natural person eighteen years of age or older who applies for state or local benefits." Section 24-76.5-103(1), C.R.S. (2008). The Lottery must verify residency status of natural persons who apply for a Lottery retailer license. It is not required to verify the lawful presence of applicants (or their officers or directors) that are not natural persons.

SUMMARY

The redemption of Lottery tickets in excess of $599 by the Lottery is not a "service" under section 24-72.3-101; therefore, the presentment of a secure and verifiable document is not required. A Lottery retailer license qualifies as "a state or local benefit" under the RPBA. Thus, under the RPBA, the Lottery must determine the lawful presence of applicants for Lottery retailer licenses who are natural persons eighteen years of age and older.

Issued this 9th day of June, 2009.

JOHN W. SUTHERS
Colorado Attorney General