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N.J. Lottery goes from zero to highest tax rate in the USA

New Jersey LotteryNew Jersey Lottery: N.J. Lottery goes from zero to highest tax rate in the USA
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Adding insult to injury, 11% taxes are retroactive back to Jan. 1

Local Mega Millions winner calls it "Pathetic money grab", as feel-good story about workers' winning jackpot is transformed into an example of oppressive government that finds it easier to take from a few lucky winners than to stop wasteful government handouts and spending.

The limits of luck are becoming clear to Lynn Sellari, whose Cash 5 lottery ticket left her with a windfall of money in May.

Over the past few days, Sellari and hundreds of other recent lottery winners — including 10 Chubb Insurance workers who scored one of the state's largest jackpots among them — have learned about a little-mentioned detail tucked within a package of new taxes lawmakers created to help relieve the state's budget troubles.

Along with liquor, cigarettes and wine, New Jersey will begin taxing lottery winnings to generate revenue to help the cash-strapped government, with a maximum rate of almost 11 percent. The law took effect July 1, but there's a special provision when it comes to the lottery: it taxes winners going back to the start of the year.

"It isn't fair," said Sellari, who won $425,855. "It infuriates me how they can pull it off in the middle of the year."

Sellari, 61, said the federal government immediately reduced her windfall by as much as 25 percent, so the idea of paying more to the state made her and her husband bristle. "It's not that I'm ungrateful, but it makes winning bittersweet," said Sellari, who lives in Nutley.

In New Jersey, lottery winners have never paid state taxes on their prizes, which the Treasury Department is quick to point out in its rationale for collecting them now.

"We were one of the few states that did not tax winnings," Treasury spokesman Tom Bell said. "We're facing historic shortfalls in revenue. We had to look for solutions."

Only prizes of more than $10,000 will be taxed under the law. The tax rate will range from 1.4 percent up to as much as 10.8 percent, depending on the total amount of the payout plus the usual tax line items, such as the winner's other income and marital status. State officials expect to generate about $8 million through the new tax, Bell said.

Peter Harrington, whose wife collected $14 million along with nine of her co-workers at Chubb's Whitehouse Station offices, said he believes the group's $216 million Mega Millions jackpot — the second largest in the New Jersey lottery history — was the reason lawmakers made the law retroactive.

"Someone explain to me how that's not a pathetic money grab,'' said Harrington, who lives in Bay Head. "They saw this pot of money and they wanted it to be part of the 2010 budget. It's wrong."

Harrington, who runs a paint and wallcovering business, learned about the tax the day after the law went into effect when his accountant, Gail Rosen of Martinsville, called him.

"They were the first ones I thought of,'' Rosen said.

Many recent lottery winners were astonished to hear about the retroactive nature of the tax even if they knew about the state's intentions of taxing winnings.

"Well, that's not good," said Gary Resnick who won just over $100,000 in a Cash 5 game in March. "I thought it was effective on people who won after July 1.''

Two of the bill's sponsors, Sen. Barbara Buono (D-Middlesex) and Assemblywoman Bonnie Watson Coleman (D-Mercer) did not return calls asking about the retroactive nature of the tax. Assemblyman Louis Greenwald (D-Camden) who chairs the assembly's budget committee, also did not respond to questions left with an aide about the tax.

It's also unclear whether the new tax would affect past lottery winners who are collecting their winnings in installments, as compared to a lump sum. A spokesman for the Treasury Department said that would be up to the state Division of Taxation, which is still interpreting the law.

Some regular players predicted the lottery might see a drop in participation as a result of the new tax, and others vowed the retroactive tax would have political implications on lawmakers, including Gov. Jon Corzine.

Chris Percevault, who cashed an Instant Game ticket and collected a $75,000 prize in April, said many people played New Jersey's lottery because they knew they would not have to pay state taxes on the winnings.

"They're better off taxing the tickets before they're sold," the Pompton Lakes resident said. "Then it's like (the tax on) liquor. If you want to play the lottery, you pay the tax. Don't kill the winner."

The sentiment was shared by others who were suddenly feeling penalized for their lucky break.

"This was luck,'' Harrington fumed, "and I'm supposed to contribute disporportionately because of luck."

Thanks to LckyLary for the tip.

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63 comments. Last comment 5 years ago by OldSchoolPa.
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Todd's avatar - Cylon 2.gif
Chief Bottle Washer
New Jersey
United States
Member #1
May 31, 2000
21441 Posts
Online
Posted: July 2, 2009, 11:41 pm - IP Logged

I am utterly sickened by this. No Nod

 

Check the State Lottery Report Card
What grade did your lottery earn?

 

Sign the Petition for True Lottery Drawings
Help eliminate computerized drawings!

    Rocket 455's avatar - rocket

    United States
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    July 4, 2007
    2505 Posts
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    Posted: July 3, 2009, 12:22 am - IP Logged

     I concur. It would be different if taxation bought the working stiffs some representation... Hide your gold.

     "They're better off taxing the tickets before they're sold," the Pompton Lakes resident said. "Then it's like (the tax on) liquor. If you want to play the lottery, you pay the tax. Don't kill the winner."

     Ummm... no. The lottery is basically a tax on the working class already... jebus man. When they start taxing your taxes things have truly taken a turn for the worse. Hey I've got an idea, cut lawmakers salaries in half and take away their healthcare. They can visit the emergency rooms like the rest of us.

     Peace Hippy

    "You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete." -Buckminster Fuller

      Avatar
      Espanola NM
      United States
      Member #72722
      March 25, 2009
      133 Posts
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      Posted: July 3, 2009, 12:28 am - IP Logged

      Obviously the government has the right to tax but IMHO this is going overboard.

      However I am curious on the legality of the "retroactive" nature of this law.  Does it really hold legal mustard? I had always thought ex post facto laws was unconstitutional in the United States.  Article I Section 9 to be more specific.  You can't punish folks for things that happen BEFORE the law was passed.

      As I mentioned in the NH thread.   If I were NJ citizens depending on their situation I would purchase tickets elsewhere and MOVE to the lower tax state once they know they won a big prize.

        Rocket 455's avatar - rocket

        United States
        Member #53340
        July 4, 2007
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        Posted: July 3, 2009, 12:38 am - IP Logged

        Obviously the government has the right to tax but IMHO this is going overboard.

        However I am curious on the legality of the "retroactive" nature of this law.  Does it really hold legal mustard? I had always thought ex post facto laws was unconstitutional in the United States.  Article I Section 9 to be more specific.  You can't punish folks for things that happen BEFORE the law was passed.

        As I mentioned in the NH thread.   If I were NJ citizens depending on their situation I would purchase tickets elsewhere and MOVE to the lower tax state once they know they won a big prize.

         If it doesn't hold legal mustard they'll make a retroactive law that makes it legal... lol... you know the score these days. Constitution? lol again...

         You have the right idea... just close the wallet.

        "You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete." -Buckminster Fuller

          Avatar
          NY
          United States
          Member #23835
          October 16, 2005
          2829 Posts
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          Posted: July 3, 2009, 1:24 am - IP Logged

          Obviously the government has the right to tax but IMHO this is going overboard.

          However I am curious on the legality of the "retroactive" nature of this law.  Does it really hold legal mustard? I had always thought ex post facto laws was unconstitutional in the United States.  Article I Section 9 to be more specific.  You can't punish folks for things that happen BEFORE the law was passed.

          As I mentioned in the NH thread.   If I were NJ citizens depending on their situation I would purchase tickets elsewhere and MOVE to the lower tax state once they know they won a big prize.

          First the easy one. Mmoving after you win will not change your tax liability. It's possible that a few states don't cover the situation (though I doubt it), but you can expect that the tax laws have already covered that in two ways. Your tax obligation arises when you have "constructive possession", which generally means when you become entitled to the money. Online games are easy. If you have the right numbers your ticket becomes a winner as soon as the drawing is held, and at that moment you become entitled to the prize. If you win near the end of the year you might be able to claim the winnings as taxable in the following year, because they may take a few weeks to pay you, or you may have 60 days to decide on cash or annuity. In the case of a scratcher it's likely to depend on whether or not the state knows when the ticket was sold. They may not know exactly, but they'll know when a roll of tickets is started, and they'll know when any other winners from the roll are presented. Unless you can convince a judge that your winning ticket somehow sat in the store for an extended period before you bought it, the state will know when you bought it with only a small margin of doubt. Other than possibly delaying taxes until the following year, when you bought the ticket won't matter, anyway. Even if you were clearly a non-resident at the time of purchase, the state is still entitled to impose an income tax on earnings from that state. There's no getting around that one.

          As for the legality of a retroactive law, the ex post facto clause covers the criminalization of previously legal activities. If you engage in an activity while it is legal and that activity later becomes illegal, you can't be punished just because it is illegal now.  Regardless of how punishing you might think taxes are, they aren't punishment for a criminal act, and the ex post facto clause doesn't apply to taxes. There is specific case law that has held that retroactive tax laws aren't unconstitutional. OTOH, that doesn't guarantee that every retroactive tax will survive a legal challenge.  I would argue that a state that offers lottery prizes that are tax exempt has a contract with all players that spells out what the after tax prize will be. All sensible players will weigh the risk against the reward, and both are necessary terms of the contract. The risk is the cost of the ticket and th eodds against winning. The reward is the net amount  you may win. If you accepted the state's offer to buy a ticket that offered the chance to win 1 million dollars, less only the federal taxes, the state is contractually obligated to give you that net prize. Considering that there are at least 14 winners with a potential tax liability of about 850k each, I'm sure we can expect to see a significant legal challenge to the law.

            Avatar

            United States
            Member #26330
            November 16, 2005
            330 Posts
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            Posted: July 3, 2009, 2:00 am - IP Logged

            Just wait....States are basicly broke and looking for any cash to plunder.  Anything you have or buy they want to tax it....Soda, Cigarettes, Beer......Just wait they will get creative your Taxes and Mine are going sky high....They have to make up the money some how after blowing Billions on "Stimulus" and "Tarp".    Would have been better off giving away a few hundred thou to some lucky folks and having them stimulate the econ and buisnesses.......The way the Gov't looks at it is all your money is theirs to begin with and anything they LET you keep is charity.....

              Avatar
              Espanola NM
              United States
              Member #72722
              March 25, 2009
              133 Posts
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              Posted: July 3, 2009, 2:04 am - IP Logged

              First the easy one. Mmoving after you win will not change your tax liability. It's possible that a few states don't cover the situation (though I doubt it), but you can expect that the tax laws have already covered that in two ways. Your tax obligation arises when you have "constructive possession", which generally means when you become entitled to the money. Online games are easy. If you have the right numbers your ticket becomes a winner as soon as the drawing is held, and at that moment you become entitled to the prize. If you win near the end of the year you might be able to claim the winnings as taxable in the following year, because they may take a few weeks to pay you, or you may have 60 days to decide on cash or annuity. In the case of a scratcher it's likely to depend on whether or not the state knows when the ticket was sold. They may not know exactly, but they'll know when a roll of tickets is started, and they'll know when any other winners from the roll are presented. Unless you can convince a judge that your winning ticket somehow sat in the store for an extended period before you bought it, the state will know when you bought it with only a small margin of doubt. Other than possibly delaying taxes until the following year, when you bought the ticket won't matter, anyway. Even if you were clearly a non-resident at the time of purchase, the state is still entitled to impose an income tax on earnings from that state. There's no getting around that one.

              As for the legality of a retroactive law, the ex post facto clause covers the criminalization of previously legal activities. If you engage in an activity while it is legal and that activity later becomes illegal, you can't be punished just because it is illegal now.  Regardless of how punishing you might think taxes are, they aren't punishment for a criminal act, and the ex post facto clause doesn't apply to taxes. There is specific case law that has held that retroactive tax laws aren't unconstitutional. OTOH, that doesn't guarantee that every retroactive tax will survive a legal challenge.  I would argue that a state that offers lottery prizes that are tax exempt has a contract with all players that spells out what the after tax prize will be. All sensible players will weigh the risk against the reward, and both are necessary terms of the contract. The risk is the cost of the ticket and th eodds against winning. The reward is the net amount  you may win. If you accepted the state's offer to buy a ticket that offered the chance to win 1 million dollars, less only the federal taxes, the state is contractually obligated to give you that net prize. Considering that there are at least 14 winners with a potential tax liability of about 850k each, I'm sure we can expect to see a significant legal challenge to the law.

              When you mention "constructive possession"----isn't that open to interpretation.   In the news you hear of people who buy tickets and then stash them in a shoe box and sometimes they wait until the last minute to cash it in.   Also if you look at the back of your lottery ticket it clearly states it is NOT valid until signed and verified by lottery officials. As long as you don't sign it or post a claim at lottery HQ...isn't the ticket simply a piece of paper you bought for $1.   It isn't really worth millions---technically---until you sign it and visit the folks at lottery HQ who verify it.

              Also don't the IRS and state taxation/revenue departments depend on the 1099-G to confirm that a taxpayer is required to pay taxes?

              Using my prior example:   If I were to move to another Maine and claim residency in that state to get away from NH.....does the lottery headquarters have any way to prove you are avoiding a tax in another state?   If you buy a ticket in MAINE and then move and establish residency in MAINE and wait 8-12 months before making your claim won't that make it difficult for NH to track you or tax you.  Especially if the timespan crosses over different fiscal yrs.      Your DL license and physical address at the time you claim at lottery HQ will state you are from Maine.  Also since you purchased the ticket in Maine.   How would the lottery HQ folks know that you lived in NH a yr ago and how will they know to send a 1099 to the folks in NH?     Aren't 1099s only issued to the IRS and to the state you purchased the ticket/state you live.

              I guess it all goes back to "constructive possession".   Is "constructive possession" when you purchase the ticket bearing instrument.  Is "contructive possession" when the ticket becomes a winner.   Is "contructive possession" when the winner actual claims the ticket and associated assets.  Is "constructive possession" when the winner realizes his ticket is a winner?    Once again keep in mind the shoebox analogy.   People are notorious for stashing tickets in a shoebox and waiting until the last minute to verify it.   Often people don't realize they have a winning ticket until days before the deadline.

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                Franklin-n.c
                United States
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                April 12, 2006
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                Posted: July 3, 2009, 3:10 am - IP Logged

                Vote them all out see how they like that .   bunch of A-holes

                  MADDOG10's avatar - smoke
                  North Jersey
                  United States
                  Member #5709
                  July 18, 2004
                  17547 Posts
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                  Posted: July 3, 2009, 3:50 am - IP Logged

                  This is how The politicians especially Democrats operate. They stay under the radar by sponsoring bills such as this,  to stay corrupt without being in the limelight. Now is the time to show how corrupt they really are. Wake up people.....!

                  Truly pathetic...!!!!!! 

                                                                            Your Best Teacher, is Your Last Mistake.

                    diamondpalace's avatar - Untitled 2.jpg
                    Dallas, TX
                    United States
                    Member #60284
                    April 12, 2008
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                    Posted: July 3, 2009, 4:24 am - IP Logged

                    I miss seeing riots.

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                      Milwaukee, WI
                      United States
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                      December 27, 2003
                      665 Posts
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                      Posted: July 3, 2009, 6:10 am - IP Logged

                      I don't know if you would call it "retroactive". Taxes for this year are paid for this year. All of this years taxes are subject to change.   Now if they tried to change laws for payments in 2008, now THAT would be wrong. Of course anybody who took their winnings in 25 or 30 payments in previous year would have to pay this year. All the more reason to take it in one lump sum and get to a true tax free state like Wyoming or Texas. 

                      I really don't think that too many people will feel sorry for lottery winners. If they spent all their money this year it could be hard.

                      If they had a real tax advisor, the advisor should have told them to keep money to the side "just in case".

                      The article did say that they saw it coming.

                      So when I win big money this year, I will get out of the state before the end of the year.

                      MarkP

                        dopey7719's avatar - Lottery-049.jpg
                        Midlands, SC
                        United States
                        Member #69698
                        January 14, 2009
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                        Posted: July 3, 2009, 6:41 am - IP Logged

                        At first I thought this article was some kind of joke.  I cannot believe this....and I live in South Carolina where being taxed on everything is a way of life. 

                        This "retroactive" thing is what REALLY sucks.  These lawmakers are nothing more than snake oil salesmen.  Those that won before July should band together and sue the state! 

                        This is just disgusting.....it's like giving a child a present and then once he opens it telling him he has to give some of it back. 

                        What about the poor souls that have already spent all of their money?  What are they going to do?  Start garnishing their wages for back taxes??????????

                          jojosurf's avatar - Lottery-050.jpg
                          phila pa
                          United States
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                          November 11, 2005
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                          Posted: July 3, 2009, 6:41 am - IP Logged

                          first of of all players put the money in a poo for lottery  and they are taxed on that money when they earn it if they win money  it comes from pool of all players and lottery should not be taxed especially at that rate don't play for a week buy your tickets in other states same thing happened to your casino's now they are hurting from competion my opinion only

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                            Milwaukee, WI
                            United States
                            Member #3131
                            December 27, 2003
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                            Posted: July 3, 2009, 6:43 am - IP Logged

                            One other thing. Save your losing tickets!

                            You get to deduct your loses from your income.

                            I wiped out $1,600 in taxes in '05 by showing loses.

                            And wiped out a big bunch of my takes when I won $10K in PB in '06.

                            That is because it took loses to get the income.

                            MarkP