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.