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Judge rules NJ couple's lottery annuity payments can't be taxed retroactively

The Big GameThe Big Game: Judge rules NJ couple's lottery annuity payments can't be taxed retroactively
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A New Jersey Tax Court judge has sided with a couple who won $46 million in the state lottery in 2000 and elected to have their winnings distributed in annual installments as a multiyear annuity payment, holding that the state did not have the right to retroactively tax their winnings after passing a new statute. 

Plaintiffs Melvin Milligan and Kim Lawton-Milligan, who won the Big Game Lottery jackpot drawing in 2000, opted for 26 annual payouts of $1.77 million. They argued that the 2009 state law making prizes over $10,000 taxable for the first time should not be enforced against their payments in 2009 and subsequent years.

Long-time readers of USA Mega may remember the Milligans. It was a mystery ticket not claimed for a full year after the drawing, and suddenly the ticket showed up in a envelope in the regular mail at New Jersey Lottery headquarters — after the expiration date, but postmarked before it expired.  Mr. Milligan had forgotten the ticket in a junk drawer, and when he found the ticket in the nick of time and realized it was a big winner, he mailed it like he would a bill payment, by casually dropping it in a mailbox.

The original story is documented at USA Mega on its June 2001 news page. The news story links for the CNN and New Your Times articles still work.

The court granted the Milligans' motion for partial summary judgment. "The grant of partial summary judgment in favor of plaintiffs on their square corners doctrine is a sufficient basis for reversal of the final determinations of the Director, Division of Taxation denying plaintiffs' request for a refund of New Jersey gross income tax for tax years 2009, 2010, 2011, 2012, and 2013," the court stated.

The decision affirms a decision from a year ago denying a motion by the State Lottery to dismiss the complaint against it. If the motion had succeeded, the Division of Taxation would have brought a similar motion, according to Steven Klein, a member at Cole Schotz P.C., who represented the Milligans.

"The judge effectively ruled that under our factual circumstances, and companion cases with slightly different facts, taxpayers should not have to pay tax in spite of the 2009 legislation," said Klein.

"The chief reason is that the state was advertising the fact that lottery winnings were tax free," he added. "It was basically saying 'Play in New Jersey because we in New Jersey don't impose income tax.' That solicitation became part of the agreement between the state lottery and the players."

The judge also looked at two different fact patterns, Klein noted. "In one case, the taxpayer won at the end of 2008 but didn't turn the winning ticket in until 2009. New Jersey said that because the winner received the winnings in 2009 it was taxable. In this case it was a lump sum, but since the law wasn't enacted until June 2009, it didn't apply."

"In a third case, the players were a group all from the same company," Klein said. "They all chipped in and won in early 2009, when there was no law on the books. Since they played before the law was enacted, it didn't apply to their winnings."

"We have over 20 other lottery winners that we are representing whose cases have been on hold while we proceeded with these cases," said Klein. "And there may be others who haven't retained us yet. The ruling will apply in a host of other cases."

The judge cited the "square corners" doctrine, according to Klein. "It says that government should turn square corners with its citizens," he said. "In particular, taxing authorities should turn square corners with taxpayers. The judge felt that to impose this tax under these circumstances would be unfair to these taxpayers."

Accounting Today, Lottery Post Staff

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25 comments. Last comment 2 months ago by KY Floyd.
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LiveInGreenBay's avatar - driver
Green Bay
United States
Member #169391
October 15, 2015
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Posted: October 14, 2016, 9:41 am - IP Logged

He forgot the ticket in the junk drawer for a year?  Oh man!

Never give up.  Banana

    MaximumMillions's avatar - Lottery-013.jpg

    Germany
    Member #164603
    March 8, 2015
    604 Posts
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    Posted: October 14, 2016, 9:52 am - IP Logged

    He forgot the ticket in the junk drawer for a year?  Oh man!

    And mailed it in! No way I would have chanced that, my butt would have been on a plane/in a car barreling down the highway.

    Nolege is power.

      Raven62's avatar - binary
      New Jersey
      United States
      Member #17843
      June 28, 2005
      49699 Posts
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      Posted: October 14, 2016, 9:54 am - IP Logged

      Time to Vote the Legislators that opt to Tax retroactively Out-of-Office.

      A mind once stretched by a new idea never returns to its original dimensions!

        haymaker's avatar - Lottery-012.jpg
        Egg Harbor twp.south Jersey shore
        United States
        Member #112968
        June 29, 2011
        3854 Posts
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        Posted: October 14, 2016, 10:12 am - IP Logged

        WOW !

        Justice in Jersey...who'd of ever thunk it ?

        Extraordinary Popular Delusions & the Madness of Crowds    -- Charles Mackay  LL.D.

          music*'s avatar - nw bookeep.jpg
          Happy California
          United States
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          August 2, 2014
          1513 Posts
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          Posted: October 14, 2016, 10:14 am - IP Logged

          Shocked I am grateful for the Judicial system that we have here in the U.S.  Intelligent participants following the law. 

           Voters deciding who will make the laws. Patriot

           I've been rich and I've been poor. Believe me, rich is better. 

           Attributed to Joe E. Lewis and others

            LottoAce's avatar - WWI Flying_Ace.gif
            N.C.
            United States
            Member #56005
            October 28, 2007
            830 Posts
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            Posted: October 14, 2016, 11:46 am - IP Logged

            Time to Vote the Legislators that opt to Tax retroactively Out-of-Office.

            I will second that motion Mr. Raven62!

            "know your limitations, but excede your expectations"

              Avatar
              Simpsonville
              United States
              Member #163189
              January 22, 2015
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              Posted: October 14, 2016, 12:17 pm - IP Logged

              Shocked I am grateful for the Judicial system that we have here in the U.S.  Intelligent participants following the law. 

               Voters deciding who will make the laws. Patriot

              So glad the Judge did the right thing.  Still remember guy's wife being ticked @ him just mailing the ticket to Trenton like it was no big deal.

                Raven62's avatar - binary
                New Jersey
                United States
                Member #17843
                June 28, 2005
                49699 Posts
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                Posted: October 14, 2016, 12:30 pm - IP Logged

                I will second that motion Mr. Raven62!

                Thanks LottoAce: Good Luck!

                A mind once stretched by a new idea never returns to its original dimensions!

                  golfer1960's avatar - Lottery-003.jpg
                  Eatontown, NJ
                  United States
                  Member #119670
                  November 29, 2011
                  740 Posts
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                  Posted: October 14, 2016, 12:36 pm - IP Logged

                  Wow, the taxpayers finally win one!!!! Good for the Milligans.

                    Avatar
                    NY
                    United States
                    Member #23835
                    October 16, 2005
                    3474 Posts
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                    Posted: October 14, 2016, 1:54 pm - IP Logged

                    "In a third case, the players were a group all from the same company,"

                    I presume that must be the group of employees who worked for Chubb Insurance and won a very large (at that ie) MM jackpot shortly before NJ enacted the state tax on lottery winnings. I know that one NJ winner filed a lawsuit over the retroactive tax, and I think it was one of the Chubb winners, but I've never seen anything about a resolution to the case.

                      Skibunnylk's avatar - Lottery-059.jpg

                      United States
                      Member #157701
                      July 28, 2014
                      137 Posts
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                      Posted: October 14, 2016, 4:48 pm - IP Logged

                      There is no way I would have mailed it in. With expiration looming I would have hand delivered that ticket right to lottery headquarters. Glad the judge sided with them as NJ got very greedy in their attempt at extorting taxes that were not legally owed.

                      Never attempt to maintain a lifestyle you can't afford.

                        music*'s avatar - nw bookeep.jpg
                        Happy California
                        United States
                        Member #157856
                        August 2, 2014
                        1513 Posts
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                        Posted: October 14, 2016, 7:35 pm - IP Logged

                        "In a third case, the players were a group all from the same company,"

                        I presume that must be the group of employees who worked for Chubb Insurance and won a very large (at that ie) MM jackpot shortly before NJ enacted the state tax on lottery winnings. I know that one NJ winner filed a lawsuit over the retroactive tax, and I think it was one of the Chubb winners, but I've never seen anything about a resolution to the case.

                         CHUBB Insurance Co. is on my list to buy Umbrella coverage from. I think that they may call it Excess Liability Insurance. All major lottery winners have a target on their back for lawsuits. Nuisance lawsuits.

                         I've been rich and I've been poor. Believe me, rich is better. 

                         Attributed to Joe E. Lewis and others

                          Avatar
                          Simpsonville
                          United States
                          Member #163189
                          January 22, 2015
                          669 Posts
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                          Posted: October 14, 2016, 7:40 pm - IP Logged

                           CHUBB Insurance Co. is on my list to buy Umbrella coverage from. I think that they may call it Excess Liability Insurance. All major lottery winners have a target on their back for lawsuits. Nuisance lawsuits.

                          Thanks for the tip to keep us future lottery winners safe from the bottom feeders out there!

                            dpoly1's avatar - driver
                            PA
                            United States
                            Member #66141
                            October 16, 2008
                            1672 Posts
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                            Posted: October 14, 2016, 10:47 pm - IP Logged

                            Smash

                            Zoo Jersey Courts have a rare lucid moment.

                            Now if they could only recognize the Second Amendment as Law.

                            dpoly1 - Playing the lottery to save the jobs of those that build, transport, sell & maintain luxury items! -

                             

                            Eschew Poverty ........... Vote Conservative!