Lottery director says Sanfords plan would reduce funds for education
Gov. Mark Sanfords plan to charge sales tax on lottery tickets could cost South Carolina millions in lost education dollars, members of the S.C. lottery commission were told Tuesday.
Lottery director Ernie Passailaigue said Sanfords plan to apply the 5 percent sales tax to lottery tickets could cost the state anywhere from $36 million to $154 million in education funding.
Sanford wants to use the sales tax on lottery tickets, as well a 61-cent tax increase on a pack of cigarettes, to lower the states income tax. The income tax rate would decline from 7 percent to 5.9 percent.
But Passailaigue said Tuesday there are consequences to the proposal:
" The mega-jackpot game Powerball requires participating states to sell tickets at a set price of $1. If South Carolina imposes a 5-cent tax on a $1 ticket, making a Powerball ticket $1.05, the state would be in violation of Powerball rules and could have to withdraw from the game.
That would cost the state at least the $153.89 million a year in sales from Powerball tickets, he said. The state sold $724.31 million in tickets in the fiscal year that ended June 30.
" If the tax is included in the price of a $1 ticket, that would mean 5 percent less in lottery profits available for education. According to the state Board of Economic Advisers, applying the tax this way would raise $36.1 million in sales tax and would reduce net lottery proceeds by the same amount.
Regardless of what happens, it would have a very significant impact on the money for education, said lottery commission chairman John C.B. Smith Jr.
A spokesman for Sanford said the governor believes a way can be found to levy the lottery sales tax without seriously reducing profits.
Also Tuesday, Senate President Pro Tem Glenn McConnell said he has concerns that Sanfords plan could violate the state constitution. McConnell points out that the constitution says lottery revenue can only be used for operating expenses and education.
McConnell, R-Charleston, said he is concerned the 5 percent tax could not be used for income tax reduction.
The constitutional requirement is very broad in my opinion, McConnell said, and it would concern me whether or not a sales tax on a ticket could be used for anything other than education.
McConnell, who said he generally supports the governors plan, also said he would oppose anything that would cause the lottery to lose Powerball.
A spokesman for the governor said the lottery could ask Powerball for a waiver to increase ticket prices by 5 cents. But Passailaigue said other states have tried that and been denied.
If that doesnt work, Sanford press secretary Will Folks said, incorporating the tax into the price of a ticket would be a better solution. Sanford believes the lottery could make up some of the lost dollars by spending less on advertising and retailer commissions.
According to Passailaigue, a survey of 40 North American lotteries found only Minnesota levies a tax on lottery tickets.
Many states have considered a tax on tickets, he said, but none implemented one when the financial ramifications became clear.