Below is what the State of Georgia does http://www.galottery.com/gen/aboutUs/faq.jsp#14
Q.Are State & Federal Taxes withheld on Georgia Lottery Prizes?
A.Yes. All Georgia Lottery prizes are subject to applicable federal and state withholdings, and state and federal income taxes. The GLC reports to the IRS and Georgia Department of Revenue the names of winners of prizes of $600 and above. Georgia state income tax of 6% and federal income tax of 25% are withheld from prizes of more than $5,000 at the time the prize is claimed. Additionally, the GLC is required to check for and deduct any outstanding child support payments for prizes of $2,500 and above and student loans and state taxes for prizes of $5,000 and above, net of wager or ticket cost.
So at least here in GA, yes, they do take "SOME" of the tax proceeds on the larger payouts. But like Weshar75 noted, it is NOT all you will owe. Odds are favorable that you will have to cough up at least another 12% of the gross win by the end of the year. And keep in mind, IRS gets a little ticked off when the extra you owe goes above a certain amount and you could very well get hit for additional penalties for failure to pay the estimated tax during the year. This is why having either a trustworthy tax attorney or Tax Accountant is critical for the larger wins.
Also keep in mind...if a cash option is available, I strongly suggest you take it. All it takes is for the State to have a bad year or a crooked politician to make the annuity just vanish like it didn't exist. Also, consider this, a real life comparision has shown that an individual investor who understand how to properly manage money can easily create wealth far greater then any annuitized plan that exist. So if you do win big, take time to learn how to manage it so that you don't become another statistic of a person who won big and lost it all.
Good Luck,
Sir Metro