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."
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.
Time to Vote the Legislators that opt to Tax retroactively Out-of-Office.
WOW !
Justice in Jersey...who'd of ever thunk it ?
Voters deciding who will make the laws.
I will second that motion Mr. Raven62!
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.
Thanks LottoAce: Good Luck!
Wow, the taxpayers finally win one!!!! Good for the Milligans.
"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.
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.
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!
Zoo Jersey Courts have a rare lucid moment.
Now if they could only recognize the Second Amendment as Law.
In Tyranny: The war between good and evil is over: The forces of evil have won.
Throw the Bums Out!
How about the citizens of NJ do a vote at the end of the lawmakers term and if they don't like the job done they Retroactively LOSE their pay
Looks like someone is looking for free money to get more HOHOS
The Michigan lottery used to be Michigan tax free before about 1988. People who won before that who got annuities were slapped with the state income tax in 1989. They sued and won and the rest of their annuity payments were free of Michigan tax. People who won after that had to pay the tax. Michigan now has the same type of Schizo policies with anonymity. Some winners can remain anonymous while others can't!
I am glad the judge rule in this couple favor. Asking for retroactive tax payments after the win. This couple win when it was tax free. When they win the new law wasn't on the books yet. It sound like NJ. just want free tax money.
But normally money is taxed in the year it is received, not owed. I like this decision but doubt it will become the precedent in all jurisdictions. I guess the new statute made it the deciding factor.
There's no reason this case would set a precedent, since it turned on long established principles of contract law. The deciding factor was that in exchange for buying a lottery ticket the state promised that any winnings wouldn't be subject to state taxes, and they can't unilaterally change the terms of the contract.
So what happens if you choose the annuity in a state where there is a tax on the lottery winnings already but the tax percentage either increases or decreases over the period of the annuity? Are you subject to the increase or awarded with the decreased percentage over the remaining period of the annuity?
In the case of New Jersey has a legal precedent been set so that going forward if a tax increase on lottery winnings were to happen that winners under the lower tax percentage would not be subject to the increase?
Or does a no tax versus some tax scenario make that whole argument obsolete?
Here is an excellent example for why one should choose the cash value option and avoid future shenanigans and the ensuing, expensive legal hassles
Did a state ever promise you that your income tax rate would never change?