No sales tax on Mississippi lottery tickets, but winnings will still be taxed

The Mississippi Legislature is expected to pass a measure clarifying that tickets for state’s soon to be rolling lottery are exempt from sales taxes.

But the state tax man will still get his cut on lottery winnings in Mississippi: They will be taxed as income, at the same scaled rate of 3 percent to 5 percent as any other income.

This is a blow to Jackson, where Mayor Chokwe Antar Lumumba had been counting on lottery ticket revenue from a 1-cent sales tax in the city tacked on to the 7-cent state sales tax. Lumumba late last year had estimated the city would receive about $4 million a year from it’s share of state sales taxes plus the 1-cent sales tax on tickets beyond money the city expects to receive from state lottery proceeds earmarked for local infrastructure by the Legislature.

House Bill 1576, pending in the Legislature and expected to pass, makes clear lottery tickets are exempt from sales taxes in Mississippi — as they are in all other states in the U.S. that have a lottery.

But state Revenue Commissioner Herb Frierson said lottery tickets wouldn’t be subject to sales taxes under current laws and regulations.

“I don’t think you need a bill,” Frierson said. “It’s considered a service, not tangible personal property. It’s evidence of a bet is all it is. Why would you tax evidence of a bet?”

Frierson said a lottery ticket is itself a form of tax — “a tax on stupidity.” [Editor: I guess Herb is not on board with a lottery yet.]

City of Jackson lobbyist Quincy Mukoro said he still hopes for a change in the bill to funnel additional money to Jackson.

“Our understanding when we passed the bill last year was that the sales tax component of the bill was critical to get the bill passed,” Mukoro said.

While no states charge sales taxes on lottery tickets, there are a wide variety of tax rates on winnings. Ten states, including neighbor Tennessee, charge no state tax on lottery winnings. New York has the highest rate at nearly 9 percent. 

Lottery winnings are subject to a 25 percent federal tax withholding.

After decades of debate, lawmakers in a summer special session last year approved a state lottery, which is expected to be up and running in 2019, as early as this summer. It’s expected to net the state about $40 million the first year, then $80 million to $100 million a year thereafter.

For the next decade, up to $80 million a year from lottery proceeds will go toward working on state roads and bridges or to match federal infrastructure money. Any revenue above $80 million would go to public education, the Education Enhancement Fund.

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