Legislators Seek Ways To Get Taxes Out Of Lottery Idaho’s Lottery Director Warns That Any State Taxing Scheme Could Reduce Game Sales

Their scramble for loose change took legislative budget writers to the state lottery on Tuesday, examining the cash that sales tax on tickets or income tax on winnings might generate.

“There is a potential to pick up, in addition to what the lottery does for us, an additional amount of money for education from some of these things,” House Appropriations Chairman Bob Geddes, R-Preston, said.

But lottery director Dennis Jackson warned that any state taxing scheme could reduce lottery sales and actually cut the economic benefit to the state.

And Republican Sen. Cecil Ingram of Boise reminded his colleagues on the Joint Finance-Appropriations Committee of the firestorm created a year ago when lawmakers tried to siphon off $1 million in lottery profits for parks and recreation programs. Gov. Phil Batt vetoed the bill, saying it violated the will of the voters when they authorized the lottery to help finance public and school building construction.

“It’s interesting to hear our members look for ways to raise revenue,” Ingram said. “I found out I didn’t have the time to answer all the letters from people wanting to know why I’m trying to tamper with this. I’m a convert.”

With the costs of flood damage aggravating demands on state revenues that have tightened up as Idaho’s economic growth slows, lawmakers have been hunting for places to cut proposed spending or increase revenue without being accused of raising taxes. They want a $10 million cushion in the $1.5 billion state budget, and the most likely source is eliminating the $8 million Batt has recommended for a 2 percent state employee pay increase.

With lottery sales approaching $100 million a year, imposing the sales tax on tickets would generate $5 million. But Jackson pointed out that because of the large number of instant-winner tickets sold out of machines, the only way for the state to collect the tax would be directly from the lottery. In that case, he said, the state would just be reducing the profits that go for public and school buildings by the amount that would go into the treasury as sales tax.

State income tax could only be collected on winnings of $600 or more since that is the threshold for notifying the Internal Revenue Service that taxes are due. Federal income tax must already be paid on the winnings.

About $14 million of the $55 million in annual winnings is in amounts of $600 or more, Jackson said, and that would generate over $1 million although about half those winnings might not be subject to any new tax.

Republican Sen. Stan Hawkins of Ucon questioned Jackson’s supposition that ticket sales would decline if state income tax was imposed, contending lottery players would simply be thankful for winning something they did not expect to win.

Jackson also played down a suggestion that the lottery prize distribution be modified to put more of the prizes in the taxable category of $600 or more.

“As the old saying goes, ‘I’d rather have 10 $5 winners than one $50 winner,”’ he said. “The more winning experiences you have, the more money is put back into the lottery.”