Tax Foundation: Where you purchase your winning lottery ticket matters

Written by Evan Paskach on .

dollar billIn the midst of the Mega Millions madness now projecting a record $640 million payout, the Washington D.C. based Tax Foundation released a short report on state lottery withholding taxes.

Notably, Minnesota has the 8th highest lottery withholding tax rates in the nation at 7.25 percent, something to keep in mind if a Minnesota resident hits the jackpot tonight.

If the sole winner in tonight’s Mega Millions drawing comes from Minnesota, the state would receive $32 million in tax revenue, according to estimates. The State already makes $0.24 off of each $1 ticket sold in Minnesota.

Some of the other highlights include:

  • Arizona has a withholding rate for non-residents (or snowbirds), so an out of state winner could face double withholding.
  • States rely heavily on lottery revenue, collecting an average of $58 per person in “profit” aside from any income tax collections. Minnesota’s rate, however, is far below the national average at $17.
  • State lotteries pay out an average of only 60 percent of gross revenues in prizes, compared to 90 percent for slot machines and casino table games. State-run lotteries “work” as income generators for state government since they function as monopolies with a private ban on private lotteries.
  • Arguments that lotteries are a “voluntary tax” confuse the purchase of a product with the payment of the tax on the product.

The Tax Foundation is a non-profit, non-partisan tax research organization based in Washington, D.C.

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The Freedom Foundation of Minnesota is an independent, non-profit educational and research organization that actively advocates the principles of individual freedom, personal responsibility, economic freedom, and limited government. 

By focusing on some of the most difficult public policy issues facing Minnesota, we seek to foster greater understanding of the principles of a free society among leaders in government, the media, and the citizenry.