In 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.