Playing lottery in wrong state can cost millions

Your lottery ticket shouldn't look like this if your lottery pool includes Pennsylvania residents.
Your lottery ticket shouldn't look like this if your lottery pool includes Pennsylvania residents.

Pennsylvania, unlike its neighbors, doesn't tax jackpots won inside its borders.

Posted: March 30, 2013

While orchestrating a recent Powerball pool, I made a colossal blunder.

I bought the 100 tickets in New Jersey.

If we had hit the jackpot, and had the only winning ticket, that move could have collectively cost the 40 of us millions of dollars.

If you have a choice, better, much better, to buy your lottery tickets in Pennsylvania for two reasons:

(1) It's one of the only states where jackpots won within its borders are free from state and local taxes (including Philadelphia's wage tax). New Jersey, Delaware, Maryland, New York State, and even New York City all want a hefty slice.

(2) If you live in a lottery-taxing state, that's a problem, but you could move.

It's too late for Pedro Quezada, the North Jersey shop owner who won Saturday's $338 million Powerball drawing, and already filed his claim for the $221 million cash.

He's on the hook $18.9 million in state income tax, with its top rate of 8.97 percent.

But it's not because he stepped forward quickly.

It's because he bought his ticket at Eagle Liquors in Passaic.

"Nonresidents' gambling winnings from New Jersey sources are subject to the New Jersey Gross Income Tax in the same manner as the winnings of residents," a Division of Taxation bulletin explained after the state began taxing lotteries in 2009.

Doesn't matter where you live. Buy in New Jersey, Chris Christie wants a cut.

And no, you can't redeem the slip in another state.

"Only the selling state system knows about the ticket," says Chuck Strutt, executive director of the Multi-State Lottery Association, which oversees Powerball.

But if Quezada had purchased the winning ticket in the Poconos, different story.

In that case, coming forward quickly is an even more dubious move, suggests University of Pennsylvania law professor Michael Knoll.

Lottery winnings aren't income until the money's collected, Knoll points out, and Powerball winners have a year to make a claim in Pennsylvania.

So Quezada could have made Pennsylvania his primary address, cashed his Pennsylvania ticket in 2014, and created a great case that he owes New Jersey nothing because he wasn't a Jersey resident even part of the tax year.

The savings: about $11 million. (Although New Jersey wouldn't get its $19 million, Quezada would lose the state tax exemption on his federal return, and the feds would gobble up 39.6 percent of that, too.)

See " Powerball's real tax bite is mind-blowing."

Suppose our Center City workplace pool had won.

If I had purchased the tickets nearby at the Gallery (as the SEPTA 48 smartly did in winning a $172.7 million Powerball jackpot last April), and we had won, the Pennsylvania residents would have saved more than $250,000 each (factoring in the higher federal cut).

But I doubt I would have had a chance to move from Camden County.

Think my colleagues would say, "Sure, we'll each be happy to wait for our $3 million cash while you sell your house"?

Kind of messy.

On the other hand, if one of our Jersey tickets won, and the Pennsy folks found out I'd cost them a quarter-million each, I might have had to move.

To an undisclosed location.


Contact staff writer Peter Mucha at 215-854-4342 or pmucha@phillynews.com.

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