Alabama Gambling Tax
Gambling and the Law®: By Professor I Nelson Rose
Does not pay tax to Alabama on any gambling income. In this situation, there is no credit for tax paid to State A because the new income from gambling on the Alabama return is zero and, therefore, there is no double taxation. The 'bad' states tax your gambling winnings either as a flat percentage of the amount won or by ramping up the percentage owed depending on how much you won. Each state has different rules. Alabama may be home to a strong anti-gambling contingent, but when billions of dollars in new tax revenue are put on the table, it is not unheard of for attitudes to change quite dramatically. Poker in Alabama.
The Internal Revenue Code is unkind to winners -- and it doesn't much like losers, either. The federal government taxes gambling winnings at the highest rates allowed. So do the manystates and even cities that impose income taxes on their residents. If you make enough money, in a high-tax state like California or New York, the top tax bracket is about 50 percent. Out ofevery additional dollar you take in, through work or play, governments take 50 cents.
Of course, the tax-collector first has to find out that you have won. Congress and the Internal Revenue Service know gambling is an all-cash business and few winners indeed wouldvoluntarily report their good luck. So, statutes and regulations turn the gambling businesses, casinos, state lotteries, race tracks and even bingo halls, into agents for the IRS.
Back in 2011, the gambling industry in Alabama generated 25 percent more tax revenue than the year before – the largest percentage legal betting revenue gain in the United States. Alabama is still one of the top five states for gambling revenues.
Big winners are reported to the IRS on a special Form W-2G. If winnings are to be split, as with a lottery pool, winners are reported on a Form 5754.
Pooling money to buy lottery tickets is common among employees and friends. But whether there are two or 200 in the pool, there is going to be only one winning ticket, and somebody has toturn it in. If you are that someone, make sure you fill out a Form 5754. If your share of a $5 million prize is $1 million, you do not want to be stuck with paying income tax on the entire $5million.
Gambling has become such big business that the IRS receives nearly four million Forms W-2G and 5754 each year. This tells the tax-collectors that nearly four million big winners are outthere, waiting to be taxed.
But the IRS does not always wait. The government wants to make sure it gets paid. What good does a W-2G do if the winner is a foreigner who is going to be in his own foreign country whenApril 15th rolls around?
So, the IRS not only wants reports filed, but often requires that a part of the winnings be withheld. As anyone who has a salary knows, withholding also allows the government to usetaxpayers' money for many months, without having to pay interest.
The withholding rate for nonresident aliens is 30%. Not coincidentally, the tax rate for nonresident aliens is also 30%. So, if a citizen of a foreign country wins $1 million cash at aslot machine in Las Vegas, he will find he is only paid $700,000. The remaining $300,000 is sent to the IRS. The foreign citizen is unlikely to ever file an income tax return, but the IRS getspaid in full anyway.
Citizens of foreign countries are also, of course, usually taxed by their own governments. So some countries have treaties with the U.S., which protects those foreigners from having topay the 30% withholding to the IRS.
U.S. citizens and resident aliens have it both better and worse than nonresident aliens. The withholding rate for gamblers living in American is only 28% (it was 20%, up to1992). Having the IRS take $28,000 out of a jackpot of $100,000 is painful. But, it can hurt even more when tax forms are filled out. There is no 30% maximum tax for people living in the U.S.,and really big winners often end up paying a lot more than 28% or 30%.
The one good news is Nevada casinos were also able to convince the IRS that they could not keep track of players at table games. They said that when a player cashes out for $7,000,they do not know whether he started with $25 or $25,000. So it is actually written into the law that there is no withholding or even reporting of big winnings to the IRS for blackjack,baccarat, craps, roulette or the big-6 wheel.
There is another general IRS rule that says anyone paying anyone else $600 in one year is supposed to file a report. The IRS has been going after casinos and cardrooms that runtournaments, forcing them to file tax reporting forms on grand prize winners. Here the IRS has the very good argument that the operator knows exactly how much a player has paid to enter thetournament and how much the finalists are given.
Is there anything a winning player can do to lower the bite of the income tax? And what about those who gamble and lose? Which is everybody, occasionally. The law does allow players totake gambling losses off their taxes, but only up to the amounts of their winnings.
Michigan Gambling Tax Rate
Of course, if you win, say $135,000, you can take off all gambling losses, up to that amount. If you gambled away, say $65,000, you would only have to pay taxes on the remaining, let'ssee: $135,000 minus $65,000 equals $70,000. The tax on $70,000 is a lot less than the tax on $135,000.
Of course, you have the small problem of proving that you actually lost $65,000. Large winnings may be required to be reported to the IRS; large losses are not.
One former IRS Revenue Officer, who quit government to open his own small tax preparation firm, thought he found the answer. One of his clients won a share in a state lottery: $2.7million, paid out over 20 years in installments of about $135,000, before taxes. The winnings were reported, but the tax return claimed gambling losses of $65,000. The IRS decided that $65,000was a lot to lose, and it sent an agent to conduct an audit.
The tax preparer found a man with an extremely large collection of losing lottery tickets and made a deal: he would borrow 200,000 losing tickets for a month for $500. The losing ticketswere bound in stacks of 100 and shown to the IRS auditor: 45,000 instant scratch tickets, 5,000 other Massachusetts lottery tickets, and 16,000 losing tickets from racetracks throughout NewEngland. So many losing tickets, that it would have been physically impossible for one man to have made these bets. The New York Times called it, 'one of the more visibly inept efforts at taxfraud.' They pleaded guilty eight days after being indicted.
By the way, the man who rented the tickets was not charged. It's not a crime to collect losing lottery tickets, only to use them to try and cheat the IRS.
By MARY SELL, Alabama Daily News
The Alabama Attorney General is asking a circuit court to make Greenetrack pay more than $76 million in taxes on revenue from its slot machines.
“It is the opinion of the Attorney General that Greenetrack violated Alabama’s tax laws by not paying any state taxes on its illegal gambling operations,” Attorney General Steve Marshall’s office told Alabama Daily News Monday.
The appeal, filed Friday in Greene County Circuit Court, comes after an Alabama Tax Tribunal August decision that voided more than $76 million in tax assessments from the Alabama Department of Revenue against Greenetrack, which also allows betting on simulcast horse and dog races. The state had argued that the revenue from the track’s bingo operations were never exempted from state taxes, unlike the parimutuel betting revenue that is tax exempt under a 1975 state law. The track argued that when people voted to allow bingo at the track in 2003, the tax exemptions from parimutuel betting legally extended to bingo. The Tribunal sided with Greentrack.
“The tax tribunal’s decision would allow racetracks to operate illegal gambling tax free,” the statement to ADN said.
A call to an attorney for Greenetrack was not returned Monday.
In the appeal, Marshall’s office argues Greenetrack has not carried its burden of showing that the Alabama Legislature intended for Greenetrack to be exempt from paying all sales and use taxes related to its multi-million-dollar bingo operations simply because it also happens to be licensed to offer parimutuel wagering on dog racing.
“Under Greenetrack’s fanciful interpretation, a company like Wal-Mart would be well served to become a racetrack licensee so that it also would not have to remit any sales taxes on the majority of goods and services it sells.”
The AG’s office says the money owed is from 2004 through 2008. Greentrack had about 1,500 ‘electronic bingo’ games that were in effect slot machines. In 2007 alone, Greenetrack made more than $68 million from these machines, after winners were paid, the AG says.
According to the appeal, the Alabama Department of Revenue calculates Greenetrack’s obligation to be $75.5 million in sales tax and $746,292 in consumer’s use tax.
Alabama Tax On Gambling Winnings
It’s been almost two years since Marshall filed civil lawsuits against casinos in five counties, including Greenetrack. Marshall said the Alabama Supreme Court has made it “abundantly clear” that the games are illegal. The lawsuits are pending.
Michigan Gambling Tax Laws
Alabama lawmakers are watching the tax appeal case. State Sen. Greg Albritton, R-Range, last month said he disagreed with the tribunal ruling and a change may be needed to state law.