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N.C. lottery finds sales hook in new state income tax rate

The N.C. Education Lottery had an unusual sales pitch today, telling players that hitting it big in 2014 will mean less taxes and more winnings

In a tweet sent out this afternoon, the official state lottery Twitter account pointed out that the state’s new flat 5.8 percent income tax, which eliminated a progressive tax structure where the poorest pay a lower percentage of income taxes than those with higher incomes, is a bonus for lottery winners.

lotterytweet

The tweet links to two news releases put out by the state-run lottery that showcases how a Rocky Mount man with a $1 million Powerball ticket and a firefighter in the western part of the state are paying $7,000 to $12,000 less in income taxes in 2014 than they would have if they won in 2013.

The controversial overhaul to the state’s tax system is expected to leave many middle and low-income North Carolina residents in 2014 with higher overall tax bills while wealthier households see larger reductions in their income taxes, according to some news reports and analyses. Defenders of the new tax system say the changes were long overdue, and will leave the state in better fiscal shape.

From the press release about the Rocky Mount winner:

[James] Mullins was the first $1 million lottery winner of the New Year to benefit from lower state income tax rates. Under state law, the lottery now withholds 5.8 percent of prizes that are $600 or greater for state incomes taxes. Previously, the lottery withheld 7 percent. The withholding rate for federal income taxes, which applies to prizes of $5,000 or more, will remain at 25 percent.

The change means that all lottery winners of $600 or more will take home more of their winnings. For a winner of a $1 million prize, the change means an additional $12,000.

But, the federal taxes will still be significant, with a 25 percent tax on prizes topping $5,000, the press releases state.

The state lottery, which gives a portion of its revenues to support education funding, has its highest sales in some of North Carolina’s most poverty-stricken counties, as N.C. Policy Watch found previously. In 2011, North Carolina adults spent $211 per capita on lottery tickets, while that number climbed to as much as $300 to $500 spent per capita in counties with high poverty rates.

4 Comments

  1. GOP Rules

    January 3, 2014 at 3:58 pm

    How are they saving sales tax?

    Which leads to the question…why not progressive up the sales tax rate ? Isn’t it unfair when democrats up it to 7+% on everyone? Why (other than the fact that stories here are mainly to “evicerate” Republicans) is it not hailed as for the little guy when thre is a huge slash of 1-2% off the top of the sales tax rate by the NCGA…heck that is a 14% tax cut that puts cash in the little guy’s pocket because he has to spend more of his income.

  2. Sarah Ovaska

    January 3, 2014 at 4:02 pm

    The tax is an income tax, not a sales tax. In the initial version, I incorrectly referred to the tax as a sales tax in one instance but have since corrected it. Thanks for pointing that out.

  3. LayintheSmakDown

    January 3, 2014 at 9:13 pm

    Shoulda’ had EditorAlan read over it before posting I guess.

  4. Belinda Mills

    January 10, 2014 at 6:50 am

    Wow, they’re already taking advantage of less-educated & poor people in their state by pushing lottery tickets on them…now they’re really pushing those tickets in the way they’re promoting the new flat tax. SHeesh- does no one in NC government have any integrity?