No Sales Tax
Lottery tickets are exempt from sales taxes in all U.S. states that have a lottery. In other words, you do not have to pay any tax at the time you purchase your tickets. However, there had previously been some reports that it could be a different story in Mississippi.
Sales tax in Mississippi is seven percent. Chokwe Antar Lumumba, the Mayor of Jackson, had also spoken late last year about a special one-percent infrastructure sales tax, estimating that his city would receive around $4 million a year from the lottery.
However, the Mississippi Legislature is now expected to pass House Bill 1576 to make it clear that lottery tickets will not be subject to sales taxes. The bill is currently pending and Revenue Commissioner Herb Frierson says it is a very straightforward issue.
“I don’t think you need a bill. It's considered a service, not tangible personal property. It's evidence of a bet is all it is. Why would you tax evidence of a bet?” said Frierson, who added that a lottery ticket itself is ‘a tax on stupidity’.
Income Tax
While there will be no sales tax in Mississippi when the state lottery goes live later this year, winnings will still be subject to tax. The state withholding will be between three and five percent, at the same scaled rate as any other income.
In comparison with other states, this fits somewhere in the middle. While ten jurisdictions, including neighbouring Tennessee, do not tax lottery winnings at a state level, there is a withholding in the majority of locations and in the state of New York it is as high as 8.82 percent.
Federal taxes also apply on lottery winnings, so you will have to report winnings of between $600 and $5,000 on your annual tax form, while prizes above $5,000 will be subject to a federal tax of 24-37 percent, depending on the prize amount.
The revenue raised from the new lottery, together with the associated income taxes, is set to boost Mississippi’s economy significantly. It has been estimated that it will be worth about $40 million to the state in the first year and double that in subsequent years, with the proceeds used to benefit the state’s roads and bridges and support public education.