Taxable Talk

New Hampshire’s budget was signed into law earlier this week, and it gives gamblers a reason to frown. Included in the budget is a 10% tax on gambling winnings.

This article on the tax states,

As written, he [Rick Newman, a lobbyist for The Lodge at Belmont, a horse racing track] said the tax is imposed on winnings that are subject to Internal Revenue Service withholding and that “the triggering amount” in most cases is $5,000.

“However, under Federal law it can be as low as $600 in the case of a winner who does not provide a tax identification number. If someone wins $4,999.00 and provides a tax identification number they would not be subject to IRS withholding and therefore would not be subject to the NH tax. However if someone were to win that same $4,999.00 and did not provide a tax identification number that person would become subject to IRS withholding and because of that would be subject to the NH tax.”

An attorney, who is from New Hampshire, wrote on the Poker Players Alliance forum that the new tax applies only to gambling income subject to reporting on a Form W-2G.

There are three problems with this analysis. First, New Hampshire might attempt to assess the tax on the net income of a professional gambler (arguing a different interpretation of the law) or on the gross income of an amateur gambler. Second, what about income that, if earned in the United States would be subject to reporting on a W-2G but because it’s earned online is not? Joe Taxpayer wins an online poker tournament for $22,000. If he had won it in a brick and mortar casino, he’d receive a W-2G. However, he won it online so he doesn’t. New Hampshire could impose a 10% tax on Mr. Taxpayer. It’s unclear whether the law applies or not. Fighting the government is expensive and it’s easier to avoid the fight than to have the fight.

Finally, there’s a slippery slope to deal with. New Hampshire now has this tax. While it’s projected to bring in $13 million or so, it won’t. Taxes never bring in what they’re projected to because people modify their behavior to avoid the tax. When (not if) this occurs, what’s to stop New Hampshire legislators from changing the definition so that all gambling income is explicitly taxable?

My advice to New Hampshire gamblers is simple. It’s time to consider relocating.

It appears likely, but not certain, that New Hampshire will soon have a 10% tax on gambling winnings. The state legislature tentatively approved a new budget that contains the tax. It still must be approved by each house of the legislature and signed into law by the governor.

The tax itself is one of the worst for gamblers. It is a 10% tax on gross receipts, with no deductions allowed. It would impact both professional and amateur gamblers, and would make New Hampshire the worst location for gamblers to reside in the United States.

Key votes in the legislature will occur this week. I’ll keep you advised as I find out more information.

Last week I wrote about New Hampshire’s proposed tax increases. Those taxes passed the lower house of New Hampshire’s state legislature. However, they still must pass the state senate in New Hampshire. If you live in New Hampshire you may want to let your legislators (especially those in the state senate) know of your opinion of the proposed tax increases.

For the moment, New Hampshire isn’t yet on my list of bad places for gamblers to reside. However, it’s really knocking on the door.

Live Free or Die may be the motto of New Hampshire, but the formerly conservative state that believed in very low taxes elected a Democratic majority in the state legislature last year. Shock of shocks, tax increases are coming. And a particularly insidious tax increase will hit gamblers.

The New Hampshire House today passed a new budget that includes numerous new taxes and tax increases. As the Manchester Union-Leader reported:

The House, by a 182-165 vote, created or increased taxes on tobacco, rooms and meals, gambling winnings, estates and capital gains. The bill, HB 2, also raises the gasoline tax, with all those funds to go toward state and local road construction and improvements.

The gambling tax is particularly bad. The new tax is 10% on all gambling winnings above $600. While proponents noted that it would only impact big-time bingo games, what will be the impact on New Hampshire residents who head to a casino? The way the legislation is written it could impact professional gamblers residing in New Hampshire, and subject them to a 10% tax on their winnings. (Frankly, the legislation is so poorly written towards gambling that it will take court cases to determine what is or isn’t being taxed.) I for one don’t think it’s worth taking a chance and for the professional gamblers out there it’s definitely time to consider voting with your feet.

So what should a New Hampshire gambler do? For the amateur gambler, you may want to consider Maine or Vermont. Unfortunately, Connecticut and Massachusetts don’t allow gambling losses while New York tax rules will cause phase-outs of itemized deductions. Professional gamblers can also consider Connecticut and Massachusetts as both states have relatively low income taxes. (Professional gamblers are allowed to net their wins and losses, so they are not impacted by the inability to deduct losses in Connecticut and Massachusetts.)

Here’s the complete list of states for gamblers to avoid:

Connecticut*
Illinois*
Indiana*
Louisiana (itemized deduction limitation)
Massachusetts*
Michigan*
Minnesota (because of its AMT)
Mississippi (Only MS gambling deductions are allowed)
New Hampshire (10% gambling tax on winnings over $600)
New York (itemized deduction limitation)
Ohio*
West Virginia*
Wisconsin*

*Losses not allowed; impacts amateurs only