All week, the good residents of Altadena, Calif., have been watching neighbors, counting co-workers who have called in sick and calling ex-spouses to find out who might have the lone winning Powerball ticket valued at $2.04 billion Dollars being sold at a Mobilgas station in this Los Angeles suburb.
Everyone is waiting for the country’s newest billionaire to come forward. Cousins of cousins will suddenly appear on their doorstep. So will the IRS.
But there’s a surprising reason why the mystery winner is lucky enough to have bought the richest lottery ticket ever sold in the history of the planet here, rather than in, say, Louisiana or Kentucky: You don’t have to deal with the state Treasurer at the Golden deal with state .
California doesn’t levy a penny of state income tax on lottery winnings of any amount. In this case, it’s like winning a second $123 million jackpot.
Thirty-six other states will get their share of the profits – including New York, Arizona and Virginia.
How California, often maligned as a tax-loving state, eventually became one of nine Powerball participating states — including Red State rivals like Florida and Texas — that tumbled lottery winners is part of the interesting backstory of how voters here first turned down. then approved lottery sales. Ironically, the record $2.04 billion jackpot draw came on the same day that voters firmly rejected two measures that would have legalized gambling in sports.
California’s lottery system, including the state tax exemption, was first instituted after voters approved Proposition 37 in 1986, which it criticized for imposing a “new and expensive tax” on Californians.
“Contrary to the untruth of our opponents: No lottery revenue would go to the state,” argued advocates at the time. “EVERY PENNY OF LOTTERY WINS WOULD GO TO PUBLIC EDUCATION.”
As far back as 1964, California voters rejected an earlier proposal to create a state lottery system after opponents used taxes as a scare tactic against what was known as Prop 16, Commissioner Don Fazackerley and others argued at the time. “Your taxes are more likely to be increased due to increased welfare and policing costs.”
These days, luck decides which communities and businesses will benefit from the sudden influx of lottery winners. In Altadena, Joe Chahayed received a $1 million reward for selling the winning Powerball ticket at his Joe’s Mobil gas station. He said he hopes the jackpot winner will be a local who decides to invest back in the community.
“This is a very poor area,” Chahayed told the Orange County Register. “The poor deserve it”
Although the jackpot ended up totaling $2.04 billion, the winner could end up with about $758 million after federal income taxes, assuming, like most winners, they opt for a one-time cash option rather than the entire jackpot, which is divided into 30 annual installments.
“We’re talking about a life-changing amount of money, and I don’t think that’s an exaggeration in this case,” said Carolyn Becker, communications director for the California State Lottery.
How rich are we really talking? The winner would have to win 123 Powerballs of the same record size to take first place on the Forbes list of the richest Californians. Google co-founders Larry Page and Sergey Brin currently lead the government balance sheet with an estimated net worth of $93 billion and $89 billion, respectively.
The state of California misses out on hundreds of millions of dollars in potential revenue each year because lottery winnings are not taxed. From June 2020 to June 2021, the California State Lottery paid out $5.6 billion in winnings. Even if California taxed those gains at the median income tax rate of 6%, that would still give the state about $336 million in annual revenue. That’s more than double what the state just allocated to the office directing the state’s response to the fentanyl crisis.
However, California has other ways to benefit from the lottery. The state made $156.3 million — or 40% — from the sale of public school lottery tickets during this record-breaking Powerball lottery run. These dollars are used to help schools across the state, including paying teachers’ salaries, buying new science lab equipment, and replacing outdated textbooks with ones modern enough to acknowledge the existence of the Internet.
Hard to imagine, but if no winner comes forward to claim Tuesday’s record prize, California — and all other Powerball states and territories — will get back all the money they contributed to the prize. That’s about $265 million in California that would also be sent to public schools. Although this extra money could be an unexpected blessing, Becker said schools are already benefiting tremendously from ticket sales.
“We already have winners in California,” she said.