Aloha, Professional Gamblers

Aloha means a lot of different things. Per Wikipedia (and a conversation with a friend who was born in Hawaii) it means affection, love, peace, compassion, mercy, hello, and goodbye. I’ll focus on the latter two tonight.

There is no legal gambling in Hawaii; it’s one of two states with none, not even a lottery (the other, not surprisingly, is Utah). As you may remember, back in 2009 the state legislature passed a law that ended (for a short period) the ability to deduct gambling losses on state tax returns. That law was later reversed. Hawaii went on and then off my bad states for gamblers.

It’s back on the list, but only for professional gamblers.

Hawaii does not have a sales tax. Instead, there is the General Excise Tax:

Hawaii does not have a sales tax; instead, we have the general excise tax, which is assessed on all business activities. The tax rate is .15% for Insurance Commission, .50% for Wholesaling, Manufacturing, Producing, Wholesale Services, and Use Tax on Imports For Resale, and 4% for all others.

And it does apply to a professional gambler.

Hawaii is not a low tax state to begin with, so adding an extra 4% makes matters worse. Yes, it’s deductible on income tax returns for a professional, but when one considers the tax and the extra paperwork, maybe no tax Alaska sounds better in the end.

Here’s a complete list of the bad states for gamblers:

Connecticut*
Hawaii#
Illinois*
Indiana*
Massachusetts*
Michigan*
Minnesota#
Mississippi***
New Hampshire&
New York@
Ohio**
West Virginia*
Wisconsin*

Explanations:
* Gambling losses cannot be deducted as an itemized deduction on the state’s tax return.
** Ohio currently doesn’t allow gambling losses as an itemized deduction. Effective 1/1/2013, gambling losses will be allowed as an itemized deduction. Note that this change will likely not impact city and school district tax returns in Ohio.
***Mississippi only allows MS gambling losses as an itemized deduction for gambling losses
# Hawaii now does allow gambling losses as a deduction. However, Hawaii has an excise tax that impacts professional gamblers — 4% on gross receipts.
@ New York has a limitation on itemized deductions; if your AGI is over $500,000, you lose 50% of your itemized deductions. You begin to lose itemized deductions at an AGI of $100,000.
# Minnesota has a state AMT that impacts amateur gamblers, effectively eliminating the gambling loss deduction for amateurs.
& New Hampshire has a 10% tax on gambling. While it is currently not being widely enforced, it could be at any time. A literal reading of the law would make it applicable to all gambling.

Let’s just say that gamblers aren’t treated well by many states. It’s enough to want to escape, so here’s the best theme song from any television show ever:

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