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.
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.