THE LOTTERY Ordinance would tax winnings

The councilman expects the tax to be on city residents who win $600 or more.
By ROGER G. SMITH
CITY HALL REPORTER
YOUNGSTOWN -- The city is starting work on an ordinance that would tax lottery winnings.
Councilman Clarence Boles, D-6th, said the biggest reason he is sponsoring the legislation is to raise revenue for the cash-strapped city.
For example, the Ohio Lottery said city residents who won $600 or more collected $1.7 million in the fiscal year that ended June 30. The city would have received $46,750 based on its 2.75 percent income tax if it had collected on those winnings. That's roughly the cost of keeping a police officer on the payroll.
But Boles also doesn't want the city missing out on a million-dollar windfall like a nearby city.
What happened
Earlier this year, South Euclid -- struggling with layoffs and budget cuts like Youngstown -- learned it couldn't collect $1.4 million it thought was coming.
A resident there won $132 million in the Mega Millions game and took a $67 million lump-sum payment. But South Euclid failed to amend its charter after a 1996 state Supreme Court ruling. The court said cities need to specify lottery winnings in their laws to collect income tax on them.
Boles said he wants city administration to work out the legal issues quickly. He worries that a resident could hit a jackpot any day but the city wouldn't get lucky, too.
"It bothers me right now," he said. "We don't want it to bite us in the butt like South Euclid."
The legal details are important. They will determine whom the city will tax and starting at what dollar amount.
Boles said he envisions taxing the lottery winnings of city residents who win more than $600. The state reports the names of people who win $600 or more to cities that ask, said Mardele Cohen, a lottery spokeswoman.
Federal and state taxes
The lottery withholds mandatory federal and state taxes totaling 28.5 percent before giving out prizes. There are so many different local rates that the lottery doesn't withhold those taxes, she said.
People who win up to $599 can claim their prizes where they bought the ticket. There's no way to track those winnings for tax purposes, she said.
People who win $600 to $5,000 can collect their prizes, for a fee, from a bank authorized by the state or claim their money by mail. Banks report the winnings to the state and federal governments.
Those who win more than $5,000 are required to claim their prize in person at one of nine regional lottery offices in the state, which report the winnings.
More cities have asked about taxing lottery proceeds since the South Euclid incident, but there hasn't been a rush, Cohen said.
The notion of taxing lottery winnings has come up many times over the years, said Dan Brott, the city's income tax commissioner. Council members however, have declined to take action, he said.
Taxing lottery winnings isn't unusual. Cities large and small, from Cleveland and Akron to Chagrin Falls and Avon, consider lottery proceeds taxable income.
For example, in Northeast Ohio alone, the 107 municipalities served by the Regional Income Tax Agency and 43 served by the Central Collection Agency tax gambling and lottery winnings.
Those agencies collect income taxes for municipalities.
rgsmith@vindy.com