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Old 04-07-2012, 08:32 AM   #1
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Tax Topic: Nonresident state income tax on gambling winnings.

The majority of U.S. states impose an income tax on any income which is "sourced" within their state, for both residents and U.S. nonresidents (foreign nonresidents as well, but this post addresses just U.S. residents). This includes gambling income, which means that a poker player who travels to play in another state may be liable for state income tax to that state if they meet the minimum state income tax filing requirements for that state.

If you pay nonresident state income tax to another state, you may be able to deduct the amount paid to the other state from your own state income taxes, depending on the tax laws of your state. However, if you live in a state without a personal income tax, such as Florida, this does not exempt you from paying nonresident income taxes in the other states.

Here are a few examples for nonresident gambling income:

California: All gambling income is subject to CA state income tax except for CA Lottery winnings.

Connecticut: Casino gambling income in CT is not considered CT sourced income and therefore not subject to nonresident CT income tax. CT Lottery winnings of $5,000 or more are subject to CT state income tax for nonresidents.

Colorado: Gambling winnings for nonresidents is not subject to CO state income tax for amateurs, but is subject to CO state income tax for professional players as business income.

Illinois: Nonresident gambling income is not subject to IL state income tax except for IL Lottery winnings.

Iowa: All gambling income is subject to IA state income tax. Nonresidents are required to file an Iowa return if Iowa-source income, including gambling winnings, is $1,000 or more and gross income (from all sources, not just Iowa) is more than $9,000 if single or $13,500 for married filers.

Louisiana: All gambling income is subject to LA state income tax.

Minnesota: All gambling income is subject to MN state income tax.

Nevada: There is no personal state income tax.

New Jersey: All gambling income is subject to NJ state income tax except for NJ Lottery winnings.

New Mexico: All gambling income is subject to NM state income tax.

Pennsylvania: All gambling income is subject to PA state income tax except for PA State Lottery winnings.

Wisconsin: All gambling income is subject to WI state income tax, however the threshold for filing a WI state income tax return is $2000 or more gross income, including gambling winnings.

Article: Russ Fox's blog on this topic.

Last edited by PokerXanadu; 04-07-2012 at 08:43 AM.
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Old 04-07-2012, 09:11 AM   #2
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Re: Tax Topic: Nonresident state income tax on gambling winnings.

I've been researching this myself lately and haven't been able to find the state-by-state details for applicability of gambling winnings that you mention, where do they come from?

In particular, West Virginia is a new interesting case, as it's a "bad poker tax" state that disallows gambling losses entirely on its state income tax but, over the past few years, has become the poker hub for the NoVA/DC/MD area with a rather high-traffic poker room in Charles Town, WV. Actual residents of WV who file as amateurs are almost certainly unable to profitably play cash game poker due to the state income tax law, and the many visitors from other states may be in the same situation if there's not some sort of exemption for poker income in WV.

Also, I haven't researched this myself yet, but how exactly does the deduction of the jock tax against your home state's income tax work? In particular, let's say someone lives in VA and routinely travels to WV to play poker. They have $30,000 in gambling winnings and $29,000 in gambling losses, all in WV. If they do indeed owe 5%*$30,000=$1,500 in tax to WV, do they get the full $1,500 in a credit against whatever their total VA state taxes are for the year? Or is the credit somehow matched to the income that generated it, and the player would only get a VA state tax credit of whatever the VA state tax amount on his $1k net poker winnings were?
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Old 04-07-2012, 10:50 AM   #3
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Re: Tax Topic: Nonresident state income tax on gambling winnings.

Quote:
Originally Posted by repulse View Post
I've been researching this myself lately and haven't been able to find the state-by-state details for applicability of gambling winnings that you mention, where do they come from?
From a google search for: gambling winnings nonresident state income taxes (or the same but substitute the state name for "state"). Most of the links I used were to the answers on the official state sites.

Quote:
Also, I haven't researched this myself yet, but how exactly does the deduction of the jock tax against your home state's income tax work? In particular, let's say someone lives in VA and routinely travels to WV to play poker. They have $30,000 in gambling winnings and $29,000 in gambling losses, all in WV. If they do indeed owe 5%*$30,000=$1,500 in tax to WV, do they get the full $1,500 in a credit against whatever their total VA state taxes are for the year? Or is the credit somehow matched to the income that generated it, and the player would only get a VA state tax credit of whatever the VA state tax amount on his $1k net poker winnings were?
The deduction is a general deduction for state income taxes actually paid to your nonresident state taken on your home state income tax return. It works like this:

1. You have winnings in a nonresident tax state that requires income taxes on it.

2. You do a tax return for the nonresident state for the winnings in that state and pay the taxes on it. (Taxes may already be withheld by the casino, but you still need to file - and there may be a difference in the actual tax due.)

3. You do a tax return for your resident state and include all your income, both in and out of your state.

4. You take a deduction on your state tax return for the amount of income tax you paid to the nonresident state.

Note that following this always results in paying the highest state tax rate on the income between the two states. This also means that if you live in a state that doesn't allow deductions for gambling losses, you will always end up paying the full amount of state income taxes on all your winnings, both in-state and out-of-state, without taking deductions for any of your losses.

There are a couple of possible scenarios involving states without income taxes:

1. You have winnings in a nonresident state with no income tax.

2. You include your winnings in your home state income tax return and pay state income taxes on those out-of-state winnings.

or,

1. You live in a state with no income tax.

2. You have winnings in a nonresident state which collects state income tax on gambling winnings.

3. You have to file a state income tax return for the nonresident state and pay state income taxes on your winnings from that state.

It does get quite complex, especially when you take into account the bad states that don't allow deductions for gambling losses.

Last edited by PokerXanadu; 12-25-2013 at 07:44 AM.
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Old 04-10-2012, 05:22 PM   #4
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Re: Tax Topic: Nonresident state income tax on gambling winnings.

Quote:
Originally Posted by PokerXanadu View Post
From a google search for: gambling winnings nonresident state income taxes (or the same but substitute the state name for "state"). Most of the links I used were to the answers on the official state sites.
Thanks. I wasn't able to find any info for West Virginia myself, but I contacted the WV State Tax Department and actually received a timely, detailed response.
Quote:
... Nonresidents must calculate their tax in accordance with W.Va. Code §11-2130
which provides a calculation of tax liability based on the taxpayers "West Virginia
source income"
as compared to "federal adjusted gross income."
West Virginia source income is the sum of the net amount of income, gain, loss and
deduction entered into his or her federal adjusted gross income . . . derived from or
connected to West Virginia sources." See W.Va. Code §11-21-32(a).

That section further provides that income from West Virginia sources is:
(1) Items of income, gain, loss and deduction derived from or connected with
West Virginia sources shall be those items attributable to:
(A) The ownership of any interest in real or tangible personal property in this
state
; or
(8) A business, trade, profession or occupation carried on in this state; or
(C) In the case of a shareholder of an S corporation, the ownership of shares
issued by such corporation, to the extent determined under section thirty-seven.
(2) Income from intangible personal property, including annuities, dividends,
interest, and gains from the disposition of intangible personal property, shall
constitute income derived from West Virginia sources only to the extent that such
income is from property employed in a business, trade, profession or occupation
carried on in this state
.
W.Va. Code §11-21-32(b).

Your specific question centers around whether gambling
winnings qualifies as West Virginia source income. It seems clear that gambling
winnings are entirely dependent upon an ownership interest in tangible personal
property (lottery tickets, bingo paper, pull-tabs, chips, etc.) or intangible personal
property (gaming machine credits), and therefore any winnings are income related to
tangible or intangible personal property. Thus, gambling winnings are generally
includible into West Virginia source income.


To this end, the Code provides that "[f]or the purposes of determining liability for
payment of taxes and filing of returns, payments of [lottery] winnings which are subject
to withholding shall be treated as if they were wages paid by an employer to an
employee.
" W.Va. Code §11-21-77. Thus, if the winnings referred to in your letter are
lottery winnings, they would not be included into West Virginia source income.
(emphases mine)

So, basically, according to this, we have:

West Virginia: All nonresident gambling income is subject to WV state income tax except for really big WV Lottery winnings (and gambling losses are not deductible).

FWIW, the interpretation given to me seems incorrect or at least somewhat speculative, at least from my non-legal perspective. Treating poker winnings as related to "ownership of any interest in real or tangible personal property" because physical chips are used seems pretty thin. Is a player even considered a legal owner of poker chips in a casino, or are they "borrowed"? The language for the intangible property is clear that it applies only to business/professional endeavors and would appear to clearly not apply to amateur poker players visiting the state.

Also seems like poker income might magically change classification if it's large enough to trigger withholding, such as a tournament win, assuming poker falls under whatever definition of "lottery" is at play in that statute.
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Old 04-12-2012, 09:46 PM   #5
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Re: Tax Topic: Nonresident state income tax on gambling winnings.

Quote:
Originally Posted by repulse View Post
Thanks. I wasn't able to find any info for West Virginia myself, but I contacted the WV State Tax Department and actually received a timely, detailed response.(emphases mine)

So, basically, according to this, we have:

West Virginia: All nonresident gambling income is subject to WV state income tax except for really big WV Lottery winnings (and gambling losses are not deductible).

FWIW, the interpretation given to me seems incorrect or at least somewhat speculative, at least from my non-legal perspective. Treating poker winnings as related to "ownership of any interest in real or tangible personal property" because physical chips are used seems pretty thin. Is a player even considered a legal owner of poker chips in a casino, or are they "borrowed"? The language for the intangible property is clear that it applies only to business/professional endeavors and would appear to clearly not apply to amateur poker players visiting the state.

Also seems like poker income might magically change classification if it's large enough to trigger withholding, such as a tournament win, assuming poker falls under whatever definition of "lottery" is at play in that statute.

Here's a simple question, has anyone on this site, who has ever provided their id or player card when cashing out, ever received any tax forms from CT? Or received anything from WVa tax?
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Old 04-14-2012, 06:41 PM   #6
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Re: Tax Topic: Nonresident state income tax on gambling winnings.

Quote:
Originally Posted by repulse View Post
...
Also, I haven't researched this myself yet, but how exactly does the deduction of the jock tax against your home state's income tax work? In particular, let's say someone lives in VA and routinely travels to WV to play poker. They have $30,000 in gambling winnings and $29,000 in gambling losses, all in WV. If they do indeed owe 5%*$30,000=$1,500 in tax to WV, do they get the full $1,500 in a credit against whatever their total VA state taxes are for the year? Or is the credit somehow matched to the income that generated it, and the player would only get a VA state tax credit of whatever the VA state tax amount on his $1k net poker winnings were?
I've found an answer for this, at least for the state of Virginia:
http://www.policylibrary.tax.virgini...e?OpenDocument
Quote:
§ 58.1-332. Credits for taxes paid other states.
...
The credit allowable under this section shall not exceed: (i) such proportion of the income tax otherwise payable by him under this chapter as his income upon which the tax imposed by the other state was computed bears to his Virginia taxable income upon which the tax imposed by this Commonwealth was computed...
so a $1,000 West Virginia tax bill on $20,000 winnings - $19,500 losses = $500 net WV poker winnings would only be deductible up to the extent of the $25 Virginia tax bill on that $500 of income.

But, even more unfortunately, I also found this, which seems to suggest that Virginia residents do not get to take the tax credit for income tax paid to any other states when it comes to amateur poker income:

http://www.tax.virginia.gov/site.cfm..._Another_State
Quote:
Credit for Tax Paid to Another State

General provisions -- Section 332 of the Code of Virginia makes out-of-state tax credit provisions for income that is taxed by more than one state. The credit is restricted to certain types of income. The intent of the law is to address double taxation when income is generated in more than one state; however, the credit does not eliminate double taxation in all cases. For example, taxes paid to another state on non-qualifying income would not be subject to the credit provisions.
...
Qualifying income -- The first step in computing the credit is to determine the qualifying taxable income on which the other state's tax is based. To be included in the computation, the income must:

Be earned or business income derived from sources outside Virginia, which is subject to tax by Virginia as well as another state; or
Be a gain from the sale of a principal residence outside Virginia which was included in federal adjusted gross income; or
Be a gain from the sale of any capital asset not used in a trade or business; or
Be corporation income tax paid to another state (one that does not recognize the federal S corporation election), by an individual shareholder of an S corporation. Attach a statement from the S corporation.
So, if I'm reading this correctly, there's two reasons why one's overinflated nonresident West Virginia amateur poker tax liability won't be a deduction against one's total income for Virginia state taxes:
  1. Virginia only allows the tax credit for nonresident state income tax to be taken up to the extent of the Virginia state income tax on that same income -- perhaps this is the general rule for other states as well, which would create the effective total tax rate of the higher of the two states income taxes as Russ Fox mentions below. This would mean that nobody gets to effectively ignore the negative effects of amateur poker play in a state with no gambling loss deductions.
  2. Virginia essentially only allows these tax credits for earned or business income, therefore not for the amateur poker player. Which is pretty infuriating, as the source discusses how it is intended to eliminate double taxation on what seems to be all conceivable other methods of out-of-state income.

#1 contradicts Russ Fox's quick summary here:
Quote:
Well, [owing state income tax to a state one doesn't reside in] isn’t fair but you can avoid double taxation. All states (with a state income tax) have a credit available for when you pay income tax to another state on income also taxed by your home state. In that way, you pay the higher of the two states’ income tax rates. (Note: Sometimes the credit is taken on the other state’s tax return.)
so I'm not sure if Virginia is a special case that Russ missed, or if there is a reason that amateur poker earnings fall under the applicable income. I'll send him a PM directing him here, either to bring this state to his attention or, perhaps, to clarify!
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Old 04-15-2012, 08:12 AM   #7
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Re: Tax Topic: Nonresident state income tax on gambling winnings.

It does seem pretty bad for VA amateur players, although there are four states mentioned in the VA income tax form instructions whereby the nonresident income tax credit is taken on that state's form instead of the VA form: Arizona, District of Columbia, California and Oregon. (In other words, for those four states the amateur player would not be double-taxed by VA for state income tax on poker earnings sourced in those states.)
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Old 04-15-2012, 09:17 AM   #8
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Re: Tax Topic: Nonresident state income tax on gambling winnings.

Quote:
Originally Posted by PokerXanadu View Post
It does seem pretty bad for VA amateur players, although there are four states mentioned in the VA income tax form instructions whereby the nonresident income tax credit is taken on that state's form instead of the VA form: Arizona, District of Columbia, California and Oregon. (In other words, for those four states the amateur player would not be double-taxed by VA for state income tax on poker earnings sourced in those states.)
Right, so basically, VA residents can fly to California to play
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Old 04-19-2012, 10:42 AM   #9
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Re: Tax Topic: Nonresident state income tax on gambling winnings.

Quote:
Originally Posted by repulse View Post
I've found an answer for this, at least for the state of Virginia:
http://www.policylibrary.tax.virgini...e?OpenDocument
so a $1,000 West Virginia tax bill on $20,000 winnings - $19,500 losses = $500 net WV poker winnings would only be deductible up to the extent of the $25 Virginia tax bill on that $500 of income.

But, even more unfortunately, I also found this, which seems to suggest that Virginia residents do not get to take the tax credit for income tax paid to any other states when it comes to amateur poker income:

http://www.tax.virginia.gov/site.cfm..._Another_State
So, if I'm reading this correctly, there's two reasons why one's overinflated nonresident West Virginia amateur poker tax liability won't be a deduction against one's total income for Virginia state taxes:
  1. Virginia only allows the tax credit for nonresident state income tax to be taken up to the extent of the Virginia state income tax on that same income -- perhaps this is the general rule for other states as well, which would create the effective total tax rate of the higher of the two states income taxes as Russ Fox mentions below. This would mean that nobody gets to effectively ignore the negative effects of amateur poker play in a state with no gambling loss deductions.
  2. Virginia essentially only allows these tax credits for earned or business income, therefore not for the amateur poker player. Which is pretty infuriating, as the source discusses how it is intended to eliminate double taxation on what seems to be all conceivable other methods of out-of-state income.

#1 contradicts Russ Fox's quick summary here:
so I'm not sure if Virginia is a special case that Russ missed, or if there is a reason that amateur poker earnings fall under the applicable income. I'll send him a PM directing him here, either to bring this state to his attention or, perhaps, to clarify!
I took a look at this by creating a return for a resident of Virginia with $50,000 or business income, $50,000 of gambling income and $20,000 of gambling losses. I then created a non-resident West Virginia return with $50,000 of gambling income.

My software didn't want to cause any WV tax at first; Virginia and West Virginia have an agreement that if a resident of one state earns wage income in the other state, the income will only be taxable in their home state. I fixed that and saw 5.2% tax to WV. My software instantly created a Virginia credit for the full amount of the tax (Schedule OSC), so on the surface there's no issue.

Unfortunately, repulse is correct: Virginia law does not allow an other-state-credit for non-earned income. I would need to adjust the OSC and remove it per Virginia law. I've dealt with Virginia OSC's before, but only on wage income. It is yet another anomaly in the Tax Code impact amateur gamblers.

Of course, most amateur gamblers won't file a West Virginia tax return for their gambling activity in cash games so the impact will be on tournaments where there's a substantial prize (over $5,000 net).

Virginia amateur gamblers may want to head to Florida for their poker--a state without an income tax. I know that there's a brand new room in Jacksonville (and I'll get to play there in a couple of months)....

-- Russ Fox
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Old 04-19-2012, 11:08 AM   #10
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Re: Tax Topic: Nonresident state income tax on gambling winnings.

This sort of issue has come up also in the context of a multi-state poker network structure. One theme prevalent among the folks discussing taxation was that State tax liability for players should be calcualted by whatever their home state rules would be.

Fortunately, the issue of withholding for "Home State income taxes" did not arise for discussion, but it will down the road.

I would propose that players advocate for a system where their local State licensee is responsible for any tax administration, rather than laying that issue on the multi-state network. (This seems likely as a likely network structure would house each State's licensee servers in-state for cashier transactions and issuance of "game credits" for actual play in the multi-state game pool.

As there are already multi-state prize pools for some casino gaming and certainly for lotteries, there likely will be a template that would gain acceptance among compacting States for poker.
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Old 04-19-2012, 11:15 AM   #11
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Re: Tax Topic: Nonresident state income tax on gambling winnings.

Thanks for taking a look, Russ, much appreciated. Just to clarify...
Quote:
Originally Posted by Russ Fox View Post
Of course, most amateur gamblers won't file a West Virginia tax return for their gambling activity in cash games so the impact will be on tournaments where there's a substantial prize (over $5,000 net).
Are you saying that most amateur gamblers won't file a WV return on cash game winnings because they don't realize that they have to, or that they won't because they actually don't have to?

Is the Jock Tax somehow only triggered on winnings where withholding applies, at least potentially? Or is an honest, tax-compliant amateur cash game player also impacted (i.e. that the nonresident gambling income tax applies to any type of gambling winnings)?
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