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Jock Tax Strikes Big Blackjack Winner in Atlantic City

High-stakes blackjack player Don Johnson recently walked away from Atlantic City casinos $15 million richer over a five month period. Before taxes, that is. A resident of Pennsylvania, he’s now well-aware how the Garden State’s jock tax leaves a large chunk of those winnings in the state’s coffers:

[Johnson] said the state’s reaction to his winning spree could put a chill on high-roller betting in New Jersey. He said he’s being told to pay New Jersey income taxes on his winnings even though he has never lived, owned property or done business there.

“That would be a precedent that might just kill off New Jersey gaming,” he said. “I can’t imagine any big player going there knowing that if he does hit them big, he might have a tax liability to them even though he’s paying taxes in his home state.”

He said he was being asked to pay under a provision tied to the introduction of gambling in New Jersey in the 1970s.

“It made sense when you had no other states surrounding New Jersey that had gaming,” he said. “Now you have all these competitors involved. It becomes a nightmare for a player who wins big and plays in multiple states. He has to figure out what his P&L is in every state. It’s ridiculous.”

Johnson explained further.

“Let’s say you won $1 million in New Jersey for the year, but you lost $2 million between Pennsylvania and Vegas. You had an overall net loss of $1 million. You lost money for the year, but the state of New Jersey may still come after you to try to require you to pay for what you won from them. That’s where this doesn’t work. The math doesn’t work on that.”

While the math may not “work,” he’s right about New Jersey imposing tax on the $1 million in his example. It’s a killer particularly because New Jersey has one of the highest income tax rates of all states. What Johnson doesn’t point out, however, is that as a resident of Pennsylvania, he may be able to take a credit on his Pennsylvania tax return for taxes paid on his gambling winnings to New Jersey. The significance is that he’ll pay only the higher of the two state’s tax rates (in addition to the federal rate, of course).

Despite the possibility of the credit, he makes a fair observation about how the state’s jock tax may hurt the New Jersey gaming industry, with casinos across the state border in close proximity. If Johnson won the $15 million in Pennsylvania casinos instead, he’d pay far less in state income tax because Pennsylvania’s personal income tax rates are much lower than New Jersey’s.

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