"Jane," a Madison-area resident, found out the hard way that gambling in Wisconsin is a losing proposition, even when you win. A heavy-duty gambler, Jane pocketed $253,680 in casino winnings in 2006, according to casino W2G forms (issued for every win of $1,200 or more). The problem is, she also lost $210,905.
Okay, you say, that still leaves her $42,775 ahead. Not quite. Wisconsin taxes casino winnings in full, but does not allow any deduction for losses. As a result, Jane owes more than $17,000 in state taxes.
"It's ridiculous," says Jane, who mainly plays $5 slots. "The state of Wisconsin is already paid on the casino's profits. They don't require the casino to withhold the tax when you win it. If they did, I would have a nice tax return coming back instead of having to pay taxes on money that never left the casino."
Even Jane's gambling wins in Las Vegas are subject to Wisconsin taxation, with no break for losses: "You can't make money anywhere without Wisconsin taxing you."
The federal government, in contrast, lets taxpayers deduct losses from winnings, though not in excess of what they've won. Wisconsin did the same until January 2000, when the law was changed.
Chuck Pellino, a Madison tax attorney, says the change has wrought devastation. "It's really horrible," he says. "There are people in this state who owe tens of thousands of dollars [in taxes]" - and, because they have gambled away their winnings, have no way to pay.
Wisconsin's approach - upheld last month by a state appeals court - treats payouts to gamblers as pure gain. In reality, as Jane puts it, "you have to spend money to make money." A person who spent $100,000 to make $105,000 would owe about $7,000 in state taxes, more than they came out ahead. And someone who won $100,000 but lost $300,000 would also end up owing money to the guv.
How is this fair?
Meredith Helgerson, a spokesperson for the state Department of Revenue, declines to defend this policy, saying it was the Legislature's doing: "We enforce the statutes, that's what we do."
Jane has gotten an extension on her 2006 taxes and is exploring her options. One might be to declare herself a professional gambler, and deduct her losses as business expenses, although she'd then have to pay self-employment tax. (Helgerson says this is doable; Pellino is unsure.)
In the meantime, Jane continues to hit the casinos, wagering thousands per night. "So far this year," she says, "I'm up about $50,000." Before taxes.
