I agree in advance this is a dry subject for a thread. In fact, I first raised this question in another thread and pretty much killed it stone dead.
**Asuka **mentioned in the other thread it’s California law that if you win a car on a game show, you have to be able to pay off the taxes immediately or else you don’t get the car. You’re not allowed to go to your bank to get a loan (using the car as collateral) or sell the car to pay back the taxes. California wants the money right then and there or else you have to refuse it.
With that fact presented, what would happen in this legal hypothetical? Michelle is a contestant from Indiana who wins an automobile on a game show produced in Hollywood, CA. The automobile shown on the program is just a demonstrative model so Michelle doesn’t have to drive the car out of the studio back to Indiana. Instead, the auto company gives Michelle the equivalent of an IOU. Michelle flies back to Indiana where she acquires possession of the same model of car at a local dealership.
Does Indiana’s state tax law apply here or California’s state tax law?
I’m not an expert in California tax law but casual research shows that California taxes game show prizes, which would include a car or an IOU to get a car later. In your hypothetical, the IOU has effectively the same value as the car. I expect the IOU would be taxed the same way and for the same amount as the car would be taxed.
Regardless of whether Michelle actually receives a car in California, her right to the car has vested in California. Absent a specific exception, that likely makes the transaction taxable in California.
A family friend appear on The Price is Right in 2013. She won 2 cars and a selection of other prizes. The first thing she found out after winning she did not get anything till after the show aired a few months later. She received vouchers to claim the cars at dealers local to where she lived. Her and her husband were able to pay the taxes to California prior to receiving the prizes and vouchers. They also had to pay Washington state sales taxes and licensing fees pm the vehicles too. It still wasn’t a bad deal, it cost them a little over $12,000 for a new Jeep Cherokee and a Toyota Prius. They are still driving those cars.
AFAIK sales taxes tend to avoid “piling on”… that is, if sales tax is paid in one jurisdiction it should not apply in the other. (And some states have refunds for visitors…)
However, winning a prize on a game show is I assume an income tax issue. So, you pay the California income tax amount.
(I was in the audience of a New York talk show in USA a few times, and recently they distribute a paper where you must identify yourself - presumably so they can report the appropriate value of the giveaways and who received them where applicable in some states. To simplify tax issues, Canadian audience members did not get any of the giveaway -whereas a few years ago we had. I believe a $65 threshold was mentioned for this paperwork…)
When I was on Jeopardy I won a trip, which included a week at a resort and transportation. Since the resort was 65 miles from my house, I drove and did not use the airfare or rental car. I still got taxed on the value of them however. The show could not remove the value of the transportation from the amount of the prize.
The 8% bracket for California income tax kicks in around $40,000 for a single person, so it’s not that high. Maybe they require that much upfront as withholding, and then the winner can seek a refund (or pay any extra) by filing an annual return later.
Note that Indiana assesses a flat income tax rate of 3.23%, so I can see why the OP’s question might get asked.
California has a7% withholding tax for non-residents on prizes won in California (excluding the state lottery) exceeding $1500.
There is no withholding tax on California residents.
Both residents and non-residents must then file a California state income tax return in order to get a refund if the withholding was too much or to pay the balance due if the withholding was insufficient.
In the case of a non-cash prize, the contestant must pay the tax due when claiming the prize. The sponsor of the contest may pay the tax, but the money paid by the sponsor will be considered an additional prize amount, subject to state and federal taxes.
Both states will tax the winnings. California will tax them because the car was won while appearing on a California game show (you earned the car in California). Indiana will tax it because it has the right to tax the world-wide income of its residents.
Why would that be an option? The game show doesn’t buy a bunch of cars wholesale – they negotiate a promotional with the car company. A car likely has to change hands, that is, be given to someone to complete the contract with the car company. A prize of this car was made so that this sort of advertisement – that this vehicle is desirable was shown to the public.
So the show instead transfers a consolation prize of say, USD $1000 instead of a car. So what? California still wants its income tax. You don’t have to register the cash in your state like you do a car, but so what.
Say I work, in California, and earn the value of a car. I pay California income tax. Say my grand aunt Sadie in California gifts me 50 K, I pay California tax – gift and/or income I don’t really know.
Yer stoopid Arkcon. 'Course Cali-taxachusetts (sorry I don’t know the meme to use here) pocket rapes those people stuck there working there, but Jeopardy money, Price is Right money and Lottery money is found money, Cali don’t got the right to none of it.*
I don’t know why anyone would argue that. Do people really think they can stamp their feet on the internet hard enough to scare California or the IRS?
*I’m given to understand, that lottery winnings in Britain aren’t taxed, or something. I don’t know. Doesn’t seem likely to me. I guess the include the tax and pay it for you, like – “you’ve just hit the pools for GBP 372,679.57” because the taxes are already been taken.
In Canada, so I assume too in the USA, proof of sales tax has to be presented when you register a car (which obviously is done in the state/province you live in). Some provinces are quite willing to collect sales tax on used cars also. Plus, if you claim a sale price too far below book value (i.e. “Free I won it!”) you will pay the tax rate on the book value. So regardless of income tax rules, sales tax is applicable where you register the car.
Canada unlike the USA does not tax lottery winnings; but the concept for a game show (in the USA) is I assume no different than professional sports or professional entertainers - you have to pay taxes in the place where you earned the money. I’m surprised California ever made the opposite exception. Usually the opposite applies - you pay tax in the location you made your money, then you also declare the income in the state where you live - and pay applicable taxes minus what tax was already paid in the first state.
(I would imagine any state that refused to allow a credit for outside tax paid would quickly become a state without higher earners…)
Hmmm… Something similar happened to me, but either the show provided a letter for the IRS to the effect that I hadn’t used the full value of the prize, or the IRS accepted my own statement to that effect.
Also, WRT paying California tax, that year (1991) I had to fill out a California tax return, but I’m pretty sure that I didn’t have to pay Maryland tax on the value of the things California taxed me for. Maybe other states are different, but the people mentioned above who were taxed by two states for the same things may not have gotten good tax advice. It looks like Alley Dweller has provided a good cite for the OP’s question.
Canada also does not tax lottery winnings, or gambling winnings generally. The problem is if you follow the logic then you should be allowed to deduct the expenses incurred to create that earned income - i.e. gambling losses. (at the very least, deduct them from winnings). The question would be whether you are a contestant winning a prize or whether you are a paid participant and your winnings are your earnings - Maybe not on some one-episode shows or mass audience, but in something like Survivor or Amazing Race, you can argue a person who appears for 10 weeks is not much different than an actor. From such nitpicking and hair-splitting logic come the golf club membership fees of many lawyers…
I think the logic for Canada was, “who cares?”. It’s not like millionaires are raking in a million a week - most people only win once. The original legal lottery was to help pay for the 1976 Olympics in Montreal, and the optics of “your million dollar prize is actually $550,000” didn’t look good. it hasn’t changed since, despite the proliferation of lotteries.
In the US, gambling losses are deductible (up to the amount of your winnings), or at least they used to be. It might have changed in the latest “reform”. You could on occasion see a big winner at the track (one whose winnings were big enough that they’d be reported to the IRS) picking the discarded losing tickets which were typically just discarded on the ground in the stands.
Because I want cash instead of two cars. Just announce the cars were won on the show and then quietly write a check instead. It wouldn’t change the income tax but would be so much less hassle than buying and selling cars. Some might come out ahead with the sales tax, title transfer, insurance, all the costs associated with buying and selling a vehicle.
I had always heard that you win “a brand NEW CAR!”, but they’d rather just hand you a check for the equivalent value. They’ll give you the car, but it’s easier for everyone (including the IRS) if you just take the cash equivalent.