Gambling Can Lead to Property Tax Relief

At least in Wisconsin… In 1987 (Updated in 1999), voters in Wisconsin authorized the creation of the Wisconsin lottery through a constitutional amendment (65% to 35%), thereby eliminating Article IV, Section 24 of the Wisconsin Constitution, which stated, “the Legislature shall never authorize any lottery…”

With the voters’ approval, the Legislature was able to create the official state lottery. Of course as part of the deal, the native tribes of Wisconsin were granted the liberty to build and maintain casinos, but I won’t get into that.

How does the lottery relate to property tax relief? Well, as a stipulation in the amendment, the net proceeds of the lottery must be used for property tax relief, however in no particular form. Thus, multiple methods exist. They currently include the following:

1) Lottery and Gaming Credit - provides direct property tax relief in the form of a state credit for the primary dwelling of an individual (by multiplying the local school tax rate by the estimated fair market value of the property, but not exceeding a credit base established under law).

2) Farmland Tax Relief Credit – A set reimbursement rate on the first $10,000 in property taxes. It is determined annually by DOR at a rate that will be sufficient to distribute the funds available for credit payments in that year.

Example: Essentially the DOR looks at the amount available in the ‘pool’ and will set a rate according to that amount. In tax year 2008, with a pool of nearly $15 million that rate was 19% with a maximum allowable credit of $1,500.

So, how much relief is the lottery actually providing to property owners?

This first chart shows total state lottery revenues over the last decade.

Total local property taxes in Wisconsin were $8.4 billion in 2009.

$8,400,000,000 – $134,615,800 = $8,265,384,200 total property taxes minus lottery credits.

This is the equivalent to an average savings of 1.6%

It is interesting to note that of the $494,727,068 collected in revenues from 2007-08, only 27% could be used as a property tax credit. 27% of the revenue pool seems a tad small considering the lottery revenues are constitutionally mandated to offset property taxes. Of course, while only 27% is going to property owners, over 50% is going to the lottery ticket purchasers, and another 10% is going to the lottery ticket vendors, which includes many small business owners.

Keep in mind that previous research has shown that lower socioeconomic classes are more likely to purchase lottery tickets. It is possible that an individual with an income at the poverty level is subsidizing a portion of the property tax for an individual of a high socioeconomic status.

Look at this next chart to see a breakdown of how lottery revenues eventually become property tax credits.

As an aside, I also found it interesting that the amendment prohibits any use of public funds and/or lottery proceeds to promote the lottery. However, the state can advertise in a manner that will “inform potential lottery participants of its existence.” What exactly is advertising then?

A simple search on YouTube for “Wisconsin lottery commercials” provided me with Exhibit A:

The numbers in the charts were primarily from the Wisconsin Legislative Fiscal Bureau.