Were installments received after July 1, 1989 from a Rhode Island Lottery prize won before that date subject to personal income tax?

Plain-English summary

The client owed Rhode Island personal income tax on every lottery installment received after July 1, 1989, even though the winning drawing occurred earlier. The controlling date was when the winnings were received, not when the prize was won or the winner was determined.

The client had won a Rhode Island Lottery prize before 1990 and was told at the time that it was not taxable under Rhode Island personal income tax. Because the prize was paid over a number of years, installments continued after the law changed, and the client had paid tax on post-1990 receipts.

Before July 1, 1989, § 42-61-17 exempted Rhode Island Lottery prizes. Public Laws 1989, chapter 126, article 21 removed the exemption and applied to prizes and winnings received after passage.

Regulation PIT 90-14 made the receipt-date rule explicit. Amounts received on or after July 1, 1989 were taxable regardless of the lottery drawing date, winner-determination date, or whether installments were paid by the Lottery Director, a third-party annuity, or another contractual payor.

What this means for you

Installment-prize winners

The order treated each payment based on its receipt date. Winning before the law changed did not exempt installments received afterward.

Lottery and annuity administrators

The identity of the payor did not change the rule. Installments from the Lottery, an annuity, or another contractual payor were covered.

Accountants and tax professionals

Separate the award date from the payment dates. For this historical transition rule, only receipts before July 1, 1989 retained the former exemption.

Common questions

Did the pre-1990 drawing date preserve the exemption? No. The ruling says receipt after July 1, 1989 controlled.

What if the prize was paid over many years? Each installment received after the effective date was taxable.

Did it matter whether an annuity paid the installment? No. Regulation PIT 90-14 covered third-party annuity and other contractual payors.

Why had the client believed the prize was exempt? At the time of the win, Rhode Island law exempted Lottery prizes, but the later law applied to amounts received after its effective date.

Did the order address a refund of tax already paid? No. Its holding states that the client was required to pay tax on post-July 1, 1989 receipts.

Citations and references

• R.I. Gen. Laws § 42-61-17 — former exemption for Rhode Island Lottery prizes.
• Public Laws 1989, ch. 126, art. 21 — removed the exemption for later-received prizes and winnings.
• R.I. Gen. Laws ch. 44-30 — personal income tax provisions referenced by the regulation.
• Rhode Island Regulation PIT 90-14 — receipt-date rule for lottery and pari-mutual winnings and prizes.

Source

• Landing page: Rhode Island Declaratory Rulings
• Declaratory order: Declaratory Order 1993-05

Original ruling text

Ruling Request No. 93-05

Declaratory Rulings

Ruling Request No. 93-05

Re: Request for Ruling Relating to the Taxation of Lottery Winnings Under the Personal Income Tax Law

Request for Ruling

You request a ruling on behalf of your client as to the taxation of a lottery prize won prior to 1990 but paid over a number of years beyond 1990.

Facts

Your client won a lottery prize from the Rhode Island lottery prior to 1990. At the time she won the prize she was informed that it was not taxable under the Rhode Island personal income tax law. The lottery prize is being paid over a period of years beyond 1990.

Since 1990, your client has paid a tax on the lottery winnings under the Rhode Island personal income tax law.

Ruling Requested

Your client should not have to pay a tax on any lottery winnings received subsequent to 1990 because she won the lottery prize prior to 1989.

Discussion

Prior to July 1, 1989 prizes received from the Rhode Island lottery were exempt from the Rhode Island personal income tax pursuant to RIGL 42-61-17. However, Public Law 1989, Chapter 126, Article 21, removed the exemption of lottery winnings from the personal income tax law. Section 4 of P.L. 1989 stated that "This Article shall take effect upon passage and apply to prizes and winnings received after date of passage."

See also the pertinent provisions of Regulation PIT 90-14, entitled "Lottery and Pari-Mutual Winnings and Prizes":

I. GENERAL

Effective on and after July 1, 1989, amounts received from or paid on behalf of the Rhode Island Lottery as winnings and prizes are taxable under the provisions of the Rhode Island personal income tax (44-30, R.I.G.L., as amended). Additionally, subject to provisions of this regulation, these amounts and winnings received from pari-mutual betting licenses in Rhode Island are subject to withholding taxes similar to the Internal Revenue provisions for gambling winnings.

II. EFFECTIVE DATE EXPLAINED

A. The taxability of Rhode Island Lottery winnings and prizes and the withholding requirements applied to the Rhode Island Lottery and to pari-mutual betting licensees in Rhode Island are applied according to the date on which the winnings and prizes are received after the effective date above.

B. Winnings and prizes received means amount received by the taxpayer on or after July 1, 1989 regardless of the date of the Lottery drawing, the date of the winner determination or the date of the pari-mutual betting event and regardless of whether the prize or winnings are paid to the winner in installments over a period of time by the Director of Lotteries, pari-mutual betting license or by a third party annuity or other contractual payor.

It is clear that under both law and regulation, Rhode Island Lottery winnings and prizes received after July 1, 1989 are taxable under the personal income tax law regardless of the date of the drawing.

Ruling

Your client is required to pay a tax on any lottery winnings received subsequent to July 1, 1989 regardless of the actual drawing date of the lottery.

**R. Gary Clark

Tax Administrator

April 21, 1993**