Unlucky Numbers: Will the California Lottery Face a Lawsuit over Its New Game?

June 30, 2005

From the San Francisco Gold Rush to the Hollywood entertainment industry to the Silicon Valley dot-coms, California has long been a land of quick wealth. So it’s no surprise that many Californians, eager for another way to shrike it rich, clamored for the chance to participate in the multi-state lottery game Mega Millions.

They got their wish last week, when California joined 11 states already offering the game. Mega Millions brought in $2.4 million on the first day of sales, leaving customers dreaming of large jackpots, and lawmakers eagerly anticipating extra money in state coffers.

But not everyone is happy. In fact, the California Lottery may soon have to answer charges that its entry into Mega Millions was unconstitutional.

The California Coalition Against Gambling Expansion plans to file a lawsuit in Sacramento Superior Court seeking an injunction to shut down the game. According to the group, the California Lottery Commission violated a requirement in a 1984 ballot initiative: all lotteries run in California must be controlled by the state. Mega Millions, however, is overseen by a board of representatives from the 12 participating states. (Read the full story here.)

While lottery officials and opponents argue about the 1984 act, they should also look at the broader question: Which governing body has the authority to levy taxes?

As the Tax Foundation has pointed out, lottery revenue is tax revenue. Should a multi-state commission determine a product’s tax rate? And which branch of government has the authority to levy taxes?

Although the California legislature has the power to amend the lottery’s founding legislation, the California Lottery Commission is an independent agency whose members are appointed by the governor. Should an independent agency appointed by the executive branch have the power to alter tax rates and methods of collection?

Because state governments erroneously consider lottery revenue to be miscellaneous revenue rather than tax revenue, they sidestep this important question.


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