(Published December 2‚ 2003)

COLUMBIA, S.C. (AP) - The South Carolina Education Lottery could withdraw from the Powerball game or could see millions diverted from education if the General Assembly goes along with a plan by Gov. Mark Sanford to apply the 5 percent state sales tax to lottery tickets, lottery officials said.

Lottery commission members met Tuesday to discuss the potential impact of Sanford's proposal, which is one part of the governor's plan to stimulate the state's economy.

Under the plan, Sanford would apply the state sales tax to lottery tickets, which currently are not taxed. Sanford also would increase the tax on a pack of cigarettes to 68 cents, the national average. The state's 7-cent tax is fourth-lowest in the nation. The expected $222 million in new tax money would cover a 15 percent reduction in income tax revenue.

Lottery tickets should be taxed like other goods, Sanford said.

"My point being, it's treated consistent with the way we treat everything else in the marketplace, including, among other things, a gallon of milk for your child," he said.

The governor's plan takes the income tax, which is "the one tax most damaging to economic development and cuts it, and balances it with consumption-based choice taxes," said Sanford spokesman Will Folks. "If folks have jobs, they'll have more money to spend on whatever they choose."

The Legislature could decide to add the sales tax to the $1 tickets, bringing the price to $1.05. Lawmakers also could elect to lower the price of the ticket to 95 cents and then apply the tax, bringing it to an even $1.

The Canadian province of Saskatchewan added a tax to its lottery tickets, which resulted in 13 percent decrease in sales. It was repealed in four months, lottery Executive Director Ernie Passailaigue said.

The bylaws governing the multistate Powerball game prohibit states from adding a tax that makes ticket prices more than $1.

However, states participating in Powerball can lower the price of the ticket to add a tax. Minnesota does that.

The South Carolina Education Lottery could ask for a waiver from the Multi State Lottery Association that oversees Powerball, lower the ticket price or withdraw from the group and the game.

The last option could be painful for the state, Passailaigue said. The state lottery is a $900 million business, and Powerball accounts for a third of the sales, he said.

Lottery officials also are concerned that a tax on lottery tickets would dampen sales and reduce the amount of education funding.

Profits from the lottery pay for college scholarships, K-12 programs and school buses, among other things. Passailaigue estimates that sales would fall 13.7 percent, resulting in a $70 million decrease in transfers to the Education Trust Fund.

The proposal to tax lottery tickets "severely jeopardizes funding put into college scholarships and K-12 programs and does it in a year where the budget is already complicated enough," said state Rep. Joel Lourie, D-Columbia.

But House Ways and Means Chairman Bobby Harrell, R-Charleston, said he doesn't think the sales tax is high enough to turn players away.

Still, both Harrell and Lourie agree that the proposal to tax lottery tickets raises a constitutional question about where lottery proceeds go. State law requires all lottery proceeds go toward education. Harrell said there is a question of whether Sanford's plan would work as proposed, or whether lawmakers would have to change the Constitution to allow it.