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HB 268

Lottery proceeds; state income tax exemption

2025 Regular Session Introduced by Parker Moore

Alabama bill exempts lottery winnings from state income tax, potentially reducing education funding while creating unequal tax treatment across income types.

Read for the first time and referred to the House Committee on Ways and Means Education
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Bill Summary · HB 268

Legislative bill overview

HB 268 proposes to exempt lottery winnings from Alabama state income tax. Currently, Alabama taxes lottery prizes as ordinary income. This bill would create a specific exemption so that residents who win lottery prizes would not owe state income tax on those winnings, though federal taxes would still apply.

Why is this important

Lottery proceeds are a significant revenue source for state education funding in Alabama. Exempting lottery winnings from state taxation could reduce education funding unless alternative revenue sources are identified. Additionally, this change would affect tax equity—some income (wages, investments) would remain taxable while lottery winnings would not.

Potential points of contention

  • Education funding impact: Lottery revenue supports education programs; reducing state tax collection on lottery winnings could decrease available education funding without offsetting revenue measures
  • Tax fairness concerns: Creates differential tax treatment where lottery income is exempt but wages and other forms of income remain subject to state income tax
  • Revenue replacement: The bill does not appear to identify how the state would replace lost tax revenue, raising questions about fiscal sustainability and potential cuts to state services

Compiled from official sources — confirm details with the bill’s official record.

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