We have a sales tax of 23%(!), so for each $1 ticket, 23 cents goes in the coffers and 77 cents goes into the lotto. So a $500m prize would mean 650m $1 ticket

We have a sales tax of 23%(!), so for each $1 ticket, 23 cents goes in the coffers and 77 cents goes into the lotto. So a $500m prize would mean 650m $1 tickets were sold, and the state has already collected $150m. It sounds like the state loses out this way, but it also means all the smaller prizes were already taxed at the point of sale too. By taxing it as earnings, you're never going to collect tax on all those little $10 prizes. But by collecting at the point of sale, $2.98 was already collected that little $10 prize. I guess it's "six 'n two threes" .. the state gets their money either way. (Caveats; I'm not arguing this is actually better, just that there are alternatives to the winner's huge tax liability. %'s may be slightly fudged, ours isn't actually taxed as sales tax, but collected as a revenue from the state-owned lottery. And I totally realise this works much easier where the entire nation is a single tax jurisdiction, rather than your state/federal split.)