*UPDATED* The New York Times just posted AP’s TechBits roundup, which reports that first day sales on online lottery tickets netted the state of Illinois $15K.  The first ticket was purchased at 7:03 AM.  Illinois residents must register and verify their age in order to purchase the tickets.  Sales include tickets for Lotto as well as Mega Millions games.

Starting on Sunday, Illinois will begin selling lottery tickets online.  The State projects that the online sales will raise between $80 to $120M each year, generating about one-half of those amounts as profits for the State.  For a cash-strapped state like Illinois, this revenue is not insignificant.

It’s fair to say that other states will soon consider online lottery sales.  In fact, Illinois got a green light from the Justice Department to conduct online sales last December in a joint ruling request submitted by Illinois and New York.  Interestingly, as we’ve seen in the affiliate nexus debates, brick-and-mortar lottery outlets in Illinois have voiced a concerned about the online sales, asserting that the online sales—while offering no price incentive—will nonetheless sharply decrease their revenues since many in-store buyers also make impulse purchases of candy, snack foods, and cigarettes.

While the online sales of lottery tickets don’t raise any state tax issues (aside from the academic argument that lotteries are examples of a regressive tax), there is a notable personal income tax issue.  While gambling losses—including losses from playing lottery games—are deductible for federal tax purposes (but only to the extent of winnings assuming—as is often the case—where a taxpayer is not engaged in the trade or business of gambling; See Section 165(d) of the Internal Revenue Code) gambling losses are not deductible for Illinois residents.