Thanks to a legislative change in tax policy, Mississippi will be able to staunch tax losses on out-of-state gambler income next year.

Under current law, if gamblers win jackpots of more than $1,500 in a Mississippi casino, 5 percent is automatically withheld for tax purposes. If gamblers claim that they had a net gambling loss over the year, they can file to get their money back. The percentage of the rebate depends on how much of their income was earned in Mississippi.

Out-of-state visitors were not always honest about the details. It was possible--although highly implausible--for a resident of, say, Chicago to earn 100 percent of his income in Mississippi and file an out-of-state gambling tax return in Mississippi for a full rebate.

The problem with that system, says Ed Buelow, chairman of Mississippi's tax commission, is that the state doesn't require any proof of income or gambling losses. Although the state does not know how much revenue it has been losing each year to fraudulent filings, it receives about 100,000 out-of-state gambling tax returns per year.

In the past, the state audited a few tax returns that looked suspicious. This year, officials are reviewing every return, asking filers to also submit W-2 forms and gambling logs.

When the new law goes into effect, there will be no need for such paperwork. Instead of taking out 5 percent of jackpots, with a possibility for gamblers to recoup some of the money, the state will now take out a flat 3 percent of jackpot winnings. "It should be a wash" for gamblers, Buelow says.