Lottery sales (and all gambling with a completely random chance of winning based on pure luck) should be levied special gambling taxes so that every level of government having jurisdiction over the location where the sale was made should each receive 10% of the purchase price of the ticket. For example, if a $1 lottery ticket were purchased in the city of Los Angeles, 10% of $1, or 10 cents, would be given to the federal government, 10 cents would be given to the state of California, 10 cents would be given to the county of Los Angeles, and 10 cents would be given to the city of Los Angeles. In other words, there would be a 40% gambling tax on the purchase price of that ticket in the city of Los Angeles. If any jurisdiction chooses not to levy their 10% tax, then the federal government should receive that share, as well. In addition to these gambling taxes, regular sales taxes would be added to the cost of the gambling ticket. Thus, in order for a consumer to purchase a $1 lottery ticket in the city of Los Angeles which has an 9.75% sales tax rate, that consumer would be required to pay a total of $1.50 for the transaction (40 cents for the gambling taxes plus the regular sales tax). If a $1 lottery ticket were purchased in an unincorporated part of Los Angeles County, then the gambling tax would be only 30% because no incorporated city exists at the point of sale to receive its 10% share.
The reason for this tax is to help prevent people from wasting their money on gambling. However, if people choose to gambling, governments should use it as a fundraising activity, namely, taxing such behavior for the benefit of reduced taxes for the rest of society.