Special Report

States Profiting the Most From Sin

Samuel Stebbins

Published: June 20, 2017 11:50 am

Last Updated: January 12, 2020 10:53 am

Smoking, drinking alcohol, and gambling are all — when done in excess — widely recognized as bad for your health. Yet millions of people enjoy such vices on a daily basis in the United States. To encourage healthier lifestyles, cover the eventual social costs, or help generate revenue some states tax these behaviors. All told, so-called sin taxes across the 50 states amounted to $55.43 billion in 2015.

Varying state regulations largely account for the differences in the proportions of revenue from sin taxes. For example, some states have fewer sin revenue streams than others, as commercial casinos are only legal in about half of all states. Similarly, seven states do not have lotteries.

Overall, states’ revenue from lotteries totaled $21.36 billion in 2015, the most of any sin revenue. Smoking was the second largest sin revenue stream, as the 50 states collected $17.71 billion in tobacco taxes that year.

To determine the states profiting the most from sin, 24/7 Wall St. calculated the share of sin taxes out of total revenue for each state. Sin taxes are proceeds from lottery ticket sales, as well as taxes on casino gaming, beer and liquor, and tobacco.

Click here to see the states profiting the most from sin.
Click here to see our detailed findings and methodology.

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9. Florida
> Pct. total revenue from sin: 3.7%
> Most profitable sin: Lottery
> Revenue from sin: $3.35 billion (4th highest)
> Population 18 and older: 79.8% (5th highest)

Some 3.7% of Florida’s $91.56 billion fiscal 2015 revenue came from taxes on alcohol and tobacco, sales of lottery tickets, and gaming taxes from casinos. In comparison, sin taxes averaged only about 2.5% of total revenue across all states. Floridians bought $5.28 billion in lottery tickets in 2015, more than in all but two other states. After subtracting administrative costs and winnings, lottery ticket proceeds brought in $1.49 billion, making lottery tickets the largest source of Florida’s total sin tax revenue of $3.35 billion.

Despite a lower than average adult smoking rate, tobacco taxes accounted for 1.3% of Florida’s total revenue — a larger share than in all but six other states. Tobacco sales closely trailed lottery tickets as the biggest boon for state coffers. Revenue from tobacco taxes alone amounted to $1.19 billion in 2015.

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8. Pennsylvania
> Pct. total revenue from sin: 3.8%
> Most profitable sin: Casino tax
> Revenue from sin: $3.50 billion (3rd highest)
> Population 18 and older: 79.0% (8th highest)

Though Pennsylvania has the sixth largest population, its 2015 sin tax revenue of $3.50 billion was the third highest of all states. Pennsylvania profits immensely from casinos. The Keystone State’s tax revenue from casinos of $1.38 billion was more than any state, including Nevada. Since gambling was legalized in the state in 2006, revenues at the state’s 12 casinos totaled $21.23 billion from slot machines and $4.66 billion from table games. State residents are also taxed on out-of-state gambling winnings.

Following legislation signed by Pennsylvania Gov. Tom Wolf last year, cigarette taxes rose by a dollar a pack in order to meet annual budget obligations. The current excise tax on cigarettes in the state, at $2.60 per pack, is 10th highest of all states.

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7. South Dakota
> Pct. total revenue from sin: 4.2%
> Most profitable sin: Lottery
> Revenue from sin: $205.0 million (9th lowest)
> Population 18 and older: 75.6% (9th lowest)

South Dakota’s total revenue was only $4.88 billion in 2015, the least of any state in the country. With $205.0 million of those tax dollars coming from tobacco, alcohol, and casino taxes, as well as proceeds from state lotteries, South Dakota collected more in sin taxes than eight other states. Taxes on lottery ticket sales alone accounted for 2.3% of the state’s total revenue, more than double the typical share states derive from lotteries.

Tobacco sales tax accounted for 1.3% of the state’s total 2015 revenue, versus the 0.8% share nationwide. The state’s excise tax on cigarettes is not especially high, so the higher tobacco revenue is likely due in part to the relatively high tobacco consumption. About 20% of adults in the state are smokers, compared to 18% of adults nationwide.

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6. Maryland
> Pct. total revenue from sin: 4.3%
> Most profitable sin: Lottery
> Revenue from sin: $1.87 billion (11th highest)
> Population 18 and older: 77.6% (19th highest)

Though it ranks 19th in the country by total population, Maryland’s tax revenue from alcohol, tobacco, and lottery ticket sales as well as gaming totaled $1.87 billion in 2015, more than all but 10 other states. As is the case in most states on this list, Maryland derives most of its sin revenue from lottery ticket sales. Maryland sold $2.13 billion worth of lottery tickets in 2015, netting $994.4 million in proceeds — more than lottery proceeds in Illinois, a state with the double the population.

As with many states on this list, casino gaming accounts for a significant share of Maryland’s revenue. Voters in the state passed a measure allowing slot machines in five casinos in the state in 2008. In 2012, voters passed a referendum allowing gaming tables in the same facilities. In 2015, taxes from casinos totaled $452.9 million, or about 1% of all revenue.

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5. New Hampshire
> Pct. total revenue from sin: 6.1%
> Most profitable sin: Tobacco use
> Revenue from sin: $480.2 million (16th lowest)
> Population 18 and older: 80.2% (3rd highest)

New Hampshire is one of only five states where the share of tax revenue from alcohol, tobacco and gambling is more than double the 2.5% of total revenue across all states. The 3.0% share of total revenue the state derives from cigarette sales is the highest in the country and more than triple the average for all states. The exceptionally high tobacco tax revenue is likely driven by purchases by visitors from nearby states. New Hampshire taxes cigarettes at a rate of $1.78 per pack, well below the tax rates in neighboring Vermont and Massachusetts, and nearby Connecticut and Rhode Island — which each tax cigarettes at more than $3.00 a pack. Additionally, New Hampshire has no sales tax, which further lowers the overall cost of a pack of cigarettes.

Adults in New Hampshire are also more likely to drink excessively than the typical American adult, and unlike in most states, New Hampshire’s liquor stores are state owned and profits go directly to the government. Partially as a result, 1.7% of all state revenue in New Hampshire comes from liquor sales, well more than double the comparable share in any other state.

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4. Delaware
> Pct. total revenue from sin: 6.4%
> Most profitable sin: Lottery
> Revenue from sin: $527.1 million (20th lowest)
> Population 18 and older: 78.4% (12th highest)

Of Delaware’s $8.27 billion revenue in 2015, $527.1 million came from sin taxes. Taxes on lottery ticket sales accounted for 2.9% of total revenue, the third largest such share of all states. Delaware is the sixth smallest state by population, but it sold $400.6 million worth of lottery tickets in 2015, more than 13 other states that have lotteries.

Smokers provided about 1.2% of the state’s total 2015 revenue, one of the largest such shares of any state. Though adults in Delaware are less likely to smoke than adults nationwide, many smokers from neighboring states likely go to Delaware to buy less expensive cigarettes. Delaware levies a $1.60 per pack tax, well below the $2.00 tax in Maryland and the $2.70 per pack tax in New Jersey — both states that share a border with Delaware.

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3. Nevada
> Pct. total revenue from sin: 6.4%
> Most profitable sin: Casino tax
> Revenue from sin: $1.05 billion (18th highest)
> Population 18 and older: 76.9% (20th lowest)

Nevada is one of only a handful of states that does not have a state lottery, which is often a significant source of tax revenue. Even without a lottery the state derives 6.4% of its total revenue from so-called sin taxes, the third largest share of any state.

Home to over 300 casinos, the vast majority of Nevada’s sin tax revenue comes from gambling. About 5.4% of the state’s $16.44 billion in revenue comes from gambling, by far the largest share of any state. Clark County (Las Vegas), reported $9.71 billion in gaming revenue in 2016. Much of the state’s gaming revenue comes from out-of-state residents as an estimated 42.9 million Americans visited Sin City in 2016.

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2. West Virginia
> Pct. total revenue from sin: 6.8%
> Most profitable sin: Lottery
> Revenue from sin: $976.7 million (20th highest)
> Population 18 and older: 79.4% (7th highest)

Proceeds from lottery ticket sales account for the majority of sin tax revenue in West Virginia and for about 3.6% of all state revenue. Indeed, West Virginians buy a lot of lottery tickets. The states sold some $658.8 million in tickets in 2015, nearly four times the amount sold in Oklahoma, a state with more than double the population of West Virginia.

West Virginia taxes cigarettes at a rate of $1.20 a pack, versus the average across states of $1.63 per-pack. Cigarettes are relatively cheap in West Virginia, which could help explain the state’s high adult smoking rate. Over 25% of adults in the state smoke, the second highest rate in the nation. Tobacco taxes accounted for just 0.7% of state revenue in 2015, one of the lower such shares compared with other states.

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1. Rhode Island
> Pct. total revenue from sin: 10.4%
> Most profitable sin: Lottery
> Revenue from sin: $870.2 million (25th highest)
> Population 18 and older: 79.9% (4th highest)

Sin taxes accounted for over 10% of Rhode Island’s total 2015 revenue, more than four times the 2.5% average across all states. About 1.6% of the state’s revenue comes directly from the pockets of smokers, the second highest such share of any state. The state levies $3.75 in taxes on every pack of cigarettes sold, one of the highest cigarette taxes in the country and more than double the average per-pack tax across all states.

Like most states on this list, however, the state’s lottery is the biggest money maker for the state. Some 4.6% of Rhode Island’s revenue comes from lottery ticket sales, the largest share of any state in the country. The state sold $542.7 million worth of lottery tickets in 2015, more than in several states with populations many times larger.

Detailed Findings and Methodology:

In an interview with 24/7 Wall St., Morgan Scarboro, a policy analyst with tax policy research organization, Tax Foundation, discussed the reasons states levy sin taxes. If a state’s residents are reporting high rates of unhealthy behaviors, the answer to the problem for some policy makers is, “we can tax it to discourage consumption,” Scarboro explained. In one recent example, New York City Mayor Bill De Blasio proposed a city-wide per-pack cigarette tax increase in an effort to dramatically reduce smoking rates in the coming years.

Educating people of the harms of tobacco with youth programs and public service announcements can certainly help lower smoking rates. However, raising the price of cigarettes with taxes has been shown to be among the most effective ways of lowering the smoking rate. Of the 10 states with the highest cigarette taxes, nine have a lower smoking rate than the U.S. rate.

States also use sin taxes to help meet budget shortfalls. The additional revenue can be used to fund education and cover the health care costs that arise from unhealthy behaviors across the population. However, Scarboro explained the two justifications for imposing sin taxes — reducing behavior and raising more revenue — demonstrate how these taxes are often unsustainable tax policies, as reducing consumption would eventually reduce revenue.

While raising the prices on these goods can deter consumption, excessively high excise taxes can make items prohibitively expensive and turn consumers to neighboring states or the black market. According to a 2017 Tax Foundation study, most cigarettes consumed in New York — the state with the highest cigarette tax — are smuggled in.

Other states already are, or soon will be, drawing revenue from marijuana sales. Marijuana legalization is still in its infancy in the eight states that have legalized recreational use. Colorado brought in $5.3 million in recreational marijuana license and application fees in 2016 and another $19.4 million in retail sales taxes. Collections from recreational marijuana sales would add a negligible amount to the 1.4% of Colorado’s revenue that comes from sin taxes — one of the smallest shares of any state.

To identify the states profiting the most from sin, 24/7 Wall St. reviewed state tobacco taxes, alcohol taxes, casino taxes, as well as proceeds from state-controlled liquor stores and state lotteries. Tobacco, alcohol, liquor store, and lottery income came from the Census Bureau’s State Government Finances report. Casino taxes came from the American Gaming Association’s “State of the States” 2016 report. All other figures are for fiscal year 2015, the most recent year for which consistent data is available for all income types. 24/7 Wall St. also reviewed excise tax rates as of January 1, 2017 from the Tax Foundation. We also reviewed alcohol consumption data and adult smoking rates from the Centers for Disease Control and Prevention.