Special Report

States Profiting the Most from Sin

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In 2011, state governments collected more than $50 billion in taxes and proceeds from vice: gambling, smoking and alcohol consumption.

Some argue that state governments should not profit from residents’ vices. However, some states rely on these activities for a substantial proportion of their budget. In Nevada, “sin taxes” accounted for nearly 6% of the state’s revenue. Based on data from the Census Bureau and the American Gaming Association, 24/7 Wall St. identified the states where the largest percentage of revenue came in the form of proceeds from alcohol, tobacco and casino taxes, as well as the lottery and state-regulated liquor stores. These are the states profiting most from sin.

Click here to see the states lining their pockets with sin dollars

Excise taxes on tobacco are among the most politically charged and varied in the country. While Rhode Island charges $3.50 in taxes per pack of cigarettes, states like Virginia and Missouri charge less than $0.50.

Frequently, consumption is higher in the states making the most from sin taxes. For example, many of the states that profit the most from sin rely heavily on tobacco revenue. While tobacco tax rates are relatively low in some of these states, sales are higher than the national average. In fact, the states with the highest taxes for alcohol and tobacco do not necessarily bring in the most money.

Relative to some of the other sin-related sources of income, taxes on alcohol are not a big source of revenue. However, some state governments opt to control liquor sales, which can involve regulating stores and collecting commissions. In others, it can even mean warehousing and selling the liquor directly to consumers. In New Hampshire, state-controlled liquor sales accounted for 1% of the state’s income.

While alcohol and tobacco are factors in some of the states that profit most from sin, gambling is almost always a much more significant source of income. In five states, casino tax revenue accounted for more than 2% of state revenue.

In Nevada, not surprisingly, it was nearly 5% of revenue. Lotteries were also a major source of income. The Rhode Island, Delaware and West Virginia Lotteries all brought in well over 3% of state income. The reason for this, according to the American Gaming Association, is that these states operate and own all commercial casinos in the state not run by Native Americans.

The moral question of whether states should be profiting from its residents’ bad habits is a difficult one. Some argue that states are attempting to encourage better life choices. The case might be made most strongly for cigarette taxes. In states like New York, which has a $4.35 cigarette tax, there are signs that residents are quitting smoking because it is becoming too expensive.

Others, like the Tax Foundation’s Scott Drenkard, argue that some states are motivated by profit. Specifically, increasing state revenues through higher taxes. This is clear in the case of state casinos, which are being added quickly all over the country. Drenkard Added “A better discussion is ‘is this worthwhile for these communities’ rather than ‘is this the sort of thing we can squeeze money out of?”

In order to identify the states that profit 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. These sources of income represented the largest proportion of total state income in these states. 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” report. All figures are for fiscal year 2011, the most recent year for which there is consistent data available for all income. 24/7 Wall St. also reviewed excise tax rates from the Tax Foundation, as well as alcohol consumption data from the Center for Disease Control.

These are the states profiting most from sin.

10. Oregon
> Pct. total revenue from sin: 3.0%
> Most profitable sin: Lottery
> Revenue from sin: $1,552,600,000
> Total state revenue: $34,797,285,000

Last month, the Oregon Liquor Control Commission reported record-breaking alcohol sales. Gross sales for the 2011-2013 biennium were $947.8 million, significantly, higher than in previous years. The state claimed these high sales indicate rising prosperity throughout the state. Oregon’s revenue from state-controlled liquor stores was about $438 million in 2011, eighth-highest in the country. Its revenue from alcoholic beverage taxes, however, was comparatively low, at just $16 million, 44th relative to other states. The state’s beer excise tax as of January 2013 was just $0.08 cents to the gallon, tied for fourth lowest in the country. Oregon’s lottery is one of the most lucrative in the country. In 2011, 1.59% of state revenue came from lottery ticket sales, which was the sixth highest percentage in the nation.

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9. South Dakota
> Pct. total revenue from sin: 3.3%
> Most profitable sin: Casinos
> Revenue from sin: $204,293,000
> Total state revenue: $6,017,179,000

A relatively large proportion of South Dakota’s tax revenue came from lottery ticket sales. In 2011, the state brought in $106 million, which accounted for 1.77% of its revenue. The amount the state brings in for casinos may be rising: the South Dakota Gaming Commission reported last month that the amount of cash wagered this year was up from a year ago, possibly due to the bet limit increasing from $100 to $1,000 last year. Compared with other states, South Dakota does not generate very much revenue from taxing liquor or beer.

8. Michigan
> Pct. total revenue from sin: 3.6%
> Most profitable sin: Casinos
> Revenue from sin: $2,292,118,000
> Total state revenue: $64,429,901,000

State-controlled liquor stores in Michigan brought in more than $150 million for the state, more than all but two other states. Tobacco sales brought in even more — $976 million. Tobacco taxes represented 1.52% of state revenue in 2011, the second largest proportion of tobacco on a state’s economy. Michigan is in the top 10 states that tax cigarettes the most — $2.00 for every pack. In spite of Michigan’s financial interests in cigarettes, it is also a state where smoking outside is banned in many places, due to legislation passed in 2009. Recently, there have been attempts to relax that law and create exemptions in the interest of restaurants that might like to allow their customers to smoke in certain areas.

7. Pennsylvania
> Pct. total revenue from sin: 3.7%
> Most profitable sin: Casinos
> Revenue from sin: $3,849,764,000
> Total state revenue: $91,705,305,000

Although the state has one of the lowest taxes on beer in the country, alcoholic beverage taxes in Pennsylvania brought in $307 million in 2011, the sixth highest amount that year. The state also brought in another $81 million from liquor stores it regulates. Recently, Pennsylvania’s state senate voted to privatize liquor distribution in the state, a vote that also would allow beer distributors to sell liquor, while expanding the types of locations where beer and wine may be sold. However, the bill eventually died before it could be passed. In addition to alcohol, gambling is also a major source of government revenue. Pennsylvania lead led the nation in total revenue raised from gambling in 2011.

6. Indiana
> Pct. total revenue from sin: 4.0%
> Most profitable sin: Casinos
> Revenue from sin: $1,552,600,000
> Total state revenue: $38,894,976,000

Relative to its total budget, Indiana raised less revenue from alcohol than 40 other states in 2011. Indiana’s taxes on cigarettes were among the lowest in the nation, at under a dollar per 20-pack. Residents were more likely to smoke than most Americans, however. More than one-quarter of Hoosiers told Gallup pollsters they smoked, versus just over 20% nationwide. This higher rate of smoking may have led to the state collecting $470 million from tobacco taxes in 2011, which amounted to a relatively high 1.21% of its revenue. However, the state’s real proceeds from sin came from its casinos. In 2011, Indiana generated more than $800 million in casino tax revenue. Gaming revenue has increased in Indiana, particularly after riverboat gambling was legalized in Indiana five years ago.

5. New Hampshire
> Pct. total revenue from sin: 4.6%
> Most profitable sin: Tobacco
> Revenue from sin: $393,209,000
> Total state revenue: $8,542,308,000

New Hampshire generates a larger percentage of its revenue from tobacco and liquor taxes than any other state in the nation — at 2.72% and 1.15%, respectively. Proceeds coming from lottery ticket sales make up a percentage of the state’s total revenue that is among the top 25 states. Because of its low sales tax, the state tends to attract people from out of state to purchase both tobacco and alcohol. With large new liquor stores emerging on well-traveled highways in the state and record high alcohol sales, New Hampshire seems to have a reputation for promoting alcohol consumption. In 2011, 7.9% of New Hampshire residents said they were heavy drinkers, the fifth highest percentage in the United States.

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4. West Virginia
> Pct. total revenue from sin: 4.7%
> Most profitable sin: Lottery
> Revenue from sin: $729,451,000
> Total state revenue: $15,397,630,000

West Virginia is one of the nation’s leading states for generating tax revenue from gambling, with more than $580 million in tax revenue coming from casinos in 2011. In all, taxes from casino gambling accounted for 3.81% of state revenue, the largest share of any state budget in the country. Notably, in 2008, West Virginians voted to allow The Greenbrier — a massive, prominent resort in the state — to add casino gambling. However, new competition for gaming revenue from Ohio, Maryland and Pennsylvania may be cutting into West Virginia’s gambling revenue. West Virginia also leads the nation in filling its coffers from the lottery: the annual portion of lottery proceeds available to the state in fiscal 2011 was equal to more than 2.1% of state revenue.

3. Delaware
> Pct. total revenue from sin: 5.0%
> Most profitable sin:Lottery
> Revenue from sin: $472,054,000
> Total state revenue: $9,349,728,000

Delaware is one of the nation’s leaders in raising funds from tobacco taxes, with taxes on tobacco products accounting for more of the states’ revenue in 2011 than anywhere else in the nation except New Hampshire. As of 2011, Delaware was the sixth smallest state by tax revenue raised for the state and municipal governments, at just over $11.2 billion. By comparison, taxes from tobacco were at nearly $129 million. According to Gallup, however, Delaware residents are only slightly more likely to smoke than people nationwide. Other important, and sinful, sources of revenue for the state and its localities are the lottery and casino gambling. Both of these sources account for more government revenue in Delaware than in nearly all other states.

2. Rhode Island
> Pct. total revenue from sin: 5.4%
> Most profitable sin: Lottery
> Revenue from sin: $505,305,000
> Total state revenue: $9,388,083,000

Rhode Island’s cigarette tax is 2 second highest in the nation, with every 20-pack costing an additional $3.50 in excise tax. Nearly 4% of the state’s revenue comes from its lottery system, the 2 second highest in the United States. The state’s lottery brings in 2.4% of all its revenue, the 2 second highest in the nation. A recent article reporting the success of Rhode Island’s Twin River Casino said one of its only problems is too many customers and not enough employees. Patronage at the casino has increased after a referendum was passed last year in the state approving table games such as blackjack and craps.

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1. Nevada
> Pct. total revenue from sin: 5.8%
> Most profitable sin: Casinos
> Revenue from sin: $1,013,568,000
> Total state revenue: $17,597,124,000

Tobacco and liquor tax revenues make up only a small proportion of Nevada’s revenue. The gambling industry seems to be more than adequate to make up for these lower numbers, however. In 2011, Nevada received $860 million in tax revenues from casinos. While this total was actually second to Pennsylvania’s number, Pennsylvania is a much larger state, and the share of Nevada’s tax revenue coming from casinos was by far the largest, at 4.92%. This income may increase in the coming years. This month, MGM Resorts International, the biggest operator of Las Vegas casinos, reported better-than-expected quarterly profits, as well as successful investments in remodeling and entertainment features.

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