States Profiting the Most From Sin

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U.S. law allows Americans to engage in certain activities that are known to be risky and unhealthy. Every day, Americans enjoy vices like smoking cigarettes, drinking alcohol, and gambling. Taxes imposed on these activities are commonly known as “sin taxes.”

States collected nearly $60 billion in revenue from such taxes in 2016, the most recent year for which data is available. It is up to each state to regulate gambling activities, like casino gambling, or lotteries. States also control the rate at which alcohol and cigarettes are taxed, leading to wide fluctuations in each state’s revenue from these activities.

To determine the 10 states profiting the most from sin, 24/7 Wall St. reviewed revenue from sin taxes as a percentage of the state’s total tax revenue. Data is from the Census Bureau’s State Government Finances report and the American Gaming Association’s “State of the States” 2017 report.

Residents of states profiting the most from sin are not necessarily shouldering a greater tax burden than most other Americans. Only one state on this list ranks among the top 10 states where Americans pay the most in taxes.

States have differing shares of revenue from sin taxes because of differences in laws and populations. Even if a state has very high tobacco taxes, it may not collect much in cigarette taxes if a small share of residents use tobacco. States can change the excise tax rate on alcohol, tobacco, and more as a way to increase state revenue as well as encouraging residents not to take part in these activities. Different alcoholic drinks, such as liquor and wine, can be taxed differently. Each state has its own tax rate for beer — this how much beer is taxed in your state.

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10. Tennessee
> Pct. total revenue from sin: 4.0%
> Revenue from sin: $1.3 billion (15th highest)
> Most profitable sin: Lottery
> Lottery proceeds: $609.0 million (14th highest)

Tennessee is one of just 10 states that makes at least 4.0% of its total tax revenue from sin taxes like those on tobacco products, alcohol, or gambling. Sin taxes accounted for nearly $1.3 billion of the state’s $31.4 billion in revenue in 2016.

No state makes a larger share of its revenue from taxes on alcohol than Tennessee. The Volunteer State pulled in 1.08% of its total revenue from beer, wine, and spirits excise taxes. This is due in part to Tennessee’s beer tax, which, at $1.29 per gallon, is the highest of any state. But like many other states, lottery funds are the top sin tax contributor, at nearly $609 million.

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9. Florida
> Pct. total revenue from sin: 4.1%
> Revenue from sin: $3.5 billion (4th highest)
> Most profitable sin: Lottery
> Lottery proceeds: $1.7 billion (3th highest)

Florida is one of just six states in which at least 80% of residents are 18 or older — meaning a relatively large share of residents can use tobacco, play the lottery, or indulge in other acts that feed into the sin tax. The lottery accounts for nearly half of all sin tax revenue in Florida — about $1.7 billion, which is the third highest total among all states.

Floridians tend not to indulge, or overindulge, in some other behaviors covered by sin taxes. Florida’s adult smoking rate of 15.5% is lower than the U.S. rate of 17.0%. The state also has a lower share of adults who drink excessively at 17.5%, compared to 18.0% of adults nationwide.

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8. Pennsylvania
> Pct. total revenue from sin: 4.5%
> Revenue from sin: $4.1 billion (3th highest)
> Most profitable sin: Gaming
> Lottery proceeds: $1.1 billion (6th highest)

Pennsylvania collected nearly $1.4 billion in revenue from direct gaming taxes in 2016 — the most of any state by over $400 million. The state has a dozen casinos operating, and it also permits live horse race betting and off-track betting.

As one of the most populous states in the country, Pennsylvania ranks among the top states in terms of total revenue collected from alcohol, tobacco, and lottery. The state brought in hundreds of millions of dollars from taxes on each in 2016.

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7. South Dakota
> Pct. total revenue from sin: 4.7%
> Revenue from sin: $212.4 million (42th highest)
> Most profitable sin: Lottery
> Lottery proceeds: $115.9 million (31th highest)

As one of the least populous states, South Dakota had the lowest total tax revenue among all 50 states in 2016 at just over $4.5 billion — and 4.7% of that came from sin taxes. Lottery proceeds accounted for more than half of the state’s $212.4 million sin tax revenue, or nearly 2.6% of the state’s total revenue — a higher share than all but three other states.

South Dakota’s population is relatively young. Just 75.5% of residents are 18 years of age or older — a smaller share than all but five other states. A larger adult population would likely drive up sin tax revenue for the state.

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6. Maine
> Pct. total revenue from sin: 5.3%
> Revenue from sin: $475.1 million (36th highest)
> Most profitable sin: Liquor store profits
> Lottery proceeds: $89.1 million (32th highest)

Maine is the only state in which liquor store profits are the largest source of sin taxes. Taxes on these stores provided Maine with $165.4 million in revenue in 2016, dwarfing the lottery tax revenue of $89.1 million. Liquor store taxes amounted to over 1.8% of Maine’s total tax revenue, the highest share of any state.

Maine also collected a relatively high share of its revenue, 1.3%, in taxes on tobacco products. Only three other states collected a larger share of their revenues from tobacco. Maine’s population is one of the oldest in the country, meaning a larger share of residents can legally play the lottery and consume alcohol and tobacco products, contributing to greater sin tax revenue.