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What are Sin Taxes? 

Not only are taxes as old as civilization, they can apply to virtually anything you can imagine. We have taxes on an incredibly wide range of products and services. In one of our posts, for instance, we discussed a tax on untethered hot-air balloon rides in Kansas! Not only are there taxes on a wide variety of items, we also have multiple categories of tax. Today, we’ll look at one such category: sin taxes.

There are direct taxes, indirect taxes, excise taxes, poll taxes, use taxes, and many, many other types of taxes. Sin taxes are a subcategory of excise taxes. That means that they apply to a transaction, rather than to an individual. They are also paid to the state by the business entity on the receiving end of the transaction. Think of sin taxes as a specific subtype of sales tax. That’s because these taxes are added on top of the sale of certain items.  

Penalty or Prod?

Sin taxes are basically a “penalty” on the sale of items which society deems unhealthy, harmful or undesirable. Our society imposes sin taxes on a whole bunch of different items. These include alcohol, cigarettes and tobacco products, candy, soda, fast food, and many others. The rationale behind sin taxes is actually twofold. First, the intent is that consumption of these sinful things decreases as a consequence of the tax. Second, society also benefits from the additional revenue generated by imposition of the tax. In this article, we will identify and discuss several prominent examples of sin taxes in the United States; then, we will briefly discuss the controversy surrounding these taxes. Many pundits and commentators have criticized sin taxes as being unfairly burdensome on certain socioeconomic groups.  

Specific Examples of Sin Taxes 

In the State of New York, there are three main sin taxes. There are taxes on cigarettes and tobacco products, liquor, and gambling (specifically, racetrack gambling and casino gambling). These taxes collectively generate a tremendous amount of revenue for the state. In 2014, New York brought in a very hefty $2.66 billion from these three sin taxes; $1.446 billion came from the tobacco tax, $964 million from the gambling tax, and $250 million from the liquor tax.  

The Soda Tax

Another notable sin tax is the “soda tax” (or “sugary drink tax”) in Seattle, Washington. On January 1st of this year, Seattle’s new soda tax took effect. This tax should bring in roughly $15 million in revenue to the state in its first year alone. The tax consists of an additional 1.75 cents per ounce of targeted beverages; so a 16 ounce bottle of soda will cost a Seattle consumer an extra 28 cents.   

In Illinois It’s Candy

Yet another interesting sin tax is the candy tax in the State of Illinois.  Illinois has comparatively high rates of obesity. Legislators there have embraced the idea that the increased candy tax rate is a legitimate means to combat the issue.   In Illinois, the tax on food is typically lower than on other goods. Nonetheless, in order to impact obesity levels, the state increased the tax rate on candy (defined specially by the state). It’s now level with the statewide sales tax of 6.25%.

The Debate Over Sin Taxes 

No one can deny that these taxes create considerable income for the states involved; but there is also an ongoing debate in our society about the ethics of sin taxes. For instance, one contention is that taxes on cigarettes and tobacco products disproportionately affect citizens of modest financial means. Some see this disproportionate impact itself as unfairly discriminatory. This same applies equally to the other sin taxes. The counterargument, however, is that these taxes lower total consumption of these so-called sinful items. So, even though there is a disproportionate impact on citizens in a lower economic bracket, the net effect of the tax is positive. 

The debate is far from over. Nonetheless, there does appear to be hard evidence to support the claim that sin taxes do lead to lower rates of consumption. In Illinois, for instance, a small sin tax on alcohol resulted in a dramatic decrease in the frequency of drunk driving deaths. Other hard statistics also demonstrate the effectiveness of sin taxes on tobacco products and reduced tobacco consumption rates.  

Call Us For Assistance!

Though a few sin taxes may disappear, it seems highly unlikely that we’ll see a permanent end. Many oppose these taxes on ethical grounds. Still, plenty of people support them as a source of revenue as well as a deterrent to harmful behavior. If you distribute a product or service subject to such a tax, a capable professional can help you meet all relevant requirements. If you have questions regarding a  specific New York tax issue, contact Mackay, Caswell & Callahan today.  Speak with a top New York City tax attorney.    And, with offices in many parts of New York State, one of our tax professionals is available nearby to help you.

Image credit: Leni Lunatic