Sin Taxes and Sales Taxes

Taxes — including sales taxes — have more than one purpose. Sure, they’re intended to raise revenues for things like schools and roads, but they are also intended to influence people’s behavior. We have tax rules designed to encourage marriage, working, home ownership, education, and all sorts of other things that we as a culture consider beneficial. We also have taxes designed to make certain behaviors less appealing. These are the so-called “sin taxes”: taxes on cigarettes, alcohol, and gambling, for example, are intentionally high.

The idea is to discourage people from the vices of smoking drinking and gambling. If people go ahead and have that glass of wine with dinner anyway, they can at least feel comfortable knowing that their “sin” has helped to cover the cost of preschool for needy children. Sin taxes have, in recent years, been extended to more products. Soda gets special taxes in 33 states. Sin taxes on violent video games have been proposed. And sin taxes on all kinds of unhealthy foods, from high-fat meat to all kinds of sweets, have been suggested and occasionally put into action, as when Colorado added a sin tax to the price of candy. Sometimes the additional revenue from these taxes is used to offset costs to society of the sin in question, or to fund education on the subject.

Cigarette taxes, for example, are often funneled toward anti-smoking campaigns. Economists say that plans of this kind usually fall through, though, and the additional costs to consumers just go into the general fund. Sin taxes are not sales taxes. Retailers collect sales taxes, paid by consumers, and send them along to the government. Manufacturers pay sin taxes, which are actually a type of excise tax, and are expected to pass the costs along to consumers. Another difference is that sales tax is based on the amount of money paid, and is a percentage of that money, while excise taxes are based on the amount of the product bought.

This means that one pack of the cheapest brand of cigarettes merits as much sin tax as the most expensive luxury brand — on the grounds, apparently, that the sin is the same either way. Sin taxes can be an easier sell, politically, than sales taxes. They can also be simpler for the companies that deal with them to handle. Sales taxes are complicated; we’d love to help you deal with them. Contact us for a free evaluation of our sales tax software packages.

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