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Sin Taxes: Taxing Your Vices

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The editors at Online Accounting Degrees decided to research the topic of:

Sin Taxes: Taxing Your Vices

Federal and local governments are taxing our vices...big time. These taxes, known as "sin tax", generate revenue and affect purchases. So, how much would my smokes cost without all the taxes?

How much is my "sin" worth?


- A sin tax is added to products or services considered to be unhealthy. States collected $50 billion in 2011 because of the tax.

States are cashing in on your vices

The states with the highest revenues from the sin tax
- Nevada
- Generated $1,013,568,000
- Total revenue percentage: 5.8%
- Most profitable: Casinos
- Rhode Island
- Generated $505,305,000
- Total revenue percentage: 5.4%
- Most profitable: Lottery
- Delaware
- Generated $472,054,000
- Total revenue percentage: 5.0%
- Most profitable: Lottery

Getting "smoked" by The Man


- Cigarettes are the most heavily taxed consumer good in the world
- 58% of the price of cigarettes is a result of excise taxes (SEE CHART)
- Cigarette price equation: state sales tax + federal tax of $1.01 per pack + additional fees + average price of cigarettes
- Cities and counties can add additional fees and taxes
- Cities with the highest additional fees
- 1. New York City ($1.50 per pack) plus New York State ($4.35) $5.85 per pack
- 2. Chicago ($0.68) plus Cook County ($3.00) plus Illinois ($1.98) $5.66 per pack
- 3. Evanston ($0.50) plus Cook County ($3.00) plus Illinois ($1.98) $5.48 per pack
- States' Average is $1.53 per pack
- States with the highest cigarette tax
- 1. New York, $4.35
- 2. Massachusetts, $3.51
- 3. Rhode Island, $3.50
- New York's cigarette tax increase from 2000 to 2010:
- 2000: $1.11
- 2002: $1.50
- 2008: $2.75
- 2010: $4.35

Taxes make me want to drink, but I can't afford it


- Excise tax rates for wine are applied per gallon
- As of January 2013, Kentucky holds the highest rate and Louisiana the lowest
- Kentucky
- $3.15/gallon
- 11% wholesale tax + $0.50/gallon
- Louisiana
- $0.11/gallon
- Additional fees include $1.59/gallon for sparkling wine

So, you're saying the government actually wins the lottery...every...single...time...?


- Cash and noncash gambling winnings are fully taxable regardless the amount
- The payer must get your Social Security number and inform the IRS of the extra income you received from the winnings if:
- You pocket $600 or more (and that amount is 300 times your bet) at a horse track
- Win $1,200 at a slot machine or bingo game
- Take $1,500-plus in keno winnings
- The payer generally will reduce payout by withholding federal taxes at a 25% rate in addition to requiring the winner to fill out a W-2G form
- Refusal to give a SSN could result in a 28% tax withheld from the player's winnings at the time of payout

Maybe I could ease the pain by growing my own weed


- In 2012, Colorado legalized the production, sale, and use of recreational marijuana
- In November 2013, they will vote on a proposed tax structure
- An excise tax of 15% of the wholesale value of marijuana
- A special sales tax of 10% on the retail sale of marijuana
- Extension of the state's existing 2.9% general sales tax to marijuana and marijuana products
- Here's how it would work based on a study done by Colorado State University
- Distributor buys a pound of marijuana at wholesale price of $600/lb
- The 15% excise tax amounts to $90
- The cost of distribution is $40
- Bringing a total cost for the distributor to $730
- The distributor adds 25% and charges a retailer $913
- The retailers marks the pound up 175% setting the price at $2,509/lb
- After the 10% special sales tax and 2.9% state sales tax, the price is $2,833/lb (SEE CHART)
- If the tax structure is approved, it will make an eighth of an ounce of marijuana cost $23.50 placing it between a six pack of beer and a pack of cigarettes
- If the tax structure is approved, the total percentage of taxes in the retail price of marijuana will rank among the following in Denver, Colorado:
- Bottle of wine: 11.4%
- Six-pack of beer: 12.9%
- Eighth of an ounce of marijuana: 21.2%
- Pack of cigarettes: 34.0%

Federal and local governments are able to profit off of its citizens' vices. Does all this taxation make you want to quit or rewrite the tax code?

SOURCES


- http://apps.irs.gov/app/understandingTaxes/whys/thm05/les01/media/is1_thm05_les01.pdf
- http://www.freep.com/article/20130817/NEWS06/308170065/Michigan-among-top-states-profiting-the-most-from-sin
- http://www.pmi.com/eng/tobacco_regulation/tobacco_taxation/pages/tobacco_taxation.aspx#
- http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Excise-Tax
- http://www.tobaccofreekids.org/research/factsheets/pdf/0202.pdf
- http://www.tobaccofreekids.org/research/factsheets/pdf/0097.pdf
- http://www.taxadmin.org/fta/rate/cig_inc02.html
- http://www.thebeveragejournal.com/assets/I-Tax-Foundation-Wine-Excise-Tax-Map.png
- http://www.taxpolicycenter.org/taxfacts/Content/PDF/alcohol_rates.pdf
- http://www.hrblock.com/free-tax-tips-calculators/tax-help-articles/Income/Gambling-Winnings.html?action=ga&aid=27116&out=vm
- http://www.bankrate.com/finance/money-guides/reporting-gambling-winnings.aspx#ixzz2h35wgNx8
- https://webcom.colostate.edu/coloradofutures/files/2013/04/CFC-Amendment-64-Study-final2.pdf
- http://qz.com/83411/how-much-tax-coloradans-will-actually-have-to-pay-on-their-marijuana/


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