Tax revenue in the US surges due to increased demand for sin products among consumers
In the United States, sin taxes on activities such as sports betting, iGaming, and cannabis have become significant sources of revenue for many states, helping to fund essential public services like education, infrastructure, and health programs.
The tax rates for these activities vary widely by state and type, influencing both state revenue and industry dynamics.
For instance, states like New York, New Hampshire, and Rhode Island have some of the highest sports betting tax rates at 51% on sportsbook revenue. Pennsylvania has a high tax rate around 30-40%, while Michigan applies a moderate tax rate between 15-25% on sports betting revenue.
In the realm of iGaming, many states tax online casinos similarly to sports betting, although revenue contributions vary. Some states are considering legalizing or expanding online gambling to broaden revenue sources.
In the cannabis sector, state sin taxes, though not detailed here, typically include excise taxes and sales taxes that contribute significantly to state budgets. These funds often support public health, education, and regulatory costs.
Here's a summary of current tax rates in key states:
| State | Sports Betting Tax Rate | Notes | |------------|---------------------------------|----------------------------------| | New York | 51% | Among highest in the US[1][4] | | Pennsylvania| Approx. 30-40% | High tier, also taxes iGaming[1] | | Michigan | 15-25% | Moderate tax rate, online allowed[1] | | North Carolina | 18% proposed to double to 36% from Oct 2025 | For education and youth funding[2] |
As states increasingly rely on these taxes amid budget pressures, they compete to balance adequate tax revenues without driving players to illegal markets or out-of-state betting.
Recent and upcoming tax changes include the IRS's federal limits on gambling loss deductions beginning 2026, potentially increasing federal tax burdens on gamblers and indirectly affecting gaming revenues. Various state legislative efforts to raise or restructure taxes on gambling are also underway in 2025 and 2026 to offset budget shortfalls.
Sin taxes, including those on tobacco, alcohol, and casino gambling, were once significant revenue generators. Moody's Investors Service has highlighted the importance of the evolving sin taxes that align with consumer preferences. The increasing popularity of sports betting, especially since the US Supreme Court's 2018 decision that struck down PASPA, has led more lawmakers to legalize and tax the activity.
As of now, nearly 40 states offer legal sports wagering. Gambling operators are continuously investing in mobile gaming technology due to the potential of mobile sports betting expansion. Moody's has emphasized the importance of taxes on sports betting in some US states.
More than two dozen US states have legalized cannabis. The revenue derived from these activities (alcohol, cigarettes, casino gambling, sports betting, iGaming, and cannabis) contributes to the budgets of different US states. The United States generates billions of annual taxes from these activities.
Shifting consumer preferences, especially related to alcohol and tobacco, will continue to influence the amount of tax revenue governments can generate. Emerging trends, such as the increasing popularity of sports betting, have led more lawmakers to legalize and tax the activity in the post-PASPA era. Moody's has also noted that some states allow betting operators to deduct costs such as promotions from their taxable revenue.
- The increasing popularity of mobile gaming, particularly sports betting, has led more lawmakers to legalize and tax this activity, contributing to state budgets alongside revenues from alcohol, cigarettes, casino gambling, iGaming, and cannabis.
- In the United States, the tax rates for sports betting, iGaming, and sports-betting activities vary widely by state and type, influencing both state revenue and industry dynamics, and some states like New York have one of the highest sports betting tax rates at 51%.
- As a result of shifting consumer preferences and the increasing popularity of sports betting, especially since the US Supreme Court's 2018 decision that struck down PASPA, there are ongoing discussions among state legislators to raise or restructure taxes on gambling to offset budget shortfalls, while still ensuring the tax rates are not excessive.
- In the realm of finance and investing, Moody's Investors Service has highlighted the importance of evolving sin taxes that align with consumer preferences, such as those on tobacco, alcohol, casino gambling, sports betting, iGaming, and cannabis, as significant contributors to state budgets, and they continue to keep a close eye on the growing trend of sports betting in particular.
