Gambling With Sales Taxes

As more and more states begin to legalize gambling and rely on its subsequent revenue to bring in more taxes, there's an interesting issue that needs to be addressed, the effect of gambling tax revenues on the sales tax.

A recent special report in the December 26, 2005 issue of State Tax Notes takes a look at just that. Written by Jim Landers of the Indiana Legislative Services Agency, his study found in the literature and through his own analysis that:

... casino wagering can displace taxable consumer expenditures and, as a result, sales tax revenue.

More simply put, new public revenues coming from gambling may not turn into as much additional revenue as hoped for because sales tax revenue may decline as a result. The more people spend on gambling, the less they'll potentially spend on items subject to the sales tax. This is an important consideration to account for when policy makers look to gambling revenues as an additional revenue source.