Lotteries
A typical lottery ticket may sell for $1. Of this amount, half may be designated for prizes to be returned to players. Fifteen percent of the ticket price is often directed toward expenses (advertising, ticket distribution and sales commissions, printing tickets, managing funds). About 35% is reserved for government treasuries, either for a specific use or for general uses. If we consider that a ticket purchase results in a value of $0.50 going to the player, we can assume that the player has purchased a product worth $0.50. At the point of purchase, however, the price was $1, or $0.50 more. If the lottery purchase was considered to be the purchase of any other product, we could say that it carried a 100% sales tax. If we see the extra $0.50 as a profit margin, we could say that the seller was paying a tax of 70% on the gross profit – that is, $0.35 on $0.50. Or we might simply say that the government tax is 35% of the gross sales, and all other costs are costs of doing business. However we conceive the rate of taxation, we can see that lottery operations carry the highest taxation rates of any gambling products. Also it can be claimed that the use of a lottery to raise money for government activities is very expensive. It costs $0.15 in expenses to raise $0.35 for government use.
Pari-mutuel Racing
In pari-mutuel wagering, players typically make all their bets, and these are placed into a common pool (e.g., $1,000). A set amount of the pool is then given back to the winning players (about $800). As a sales tax, we can say that the tax on the player is 25% ($20 on $80). Expenses and shares given to the track and animal owners constitute most of the $200, however. The government would typically keep only $60 or $70. It might then be said that the government tax is 30 percent or 35% of the profits from the wagering, or 6% or 7% of the gross sale price of the betting tickets. As the government incurs only a very small part of the cost of race-betting operations (having a state racing commission), the cost of raising the $60 or $70 is very small, perhaps less than 10% of the amount raised.
Casinos
Casinos typically pay many kinds of fees as well as taxes on their gambling winnings. Fees are charged for licensing activities and also for having individual numbers of machines or gambling tables. Taxes on the winnings are assessed on the gross gambling win – that is, the amount of money the casino retains after all prizes are given to the players. The rates of the casino win taxes vary considerably among the commercial casino jurisdictions of the United States. Nevada has the lowest rate – 6.25% of the win – followed by a rate of 8 percent in New Jersey, Mississippi, and South Dakota. In Michigan, the state tax on wins is 18%, and Louisiana has an 18.5% win tax. Several states have taxes of 20% (Iowa, Indiana, and Missouri). The highest rate is found in Illinois, where a graduated tax climbs to as high as 35% of the casino win. These taxes are generally more efficient than those for lotteries and pari-mutuel racing. The government collection costs are consumed by state regulatory commissions and are normally less than 5 percent of the revenues collected.