The term sumptuary tax refers to an excise or ad valorem tax applied to goods and services that support a habit viewed by society as undesirable. Sumptuary taxes are oftentimes applied to the sale of alcohol, tobacco, legalized gambling activities, as well as food viewed as unhealthy.
Sumptuary taxes are levied by governments to discourage the participation in services or the purchase of goods viewed as causing harm to society or the individual's body, which is why it can also be categorized as a Pigovian Tax. As is the case with sin taxes, this form of taxation is favored by lawmakers since they are effective at generating revenues and the impact is only felt by those using the goods or services.
Sumptuary taxes are applied to goods or services considered sumptuous, or luxurious. In addition to alcoholic beverages and tobacco products such as cigarettes, it can also apply to what society believes are unhealthy foods. For example, back in 2009 New York levied a $0.01 per ounce tax on soft drinks (which was later repealed) to help close the state's budget gap.
In addition to providing the government with a source of revenue, the objective of a sumptuary tax is to discourage the use of the product or service. Critics of the approach point out sumptuary taxes are regressive, forcing lower-income individuals to pay a higher proportion of their disposable income in taxes than higher-income individuals.