A state may use several types of taxes to generate revenue. A common type of tax is a sales tax, which is a consumption tax imposed by the government on the sale of goods and services. Several states have dedicated a portion of sales tax income to fund initiatives or programs for early care and education systems:

• South Carolina established preschool for at-risk 4-year-old children as part of an education-improvement bill and funded it with a one-cent increase in sales tax.[5]
• Arkansas’s preschool program is also part of an education reform package supported by an Education Trust Fund, which is funded by a dedicated sales tax.[6]

Another type of tax is the so-called sin tax, which is a state-sponsored tax on goods that are considered either physically or morally harmful (such as alcohol, tobacco, and gambling). Several States have been successful in using sin taxes to fund early childhood initiatives.

• The Arkansas legislature passed a 3-year surtax on beer to enhance funding for early care and education. In fiscal year 2005, the tax was renewed but later removed, although the program continues. However, while it was in effect, it generated $40 million.[7]
• California’s First Five program derives nearly all its funds—more than $3 billion so far—from a tax on cigarettes earmarked specifically for public early childhood and child health programs.[8]