Governments collect excise taxes on alcohol beverages. That is, on beer, wine, and distilled spirits. (Spirits are vodka, gin, tequila, rum, whiskey, etc.) Both the federal government and state governments impose alcohol taxes. In addition, local governments do so as well.
OVERVIEW
I. Background
II. Federal Alcohol Excise Taxes
III. Additional Taxes by State
IV. Alcohol Tax Facts
V. Resources
Alcohol taxes at the federal, state, and local levels adds greatly to the retail price of alcoholic beverages. Especially for distilled spirits. In fact, at least half the cost of a typical bottle of spirits goes for taxes.
I. Background: Alcohol Taxes.
Producers, importers, wholesalers and, sometimes, retailers pay excise alcohol taxes. Of course, they pass these these alcohol taxes on to consumers through higher prices.
An excise tax is generally on a fixed quantity of alcoholic beverage. For example, on a gallon of beer regardless of price.
On the other hand, the sales price of an item determines the sales tax. And the tax usually includes most consumer items.
So the producers or others pay the excise tax. Then it becomes part of the cost. Of course, it increases the price used to calculate sales taxes. That includes both state and local sales taxes. Thus, consumers pay sales taxes on the excise taxes.
II. Federal Excise Alcohol Taxes
The U.S. government collects these alcohol taxes per gallon.
Wine…….$1.07 to $3.40 depending on alcohol content.
Spirits……$13.50
The federal government collects about one billion dollars per month from excise alcohol taxes on spirits, beer, and wine. The taxes on spirits are much higher than those on beer or wine. So well over half of that tax money comes from spirits consumers.
For both health and safety, it’s important to know an important fact about beer, wine, and spirits. That fact is alcohol equivalence. It means that standard drinks of beer, wine, and spirits contain the same amount of pure alcohol. It’s six-tenths of one ounce.
A standard drink is any of these.
In spite of this, the excise alcohol taxes on standard drinks of beer, wine, and spirits varies greatly. A consumer of a drink of spirits pays over three times the excise tax of a drink of wine. And the spirits drinker pays over two and one-half times the excise tax of the beer drinker.
Standard drinks have alcohol equivalence but certainly not tax equivalence.
You might find these helpful.
III. Additional Alcohol Taxes by State
States and some counties or cities add excise alcohol taxes. They also add sales taxes on their excise taxes. These taxes appear by state.
Alabama
To beer, it adds an excise tax of 53 cents per gallon plus 52 cents state-wide local excise tax. The state adds $1.70 excise tax to wine. But it’s $9.16 if the wine is over 16.5% alcohol.
Alabama has a state sales tax of 4%. The local sales tax averages 4.45%. Thus, the average sales tax is 8.45%. The state and local sales tax applies to all spirit, beer, and wine purchases.
Alaska
Alaskans are free of sales taxes. But alcohol excise taxes recently went up about 150%
Arizona
All alcohol is subject to sales taxes. The statewide rate is 5.6%. In addition, the county rate may be up to 2.0% and the city rate up to 4.5%. Thus, the sales tax on alcohol can be as high as 12.1%.
Arkansas
The state of Arkanas adds an excise tax of $2.50 per gallon on spirits. The tax on beer is 23 cents and on wine it’s 75 cents.
Customers don’t know that nearly $4 of a $12 tax-inclusive cocktail in Little Rock is for sales taxes. Of course, that doesn’t incude the hidden excise taxes.
California
All alcohol is subject to the general sales tax. The statewide rate is 7.25%. That includes the local sales tax.
Colorado
Colorado collects sales tax on all alcoholic beverages. The state sales tax rate is 2.9%. Yet localities can raise the total to as high as 11.2%
Connecticut
Connecticut adds a sales tax to all alcohol. The state rate is 6.35%. There are no local sales taxes.
Delaware
And the state of Delaware is free of sales taxes.
Florida
Consumers in Florida pay an additional $6.50 per gallon of spirits. If the beverage has over 55.78% alcohol, the added tax is $9.53. That’s a combined federal and state excise tax of $20.00 or $23.03. Florida adds excise taxes of 48 cents to beer and $2.25 to wine.
However, if the wine is over 17.259% alcohol the added tax is $3.00. And if the wine is sparkling, the tax is $3.50.
Purchasers pay sales tax on all alcoholic beverages. The sales tax of Florida is 6.0%. In addition, eligible counties may impose two separate sales taxes on alcohol. First, hotels and motels can charge 2.0% for alcohol. Second, certain establishments can charge 1.0% on alcoholic beverages.
Georgia
Purchasers must pay sales taxe on all alcoholic beverages. Georgia’s state-wide sales tax is 4.0%. Yet local rates go up to 5.0%. So the total rate ranges from 4.0% to 9.0%.
In addition, Atlanta imposes an extra 3% sales tax on all spirits drinks sold in the city.
Hawaii
General sales tax applies to all alcoholic beverages. The state rate is 4.0%. County rates are up to 0.5%.
Idaho
Purchasers of spirits in Idaho must buy from government monopoly stores. It mandates the number of stores and their locations. It determines the hours open, the brands sold, and their prices. The service and every other decision is by government.
In Idaho, all beverage alcohol is subject to sales tax. The state-wide rate is 6.0%. However, local sales taxes can bring the total to 8.5%.
Illinois
The state adds an $8.55 excise tax to to the federal tax. Thus, the combined excise tax is $22.05. Illinois adds 23.1 cents to beer. Chicago adds 29 cents more. And Cook County tacks on additional nine cents.
All alcoholic beverages are subject to sales taxes. The state sales tax is 6.25%. However, localities can add their own sales taxes to that. And those can be up to 4.75. Thus, the combined rate can be up to 11.0%
Indiana
Beer, wine, and spirits are all subject to sales tax. It’s 7% in Indiana. However, there are no additional local taxes.
Iowa
The state adds an excise tax of 19 cents per gallon of beer and $1.75 per gallon of wine.
All alcoholic beverages in Iowa are subject to sales tax. The state sales tax rate in Iowa is 6.0%. Local taxes are generally 1.0%. Thus, the typical sales tax is 7.0%.
Kansas
Kansas adds a retail tax of 8% for off-premises consumption of either spirits or beer. It’s 10% for on-premises consumption. For wine, it’s also 8% for off-premises. But it’s 11% for on-premises consumption.
Kentucky
Also, there’s an 11% wholesale tax on spirits. The wholesale tax on beer and wine is 10.5%.
In addition, all alcoholic beverages are subject to sales tax. That’s 6% in Kentucky. And the state is free of local sales taxes .
Louisiana
Beer, wine, and spirits are all subject to sales tax. Statewide, that tax is 4.45%. However, local sales taxes tend to at least double the total sales tax. In fact, it is as high as 11.45%
Maine
On beer, the the state requires vendors to add a 35 cent excise tax per gallon. And on wine, they must add a tax of 60 cents. If the wine is sparkling, they must add a $1.25 excise tax.
Also, all alcoholic beverages are subject to the general sales tax. In Maine, it’s 5.5%. And there are no local sales taxes. However, there’s a 7% on-premises sales tax for beer and wine.
Maryland
Also, beer, wine, and spirits are all subject to a 9% sales tax.
Massachusetts
Beer and wine are subject to the state’s 6.25% sales tax.
Michigan
The state adds an extra excise tax of 20 cents per gallon of beer. It adds 51 cents on that of wine. However, if the wine is over 16% alcohol, the added tax is 76 cents.
All alcoholic beverages are subject to the state’s 6.875% sales tax. Local sales taxes can can charge up to 1% additional sales tax. Thus, the total can be 7.875%.
Minnesota
Beer, wine, and spirits are all taxed at the rate of 9%. Also, there’s a small fee per bottle. (The general sales tax ranges from 6.875% to 8.875%.)
Mississippi
The state adds an extra excise tax of 42.68 cents per gallon of beer. And it adds 35 cents to wine. However, if the wine is sparkling, the added tax jumps to $1.00.
All alcoholic beverages are subject to sales tax. The state rate is 7%. But local rates can be up to 1%. Therefore, the total rate is usually 8%.
Missouri
Beer, wine, and spirits are subject to Missouri’s 4.225% sales tax. And local sales taxes usually raise that to around 7% to 9%. However, it can be as high as 10.350%.
Montana
The state adds an extra 14 cents per gallon of beer. And it adds a extra tax of $1.02 on low-alcohol wine.
Montana is free of sales taxes.
Nebraska
Nebraska is free of sales taxes.
Nevada
Beer, wine, and spirits are subject to the state sales tax. That rate is 6.85%. However, local taxes can raise it to 8.265%.
New Hampshire
The state adds an extra 30 cents excise tax per gallon to beer. And to wine it adds an extra 20 cents.
However, alcoholic beverages are not subject to any sales taxes. That’s because New Hampshire is free of them.
New Jersey
All beer, wine, and spirits are subject to sales tax. That rate is 6.625%. New Jersey is free of local sales taxes.
New Mexico
All alcoholic beverages are subject to sales taxes. The state tax is 5.125%. However, local sales taxes can increase the total to 9.0625%. In addition, the state imposes a gross receips tax on businesses. Of course, businesses pass that tax on to purchasers.
New York
All spirits, wine, and beer is subject to sales taxes. The state tax is 4%. Local taxes can be as high as 4.75%. Thus, the total sales tax can be 8.75%. And it often is.
North Carolina
To beer, the state adds an extra excise tax of 61.71 cents per gallon. And to wine it adds an extra $1.00. However, if it’s over 17% alcohol, the added tax is $1.11.
Beer and wine are subject to the general sales tax. The state’s rate is 4.75%. Yet local taxes can raise the total to 7.5%. But on average the rate is 6.75% to 7%. The tax for spirits is for on-premises sales.
North Dakota
The state’s sales tax of 5% does not apply to alcohol beverages. Instead, North Dakota imposes a sales tax of 7% on all such beverages.
Ohio
To beer the state adds an extra excise tax of 18 cents per gallon. For wine the added tax is 32 cents. But for wine with alcohol from over 14% to 21% alcohol, the tax jumps to $1.00. For vermouth, it’s $1.10. And for sparkling wine, it’s $1.50.
Wine, spirits, and beer are subject to sales taxes. The state rate is 5.75%. But local rates can be 2.25%. Thus, the tax can beas high as 8%.
Oklahoma
All alcohol beverages are subject to sales tax. The state tax is 4.5%. However, local sales taxes can add up to 5% to that. That is, 9.5%. However, most localities add about 3% to 4%. Also, there is a 13.5% tax for on-premises consumption of any alcoholic beverage.
Oregon
On beer, the state adds another excise tax of 8 cents per gallon. On wine, the increase is 67 cents. But if has over 14% alcohol, the added tax is 77 cents.
Oregon is free of any sales taxes.
Pennsylvania
Customers buy beer elsewhere. Pennsylvania adds an extra excise tax of 8 cents per gallon of beer.
All alcohol beverages are subject to sales taxes. The state rate is 6%. Counties may add up to a 1% sales tax. However, Philadelphia has an 8% sales tax. And customers pay sales taxes on all their purchases at monopoly stores.
Rhode Island
Alcohol beverages are all subject to the state sales tax of 7%.
South Carolina
The state adds an excise tax of 77 cents per gallon of beer and 90 cents on wine.
Beer, spirits, and wine are all subject to sales/use taxes. The statewide tax is 6%. Counties can add a 1% sales tax. And there can be other taxes. For example, in Charleston, a mixed drink is subject to 16% in taxes. The 6% state tax, a 3% county tax, a 2% hospitality tax, and a 5% state on-premises tax. The on-premises tax does not apply to beer or wine.
South Dakota
There’s also a 2% wholesale tax on both spirits and wine. Naturally, these are past on to customers.
All alcoholic beverages are subject to sales taxes. The state rate in South Dakota is 4.5%. Local sales taxes can add another 3% to that, or 7.5%. However, most areas of the state have a rate of 6.5%
Tennessee
Spirits, wine, and beer are subject to sales taxes. The state tax is 7%. Because of local taxes, the rate in Tennessee ranges from 8.5% and 9.75%.
Also, the state imposes a 15% on-premises tax for wine and spirits.
Texas
All alcohol beverages are subject to sales taxes. The Texas sales/use tax is 6.25%. But local taxes can add up to 2%, for a total of 8.25.
Texas imposes a 14.95% on-premises tax for all alcohol beverages. Also, a 5 cents per drink tax on airlines.
Utah
Beer, spirits, and wine are subject to Utah sales taxes. The state rate is 4.7%. But local taxes can be as high as 4%. This means the total rate can be 8.7%. However, in most areas the rate is 7.1%
Vermont
Vermont adds an extra excise tax of 26.5 cents per gallon of beer. But if it’s over 6% alcohol, the extra tax is 55 cents. On wine 16% or less alcohol, the added tax is 55 cents.
Beer and wine are subject to Vermont sales taxes. The state sales tax is 6%. Local sales taxes can bring the total to 7%.
The tax on any alcohol beverage served on-premises is 10%
Virginia
Virginia adds an extra excise tax of 25.65 cents per gallon of wine. It adds $1.51 to wine. However, if it contains over 14% alcohol it’s only available from a monopoly store.
Any alcohol beverage bought in Virginia is subject to sales taxes. The state charges 4.3%. But localities can collect up to 2.7%. Thus, the total can be 7%.
Washington
When bought by the bottle, the sales tax on spirits is 20.5%. But when bought by the glass, the tax is 13.7%. Wine and beer are subject to the standard sales taxes in Washington.
The general sales tax in Washington is 6.5%. County rates can be 2.5%. And the citiy rate can be 3.9%. A special rate can be up to 3.8%.
West Virginia
West Virginia adds an extra 18 cents excise tax per gallon of beer. And it adds $1.00 per gallon of wine.
All spirits, wine, and beer are subject to sales taxes. The state rate is 6%. Localities can add up to 1% more. Wine also has an added 5% sales tax.
Wisconsin
Alcohol beverages are subject to sales taxes. The state tax is 5%. Local sales taxes can add .6% to that. So the highest rate is 5.6%.
Wyoming
Wyoming adds a 2 cent excise tax to beer. And all alcohol beverages are subject to sales taxes. The state sales tax is 4%. Localities can add up to 2% to that. Nevertheless, the typical sales tax in Wyoming is 5%.
District of Columbia
All wine, beer, and spirits are subject to a 10.25% sales tax.
IV. Facts
- Alcohol taxes are highly regressive. That is, they put a much heavier burden on lower than higher-income people. Most people think this is unfair.
- In addition, the excise tax increases the mark-up added by the wholesaler. That is, the wholesaler increases profits because of the mark-up on the tax itself. The same thing happens at the retail level. Thus consumers pay the excise tax along with the two mark-ups on the tax itself.
- Over half the cost of spirits is from taxes.
- Alcoholic beverages are largely inelastic. That is, they don’t respond much to price changes.
- Alcohol taxes don’t lower consumption or abuse of alcohol. For example, they don’t reduce underage consumption. (Most underage drinkers don’t buy their alcohol.) And they don’t reduce DUI or traffic crashes.
- Politicians sometimes refer to alcohol taxes as “sin taxes.” However, drinking beer, wine, or spirits in moderation increases health and length of life. On the other hand, abstaining from alcohol is a health risk.
- About 40% of the cost of a beer is from alcohol taxes.
- Differences in alcohol taxes between states or localities often leads consumers to cross state or county lines. This benefits places with lower taxes. Also, people often buy other products. This magnifies the economic benefits to lower tax areas.
- Congress imposed an excise tax on beer in 1862 to help pay for the Civil War (1861-1865).
V. Resources
Readings
- Burman, L. and Slemrod, J. Taxes in America. What Everyone Needs to Know. Oxford: Oxford U. Press, 2013.
- Slemrod, J. and Bakija. Taxing Ourselves. A Citizen’s Guide to the Debate Over Taxes. Cambridge: MIT Press, 2017.
Notes
- At this point, you know much more about alcohol and taxes than most people. So kudos!
- Perhaps you know of items that should be added. If so, contact hansondj [@] potsdam [.] edu/ Thank you for your help.