Alcohol taxes are selective sales taxes levied both as an amount per unit sold (i.e., per gallon of beer) on producer or seller of the product and as sales taxes on the final purchase price. When levied on the producer or seller, the taxes are included in the final purchase price and thus passed on to consumers. Some states also collect revenue from government-owned liquor stores.
Alcohol taxes are sometimes called a corrective or “sin tax” because, unlike a general sales tax, they are used in part to discourage use of alcohol because the choice to use it has costs both to the user and to other people (such as increased health care costs). State and local governments tax cigarettes, and have begun taxing marijuana and soda and other sugar-sweetened beverages, in a similar way.
- How much revenue do state and local governments raise from taxes on alcohol?
- How much do alcohol tax rates differ across states?
- Further reading
State and local governments collected $16.8 billion in revenue from alcohol in 2016, which was less than 1 percent of state and local general revenue. State revenue accounted for 88 percent of this total.
Alcohol revenue comes from both alcohol taxes ($7.3 billion) and government-owned liquor store revenue ($9.5 billion). Seventeen states collected revenue from government-run liquor stores, generating revenue through various taxes, fees, price mark-ups, and net profits.
Alcohol taxes are generally remitted at the wholesale level, so the cost of the tax is already incorporated into the retail price paid by the consumer. The excise taxes are per gallon rather than a percentage of the final price, and beer, wine, and liquor are typically taxed at different rates.
The per gallon tax on beer ranges from $0.02 in Wyoming to $1.29 in Tennessee, the per gallon tax on wine ranges from $0.20 in California to $2.50 in Alaska on wine, and the per gallon tax on spirits ranges from $1.50 in Maryland to $14.27 in Washington. Some states, such as New Hampshire and Pennsylvania, do not tax wine and liquor, but instead raise revenue from these products by only allowing them to be sold at state-run liquor stores.
In addition to the excise tax, many states levy a sales tax on the final purchase price of alcohol, and some states and cities have special sales tax rates for alcohol. For example, the District of Columbia has per gallon taxes on beer ($0.09), wine ($0.30), and liquor ($1.50) built into the retail price of alcohol, but the city also levies an additional 10.25 percent alcohol sales tax on the final purchase price for off-the-premises consumption.
Do Alcohol Excise Taxes Reduce Motor Vehicle Fatalities? Evidence from Two Illinois Tax Increases
Robert McClelland and John Iselin (2017)
Should We Tax Internalities Like Externalities?
Donald Marron (2015)
How Should Governments Use Revenue from Corrective Taxes?
Adele C. Morris and Donald Marron (2016)