Before the Increases
Here's where we stood before the increase on Illinois taxes (these are just for the state, not the feds):
Beer and Cider up to 7% Alcohol - $0.185 per gallon
Wine and others under 20% Alcohol - $0.73 per gallon
Spirits and anything else 20% Alcohol or more - $4.50 per gallon
Just for comparison, the state tax rate on spirits in neighboring states are:
Indiana: $2.68 per gallon
Missouri: $2.00 per gallon
Wisconsin: $3.25 per gallon
So we were already significantly higher than the three states near us with similar alcohol regulatory schemes.
After the Increases, Effective September 1, 2009
Here's where we stand after the increase:
Beer & Cider up to 7% Alcohol - $0.231 per gallon ($0.046, or 25% increase)
Wine & Others under 20% Alcohol - $1.39 per gallon ($0.66, or 90% increase)
Spirits & anything 20% Alcohol or more - $8.55 per gallon ($4.05, or 90% increase)
The power of the beer lobby is apparent - they typically spend significantly more in lobbying efforts in Illinois than the wine or spirits lobby.
How it Plays Out - Who Gets Hurt
It remains to be seen how this will play out exactly - it was difficult to even find the legislation through the major media outlets covering the news. It's safe to say that many prices will rise in response.
A $4.05 per gallon increase translates to $.80 per 750 ml bottle in additional tax. However, the tax is assessed at the distributor level of the three-tier system, which means both the distributor and retailer markups will be applied before it gets to the consumer. So that $.80 may be $1.60 or more in increases at the liquor store.
Here are some of the likely outcomes from where I'm sitting:
- Costs will be higher to restaurants and bars, who are already hurting and preferring not to raise drink prices. They'll either have to raise prices or shift to lower-priced spirits.
- Value-priced spirits will be hit the hardest, because they have the same increase as higher-priced items - it's not tied to price but to alcohol level and volume.
- As usual, the little guys will suffer the most across all three tiers (manufacturer, distributor, retailer). Small companies like ours don't have the leverage with our partners to insist that they share in the increase. Either we have to eat it and reduce our prices, or we have to live with a price increase. Neither sounds particularly appealing in these tough economic times.