Tuesday, July 14, 2009

Alcohol Taxes Going Up in Illinois

Despite statements that he wasn't sure he supported an alcohol tax increase, and despite the fact that we already had the highest liquor taxes in the Midwest among non-control states, Governor Pat Quinn signed a bill (now Public Act 096-0038, starts p. 117) yesterday that will increase the taxes on alcoholic beverages effective September 1, 2009. It's part of a big public works package intended to stimulate our local economy, with some significant tax increases thrown in to fund it ($109 million from alcohol taxes).

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.
Once it shakes out a bit more, I'll try to post a further update on how the industry responds to the increase.


Doug Winship said...

$8.50 a gallon?!? And if it takes place before the distributor markup, I'd call that at the manufacturer's level.
I'm really sorry for this, Sonja. It just reminds us once again that big taxes and big regulation, and the politicians who press for them, are really the friends of Big Business, not small business or the consumer.

~Sonja~ said...

Thanks Doug. You are absolutely right, the tax is assessed on the manufacturing level, but paid by the distributor, so it ends up getting built into their "laid-in cost" before markup. I should've been a little clearer on that.

And I'm very sorry for this too, although we're not the only small distillery facing this, it's painful nonetheless.

Jak said...

This is ridiculous, but typical for Illinois. This state's answer for everything budget is more taxes, and they know a "sin tax" is an easy sell. Why can't they instead curb ridiculous spending?
Sadly, our national government is headed the same way.

rafe/lindsay said...

Thanks a lot for writing this information up. Its almost impossible to find this info via the Trib or Sun or pretty much anywhere else on the web.

This is an unbelievable tax hike. As a consumer, its extremely irritating. But as a business person in this industry, I can imagine its absolutely infuriating. Ugh.

Oh, I just need to add that your #6 gin is easily one of the best gins on the market right now.

~Sonja~ said...

Thanks for your kind words, so glad you like our gin! And thanks for the comment.

I was really surprised at how hard it was to find the details of this, and how little it has been discussed in the press. This is a HUGE increase, and no one is talking about it, at least not yet. We're still trying to figure out what we, and our distributor, will do - it's a really difficult situation.

XSarenkaX said...

I hadn't learned of this until I went shopping at Binny's and saw a huge sign near the entrance (several, actually) about it. I am glad you outlined everything here for me.

Damn it, damn it, damn it! The possibility of a second Prohibition is making me nervous...

PInesh said...

I own a liquor store and this is going to hurt the business really bad. my business is in cook county so there is double tax, state and Cook count tax. Customer always complains abt the tax and now with this increase they going to stop purchasing.

dame it.

~Sonja~ said...

Yes, the little guys are the ones who'll be hurt the most with this, especially those in Chicago and/or Cook County, where they have big city and county liquor taxes too. I feel your pain, sure wish there was something we could do!