Wednesday, August 12, 2009

Illinois Liquor Taxes - Highest in the Nation

Recently I wrote about the liquor tax increase taking effect on September 1, 2009 in Illinois (link to .pdf from IL Dept of Revenue).


The increase was included in the
"Illinois Jobs Now!" act, which is a $31 billion capital improvement bill - lots of road, bridge and transit expenditures, as well as some money for schools and community development. To pay for it, there are lots of new taxes and fees, including an increased sales tax on candy (which has it's own headaches), sweetened tea & coffee drinks, increase title, registration and drivers license fees, taxes on grooming & hygiene products, and the controversial introduction of video gambling.

The increased beer, wine and spirits taxes are only expected to raise $119 million, so they're really a small part of this massive spending bill. However, the increases leave Illinois with the highest liquor taxes in the nation.
That's right, the HIGHEST in the nation among non-control states, by a factor of 31% over the next highest state.


One of our customers (thanks Adam!) gave me a handy-dandy chart today that shows all the tax rates in all the states in the US that are not control states (meaning the state governments do not run the liquor stores and/or act as the distributor - they are traditional three-tier states, so we're comparing apples to apples).

Top Ten States
Although the Marin Institute says this is good news, this is really unfortunate for our industry and the consumer who imbibes. Here's the ranking by state liquor tax rates.

1. Illinois, as of 9/1/09 - $8.55 per gallon

2. Florida - $6.50

3. New York - $6.43

4. Hawaii - $5.98

5. New Mexico - $5.68
6. Alaska - $5.60

7. Minnesota - $5.03
8. Oklahoma - $4.56

9. Connecticut - $4.50 (Illinois would have been tied for 8th before)

10. New Jersey - $4.40

  • Consumers who Drink. In most cases, a 750 ml bottle of spirits is going to cost at least $2 more, perhaps $3, regardless of the bottle's pricepoint, and before sales taxes. In Chicago, for example, once you factor in the federal, state, county and city manufacturing taxes, as well as sales taxes, more than 25% of the cost of a $30 bottle of spirits is tax - not money to the manufacturer, distributor, or retailer - taxes.
  • Liquor stores near the border with another state that has lower taxes. Wisconsin is $3.25 per gallon, Indiana is $2.68 per gallon. Illinois is $8.55. The difference translates to a few dollars per bottle - in each case, it's over $1 per 750 ml bottle in tax, before markups. People near borders will cross them and stock up, even if doing so is technically illegal. So we're sending business to our neighboring states.
  • The Little Stores. The single, independently owned liquor stores will probably suffer. They often don't have the resources and clout to buy huge quantities and stock up before the increase, or negotiate with the powerful distributors, so they'll be hit with the increase (and price increases) sooner. And little producers, like us, don't have a lot of wiggle room on pricing to absorb the tax, so our prices will go up, despite the tough economy.
  • Bars and Restaurants. Bars and restaurants are already suffering in this economy, and now they'll be forced to either raise drink prices or work on a slimmer margin, neither of which is particularly appealing. Once you break the tax increase down to a per-ounce count, in theory it would be about 5¢ per ounce. In reality, after distributor markups, it will be more like 8¢ an ounce in additional tax per ounce, or around 25¢ per cocktail (assuming about 3 oz of taxed liquid total). It may not sound like a lot, but that 25¢ per drink will add up quickly. And it doesn't matter what caliber of spirits you're using, if it's over 20% alcohol, it's the same tax regardless of price.


The Wild Scotsman said...

Great post. I would add that small producers of spirits get hurt as well. As an artisinal spirits bottler I cannot afford to take a lost liter. Meaning reducing my costs to wholesalers in IL or other high tax states to counter act the high tax. Large companies will take the loss in one state and make it up in another or with another brands

Anonymous said...

31% more than the second highest state? Unbelievable! Wisconsin, here we come. Sorry to Illinois businesses.

We don't D&D but I'm sure a few will have a drink on their way home. Nice Quinn!

Thanks for the informative post!

Benia Zouras said...

I'm so not happy about this. My last trip to Binny's was where I found out about this tax hike. Needless to say, we bought stacks of cases of beers and other favorites that day.

Anonymous said...

I'm a different Anonymous, but I concur with my namesake. Wisconsin prices already were tempting -- this just puts Illinois right over the edge. I wonder what it will take to rescind the tax in the future?

~Sonja~ said...

I think we'd need a lot more outrage, and sustained complaints, for them to consider taking it back. They added so many other taxes too, that it has gotten a little lost in the hubbub.

People who've been around in the liquor industry for awhile seem to think it'll take a long, long time for the industry to recover from this and get sales back to current levels. Lots of little guys (both producers and retailers) will be hurt in the process.

Got any ideas, Anonymous?

Anonymous said...

The Illinois Lottery is now 35 years old. ONE HALF of the Lottery money was supposed to go to education and solve ALL OF OUR PROBLEMS with education funding. The problem with taxes is the demand side, not the supply side. All Springfield and Mayor Daley want is more money. They will do anything to get it. The Democrats need to go. SOON!

Anonymous said...

Don't forget to use CASH only. Illinois department of Revenue has gone after people in the past, so leave no electronic trail for them to follow. And destroy your paper receipts.

Anonymous said...

If the politicians in Ill. would quit getting pay hikes and take a cut, the commonfolk wouldn't have to suffer. I would say more businesses going "out" of business!