Lena Savoie
Alcohol is one of the most highly taxed products in the United States. Alcohol taxes are generally remitted by producers and distributors who collect the tax during the wholesale transaction, and the cost is then incorporated into the final retail price and paid by the consumer. Alcohol taxes are levied by both federal and state governments, and they are categorised as excise taxes, which are consumption taxes levied on specific goods, services, and activities. In 2022, federal excise tax revenue from alcohol was $10.2 billion, accounting for 12% of total excise receipts.
| Characteristics | Values |
|---|---|
| Alcohol taxes are levied by | Federal government, state governments, and local governments |
| Alcohol tax revenues in 2022 | $10.2 billion (federal), $8.2 billion (state and local) |
| Alcohol tax revenues as a percentage of total excise receipts in 2022 | 12% (federal), 0.7% of GDP (state and local) |
| Alcohol tax rates vary by | Type of alcohol, quantity produced, location of seller |
| Alcohol tax rates for spirits | $13.50 per proof gallon |
| Alcohol tax rates for wine | $1.07 per gallon for wines with 16% alcohol or less, $3.40 per gallon for sparkling wines |
| Alcohol tax rates for beer | $18.00 per barrel |
| Alcohol tax payment remitted by | Producers, distributors, wholesalers, and retailers |
| Alcohol tax payment passed on to | Consumers |
| Alcohol tax purpose | Revenue generation, discouraging alcohol consumption |
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What You'll Learn
Alcohol tax history
Alcohol taxes are one of the oldest taxes in the United States. The federal government imposed its first whiskey tax in 1791, ten months before the Bill of Rights was ratified. The tax was contentious from the start, sparking the Whiskey Rebellion.
The 18th Amendment to the Constitution, ratified in 1919, prohibited the sale of most alcohol, and the Volstead Act of the same year provided for its enforcement. Prohibition was eventually repealed with the 21st Amendment in December 1933. The following year, the federal government adopted a legalize-and-tax approach to alcohol.
Alcohol taxes are typically remitted by producers and distributors during wholesale transactions, although the cost is usually passed on to the consumer in the final retail price. These are known as excise taxes, which are levied on specific goods, services, and activities. In the case of alcohol, these taxes are based on volume, with spirits taxed at a higher rate than wine, and wine taxed at a higher rate than beer. Excise taxes on alcohol are typically per-gallon taxes, although some states also levy a special sales tax on the final purchase price.
Over time, federal tax rates on alcohol have gradually increased. In recent years, there have been calls for alcohol tax modernization, including the implementation of ABV-based taxes. The Craft Beverage Modernization Act (CBMA) of 2020 provided some tax relief to vintners, distillers, and brewers.
In 2022, excise tax revenue from alcoholic beverages amounted to $10.2 billion, accounting for 12% of total excise tax receipts. Alcohol excise taxes are an important source of revenue for state and local governments as well. In 2021, state and local governments collected a combined $8.2 billion in revenue from alcohol taxes, with an additional $12.7 billion generated through government-owned liquor stores.
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State vs federal alcohol tax
Alcohol is one of the most highly taxed products in the United States. Alcohol taxes are imposed at the federal, state, and local levels, and they significantly increase the retail price of alcohol, especially for distilled spirits. Alcohol taxes are selective sales taxes on the purchase of alcohol. They are generally remitted by producers and distributors who collect the tax during the wholesale transaction, and this cost is then passed on to the consumer.
The federal government collects about $1 billion per month from excise alcohol taxes on spirits, beer, and wine. The federal government's categorical approach to alcohol taxation means that spirits are taxed at more than three times the rate of wine and double that of beer. Taxes on spirits are much higher than those on beer or wine, and well over half of that tax money comes from spirits consumers. Spirits taxes also increase quickly, with large producers paying $13.50 per proof gallon.
At the state level, alcohol taxes are levied as an amount per unit sold (i.e., per gallon of beer, wine, or liquor). State and local governments collected a combined $8.2 billion in revenue from alcohol taxes in 2021, with 83% of this revenue coming from state taxes. In addition to the per-gallon excise tax, some states and localities also levy a special sales tax on the final purchase price of alcohol. For example, the District of Columbia levies per-gallon taxes on beer ($0.09), wine ($0.30), and liquor ($1.50), as well as a 10.25% alcohol sales tax on the final purchase price.
In 2021, state and local governments collected $12.7 billion from government-owned liquor stores, and $0.9 billion from license taxes for the manufacturing, importing, wholesaling, and retailing of alcohol. Washington state contributed the most to license tax revenue with $213 million, or 20% of the national total.
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Alcohol tax rates
Alcohol is one of the most highly taxed products in the United States. Alcohol taxes are generally remitted by alcohol producers and distributors who collect the tax during wholesale transactions. However, the cost of the tax is then incorporated into the final retail price and ultimately paid by the consumer. Alcohol taxes are sometimes called a corrective or "sin tax" because the tax is levied in part to discourage alcohol consumption due to its associated costs to the consumer and the general public (e.g. increased healthcare costs).
The federal government takes a categorical approach to alcohol taxation, taxing based on classification such as beer, wine, or spirits. Spirits are taxed at a higher rate than wine, and wine is taxed at a higher rate than beer. For example, distilled spirits are generally taxed at $13.50 per proof gallon (a proof gallon is one liquid gallon that is 50% alcohol). Tax rates on wines vary based on type and alcohol content, ranging from $1.07 per gallon for wines with 16% alcohol or less to $3.40 per gallon for sparkling wines. Beer is typically taxed at $18.00 per barrel, although reduced rates apply for smaller breweries.
In addition to federal taxes, state and local governments also levy taxes on alcohol. In 2021, state and local governments collected a combined $8.2 billion in revenue from alcohol taxes. Some states and localities collect revenue from government-owned liquor stores, which generated $12.7 billion in 2021. Additionally, some states and localities levy a special sales tax on the final purchase price of alcohol. For example, the District of Columbia levies per-gallon taxes on beer ($0.09), wine ($0.30), and liquor ($1.50), as well as a 10.25% alcohol sales tax on the final purchase price.
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Alcohol tax collection
Alcohol taxes are generally paid by the producer or distributor, who collect the tax during the wholesale transaction. However, this cost is usually incorporated into the final retail price and thus passed on to the consumer. Alcohol taxes are one of the oldest taxes in the US, with the federal government levying its first whiskey tax in 1791, predating the ratification of the Bill of Rights.
Federal excise tax revenues from alcohol amounted to $10.2 billion in 2022, or 1.8% of total federal tax receipts. Alcohol is taxed based on its classification as beer, wine, or spirits, with spirits taxed at more than three times the rate of wine, and double that of beer per ounce of alcohol. Excise taxes are levied per unit (e.g., per gallon of gasoline) or as a percentage of the price (e.g., airline ticket tax). Spirits are taxed at $13.50 per proof gallon, while beer is typically taxed at $18.00 per barrel. Wine taxes vary based on type and alcohol content, ranging from $1.07 per gallon for wines with 16% alcohol or less to $3.40 per gallon for sparkling wines.
In addition to federal excise taxes, state and local governments collected a combined $8.2 billion in revenue from alcohol taxes in 2021, with most of this revenue (83%) coming from state taxes. Some states and localities levy a special sales tax on the final purchase price of alcohol, in addition to the per-gallon excise tax. For example, the District of Columbia levies per-gallon taxes on beer, wine, and liquor, as well as a 10.25% alcohol sales tax on the final purchase price. State and local governments also collected $12.7 billion from government-owned liquor stores in 2021, through various taxes, fees, price mark-ups, and net profits.
Alcohol taxes are sometimes referred to as "sin taxes" because they are levied in part to discourage alcohol consumption due to the associated costs to the consumer and the general public, such as increased healthcare costs.
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Alcohol tax reform
Alcohol is one of the most highly taxed products in the United States, and alcohol taxes are one of the oldest taxes levied by the federal government. Alcohol taxes are selective sales taxes on the purchase of alcohol, and they are typically remitted by producers and distributors during wholesale transactions. However, the cost of the tax is usually incorporated into the final retail price and ultimately paid by the consumer. Excise taxes on alcoholic beverages amounted to $10.2 billion in 2022, accounting for 12% of total excise tax receipts.
One proposed reform is the ABV (alcohol by volume) tax, which aims to modernize state and federal alcohol tax systems. This reform suggests standardizing the tax base by using the proof gallon as the measure for all alcoholic beverages. The proof gallon is a liquid gallon that is 50% alcohol by volume. This would simplify the tax structure and potentially make it more consistent across different types of alcoholic beverages.
Another proposal is to increase alcohol taxes to reduce problem drinking and generate additional revenue for government budgets. Higher alcohol taxes have been shown to be an effective measure to decrease excessive drinking and related harms, such as alcohol-impaired driving and sexually transmitted diseases. However, there is also an argument that increasing alcohol taxes places an unfair economic burden on "responsible" drinkers and socially disadvantaged individuals. Additionally, the alcohol industry's influence and lobbying power have thwarted efforts to raise taxes on alcoholic beverages in various states.
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Frequently asked questions
Yes, alcohol is one of the most highly taxed products in the United States. Alcohol taxes are generally remitted by producers and distributors who collect the tax during wholesale transactions. However, the cost is usually passed on to the consumer.
Alcohol taxes are calculated based on the classification of the beverage, such as beer, wine, or spirits. The tax is levied per gallon of alcohol, with liquor taxed at a higher rate than wine, and wine taxed higher than beer. Taxes also vary based on the location of the seller and the quantity produced.
Federal excise tax revenue from alcoholic beverages amounted to $10.2 billion in 2022, which was about 12% of total excise receipts.
Yes, in addition to federal taxes, state and local governments also levy taxes on alcohol sales. In 2021, they collected a combined $8.2 billion in revenue from alcohol taxes. Some states and localities collect revenue from government-owned liquor stores, which generated $12.7 billion in 2021.
Alcohol taxes are sometimes called "sin taxes" because they are levied in part to discourage alcohol consumption due to the associated costs to the consumer and the general public, such as increased healthcare costs.
