Theo Nash
Chicago has one of the highest tax burdens in the country, with a total effective tax rate on liquor of 28%. This includes federal, state, county, and city taxes. In November 2024, Mayor Brandon Johnson proposed raising taxes on beer, liquor, and wine sales between 34% and 36% per gallon to address the city's budget deficit. This proposal was met with opposition from bar and restaurant owners, who argued that the tax hikes would be detrimental to their businesses, especially in the context of rising costs since the pandemic. Chicago's alcohol tax has not been increased since 2007, and the city's Department of Finance is responsible for revenue collection.
| Characteristics | Values |
|---|---|
| Total effective tax rate on liquor in Chicago | 28% |
| Breakdown of tax | City, County, State and Federal |
| Beer tax in Chicago | $0.29/gallon |
| Wine tax in Chicago | $0.36-$0.89/gallon |
| Liquor tax in Chicago | $2.68/gallon |
| Beer tax increase proposal | 34% |
| Liquor tax increase proposal | 36% |
| Liquor tax increase proposal for spirits <14% ABV | 36% |
| Liquor tax increase proposal for spirits between 14-19.5% ABV | 35% |
| Liquor tax increase proposal for spirits 20% ABV or more | 35% |
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What You'll Learn
Chicago's alcohol tax burden
The breakdown of these taxes includes state alcohol taxes, federal taxes, city and county alcohol taxes, and the city's sales tax. For example, on a 750ml bottle of Absolut Vodka (40% ABV), the state alcohol tax is $1.69, the federal tax is $2.14, the city and county alcohol taxes total $1.03, and the city's sales tax of 10.25% adds another $2.25. As a result, the total tax on this bottle of vodka amounts to $7.11, bringing the final price to $25.27.
Chicago's high alcohol tax has been a concern for consumers and businesses alike. Some consumers may choose to purchase alcohol outside the city or turn to cross-border sales, impacting the city's revenue. Additionally, businesses, especially bars and restaurants, face challenges due to thin profit margins and rising costs.
To address the city's budget deficit, Mayor Brandon Johnson proposed raising taxes on beer, liquor, and wine sales by 34% to 36% per gallon. However, this proposal has faced strong opposition from the hospitality industry, with concerns about the impact on businesses and the potential for lost revenue if customers reduce their alcohol consumption or purchase from alternative sources.
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Excise taxes on wine, beer, and liquor
Wine vendors in Illinois are responsible for paying a state excise tax of $1.39 per gallon, plus federal excise taxes. In Chicago, there is an additional tax of $0.36-$0.89 per gallon. For example, wine is taxed at six different rates depending on its percentage of alcohol by volume or whether it is sparkling, ranging from $0.226 to $3.40 per gallon.
Beer vendors in Illinois pay a state excise tax of $0.23 per gallon, plus federal excise taxes. In Chicago, there is an additional tax of $0.29 per gallon. The tax rate for beer in Chicago has been proposed to increase to between 29 cents and 39 cents, a 10-cent or 34% increase. This is part of a broader proposal by Mayor Brandon Johnson to increase taxes on beer, liquor, and wine sales by 34% to 36% per gallon.
Liquor vendors in Illinois are responsible for paying a state excise tax of $8.55 per gallon, plus federal excise taxes. In Chicago, there is an additional tax of $2.68 per gallon. The tax rate for liquor in Chicago has also been proposed to increase, with a 36% increase for liquors other than beer with less than 14% ABV.
These high excise taxes on alcohol have been a cause for concern for businesses in Chicago, particularly bars and restaurants. Business owners worry that the increased taxes will drive consumers to purchase alcohol from other sources, such as across state borders or from unregulated markets. Additionally, they argue that the tax hikes are untenable, especially with the rising costs inflicted upon them since the pandemic. Despite opposition from the industry, the Chicago City Council is considering the tax increase proposal to address the city's budget deficit.
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Alcohol tax increase proposals
Chicago's total effective tax rate on liquor is 28%, which includes federal, state, county, and city taxes. The city's alcohol tax has been increased several times, with the most recent hike occurring in 2007. Chicago's alcohol tax is already one of the highest in the country, and the city now plans to raise taxes on beer, liquor, and wine sales further. The proposal has faced strong opposition from bar and restaurant owners, who argue that the tax hikes are untenable, especially considering the rising costs inflicted on them since the pandemic. They also worry that customers will simply cross the border to Indiana to purchase alcohol at lower costs, as has happened with cigarettes.
The proposed increases to wholesale transaction prices per gallon are significant. For beer, there would be a 34% increase, while for liquors other than beer with less than 14% ABV, there would be a 36% increase. Spirits between 14 to 19.5% ABV would see a 35% increase, and spirits 20% ABV or more would have a 35% increase, amounting to a 94-cent hike. These increases are expected to bring in $10.6 million in revenue, according to the mayor's budget office, and would mark the first increase in 16 years.
However, opponents of the proposal argue that the tax hikes will hurt businesses and fuel an illicit market. They urge the Chicago City Council to reconsider and work with local businesses to find alternative solutions. The Hospitality Business Association of Chicago has strongly opposed the proposal, stating that the industry has already contributed significantly to the city's coffers and that the tax hikes are unnecessary.
The debate over alcohol tax increases in Chicago highlights the challenges of balancing the city's budget while considering the impact on businesses and consumers. While the city aims to generate additional revenue through higher alcohol taxes, there are concerns about potential negative consequences, including lost sales for businesses and increased public safety risks associated with unregulated alcohol sources.
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Alcohol tax in Chicago restaurants
Chicago has one of the highest tax burdens in the country, and alcohol is no exception. The total effective tax rate on liquor in Chicago is 28%, which is made up of federal, state, county, and city taxes. This high tax rate can be a burden for both consumers and businesses, with some arguing that it discourages consumption and decreases revenue for the city.
The alcohol tax in Chicago has been increased several times, with the most recent increases occurring in 2007 for the city and 2011 for Cook County. Illinois last raised its alcohol tax in 2009. The city of Chicago has a separate liquor tax, administered by the Chicago Department of Finance, in addition to the four different taxes (city, county, state, and federal) that are applied to alcohol purchases.
The breakdown of the alcohol tax in Chicago is as follows:
- Wine: Wine is taxed at different rates depending on its percentage of alcohol by volume or whether it is sparkling. The tax ranges from $0.226 to $3.40 per gallon, with an additional $0.36-$0.89/gallon in Chicago.
- Beer: Beer is taxed at a single rate of $18 per barrel (31 gallons). In Illinois, beer vendors pay a state excise tax of $0.23 per gallon, plus federal excise taxes, and an additional $0.29/gallon in Chicago.
- Spirits: Spirits are taxed at $13.50 per gallon, with credits given for wine and flavor content. In Illinois, liquor vendors pay a state excise tax of $8.55 per gallon, plus federal excise taxes, and an additional $2.68/gallon in Chicago.
In November 2024, Chicago's government proposed raising taxes on beer, liquor, and wine sales between 34% and 36% per gallon. This proposal was met with opposition from bar and restaurant owners, who argued that the tax hikes would be detrimental to their businesses, especially considering the rising costs they have faced since the pandemic. The City Council also rejected a $300 million property tax increase, putting more pressure on the mayor to find alternative revenue sources.
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How alcohol tax affects businesses and consumers
Alcohol taxes in Chicago are made up of four separate taxes: city, county, state, and federal. Chicago's total effective tax rate on liquor is 28%, which is one of the highest in the country. For example, a 750ml bottle of Absolut Vodka (40% ABV) costs $21.99 in Chicago, but the total taxes amount to $7.11, bringing the price to $25.27.
The high tax rate on alcohol in Chicago has both positive and negative impacts on businesses and consumers. On the one hand, high alcohol taxes can be seen as a form of harm reduction, as they can discourage consumers from purchasing alcohol and can generate revenue for the city. However, it can also lead to decreased revenue for businesses and fuel an illicit market as consumers may turn to cross-border sales or unregulated sources to purchase alcohol at a lower cost.
Businesses, particularly bars and restaurants, argue that tax hikes on alcohol are untenable, especially when coupled with rising costs. They claim that their margins are already thin and that further taxes would put them in a difficult position. Additionally, there are concerns that businesses will suffer from lost sales as consumers may choose to purchase alcohol from lower-tax states like Indiana, which borders Chicago.
Consumers are also affected by the high alcohol taxes in Chicago. While they may be unaware of the exact amount of taxes they are paying, they ultimately bear the cost of these taxes in the form of higher prices for alcohol. This can be a significant financial burden, especially for those who regularly purchase alcohol.
The impact of alcohol taxes on businesses and consumers in Chicago is complex and multifaceted. While the taxes can have benefits in terms of harm reduction and revenue generation, they can also lead to negative consequences such as decreased business revenue, lost sales, and higher costs for consumers. It is important for policymakers to carefully consider the potential impacts on all stakeholders when making decisions regarding alcohol taxes.
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Frequently asked questions
Alcohol in Chicago is taxed at 28% in total. This includes federal, state, county, and city taxes.
A sin tax is a tax levied on products that are considered harmful to society, such as alcohol, sugar, and cigarettes. The term was first used to describe taxes on alcohol imposed to raise funds to pay back debts incurred during the Revolutionary War.
In Illinois, wine vendors must pay a state excise tax of $1.39 per gallon, plus federal excise taxes. Beer vendors must pay $0.23 per gallon, plus federal excise taxes, and liquor vendors must pay $8.55 per gallon, plus federal excise taxes.
Alcohol taxes vary widely across states. Beer is taxed as low as $0.02 per gallon in Wyoming and as high as $1.15 per gallon in Tennessee. Spirits are taxed as low as $1.50 per gallon in Maryland and as high as $14.27 per gallon in Washington. Chicago's alcohol taxes are among the highest in the country.
Chicago restaurant and bar owners have opposed proposals to increase alcohol taxes, arguing that their businesses are already struggling with rising costs and thin margins. They worry that customers will go to nearby states like Indiana to purchase alcohol at lower prices, hurting their businesses and the city's economy.
