DISTRIBUTORS' ROLES IN TAX COLLECTION
Every state, and the District of Columbia, imposes an excise tax on beer in addition to the federal excise tax.
The State of Illinois imposes its excise tax as a business occupation tax on beer distributors (known as the Liquor Gallonage Tax (Ch. 43, Sec. 158)) “…upon the privilege of entering in business…as an importing distributor of alcoholic beverages….”
Beer distributors pay the state excise tax (liquor gallonage tax) each month, usually by electronic funds transfer, on their beer sales volume. This is an efficient means of tax collection because of the limited number of taxpayers (distributors). All States require extensive record keeping by distributors and Illinois requires that the beer “come to rest” in the distributor’s licensed warehouse, insuring the beer does not avoid the State liquor tax.
In addition, beer distributors report to the Department of Revenue each month its beer sales to each retailer. This gives the Department an idea of how much product is being sold to retailers which allows the Department to estimate the amount of sales tax a retailer should pay.
Taxes are the highest priced ingredient in beer. Alcoholic beverages are taxed at least three times before the product gets to the consumer. The federal government imposes a tax on suppliers (brewers, wineries, and distributors) known as the federal alcohol excise tax. The state imposes a gallonage tax, and a sales tax on alcoholic beverages.
Illinois’ gallonage tax was increased in September 2009 as part of the Capital bill program. The tax on beer was increased from 18.5¢ per gallon to 23.1¢ per gallon. Like all excise taxes, the alcoholic beverage tax is a regressive tax, meaning lower-income consumers pay a higher portion of their income than higher-income consumers.
In the Midwest, Illinois has the highest liquor gallonage tax. Since the tax went into effect on September 1, 2009, distributors that service retailers near or on Illinois’ borders have reported a significant reduction in sales volume. Consumers are likely traveling outside Illinois’ borders to purchase their beer in our border states to take advantage of the lower tax rates and lower prices.
As of 2009, the tax rates for our neighboring states are as follows:
Missouri 6¢ per gallon
Wisconsin 6¢ per gallon
Kentucky 8¢ per gallon
Indiana 11.5¢ per gallon
Iowa 19¢ per gallon
Since September 2009 thru March 2010, Illinois has lost nearly half a million dollars in beer tax revenue due to cross border sales. Comparing year to date data, it is obvious that sales volumes are decreasing on or near the Illinois borders due to the Illinois 2009 tax increase.