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 May 1999 as part of the funding for the Illinois FIRST program. The tax on beer nearly tripled (increased 165%) from 7¢ per gallon to 18.5¢ 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 mid-west, Illinois has the third highest liquor gallonage tax. Only Minnesota and Iowa have a higher liquor gallonage tax. In 1999, when increasing the Illinois liquor gallonage tax was proposed as part of Illinois FIRST, the alcoholic beverage industry argued that consumers would travel across Illinois’ borders to states with a lower tax for their alcoholic beverage purchases. In 2000, ABDI surveyed 190 retailers on the effects of the 1999 tax increase. The retailers were all located near Illinois’ borders. 162 retailers reported that their beer sales were down 18% on average. In Cook County, 93 retailers reported that their beer sales dropped 22% since the 1999 tax increase became law. Several retailers were forced out of business.
In addition, home rule units of government, such as Cook County and the City of Chicago, impose an additional gallonage tax on alcoholic beverages. In the City of Chicago, alcoholic beverage consumers are taxed five times (federal, state, state sales tax, county tax and city tax). In 2007, the City of Chicago raised its gallonage tax by 13 cents to 29 cents per gallon. When state, city and county taxes are combined, the total tax on beer is the sixth highest tax in the United States. Only Alabama, Alaska, Georgia, Hawaii and South Carolina have a higher state and local excise tax on beer.
In 1991, the federal beer excise tax was doubled from $9 to $18 per barrel – making it the largest federal tax increase in U.S. history.
One thing is known for sure – when a consumer purchases a beer – he or she is paying a hefty percentage of the cost to the government.