Notable Recent Changes
Tax Changes Since 2021
The effective per gallon excise tax in Kentucky increased from $3.23 to $3.82, driven by higher prices yielding a greater burden from the state’s 10 percent ad valorem
DC’s effective rate increased from $1.89 to $2.07 per gallon as the alcohol-specific sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. is levied on generally higher prices.
Similarly, Maryland, South Dakota, Minnesota, and Arkansas all have had their effective per gallon excise tax rate increased slightly, as higher prices result in a greater tax burden from the states’ alcohol-specific sales taxes.
The effective per gallon excise tax in North Dakota decreased from $1.22 to $1.17.
Volume-based ad quantum taxes are the most common levy on wine, but many states impose additional layers of taxes and fees that may vary by wine type, alcohol content, place of production, place of purchase, or container size. To make tax burdens comparable across states, sales are assumed to be for off-premises sales of 11 percent ABV non-carbonated wine in 750 mL containers imported from out of state.
Wine in every state bears an additional burden from a federal excise tax. This tax, too, varies by wine type and alcohol content, and there are tax credits available that reduce the rate applied to the first 30,000, 130,000, and 750,000 wine gallons domestically produced. The tax rate for 11 percent still wine is $1.07 per wine gallon.
Most states use a licensing system to regulate the sale of alcoholic beverages, but five states have seized a government monopoly for themselves. In these states—Mississippi, New Hampshire, Pennsylvania, Utah, and Wyoming—pricing data is unavailable to estimate the effective per gallon excise tax rate those states levy with artificial price increases in addition to any applicable excise taxes.
Statutorily, Mississippi levies a $0.35 per gallon excise tax, and an additional 3 percent markup on sales of alcoholic beverages is dedicated to the Mental Health Programs Fund. The New Hampshire Liquor Commission seems proud to serve customers with low effective taxes. It reports an average wine tax of $0.046 per gallon and overall net margins of 16.5 percent. Pennsylvania’s Liquor Control Board was granted broad authority to manipulate prices in 2016, and the markup varies by product, but its net margins are reported as 5.3 percent, and liquors are subject to an additional 18 percent tax. Utah mandates a minimum markup of 88.5 percent for wine. Wyoming statutes levy a $0.28 per gallon excise tax, and the Liquor Division’s price calculator indicates a 17.6 percent markup.
Excise taxes in seven states—Colorado, Idaho, Iowa, Missouri, Ohio, Oregon, and Washington—include funds dedicated to a Wine Commission, Wine Industry Development Fund, Agriculture Business Development Fund, or similar entity meant to oversee the development and promotion of vineyards, wines, and other alcohol or agricultural businesses and products. These states tax the broad market to raise funds to subsidize their domestic industry.
While wine’s overall market share among alcoholic beverages has been relatively steady, policymakers should remain mindful that excise taxes are ill-suited to raise general revenues. Unadjusted ad quantum taxes inevitably lose real value to currency debasement, and ad valorem tax revenues are subject to significant fluctuations when consumer behavior shifts or tariffs suppress industries.
Additionally, the categorical structure of alcohol taxes often struggles to incorporate innovative new products in the industry. Wine taxes are no different, as the increasingly popular ready-to-drink wine cocktails don’t fit neatly into existing rigid statutory definitions without drastic over-taxation. A better option would be to discard categorical definitions and instead impose a direct taxA direct tax is levied on individuals and organizations and is not expected to be passed on to another payer (unlike indirect taxes such as sales and excise taxes), though economic incidence can still fall upon others. Often with a direct tax, such as the individual income tax, tax rates increase as the taxpayer’s ability to pay, or financial resources, increases, resulting in what is called a p according to the actual alcohol content, regardless of form. This modernization would make alcohol taxes simpler and more neutral.
