Tuesday, March 27, 2012

Alcoholic Beverage Taxes

Revenue Assignment Blog Posting
Peter Strohmeier, Jacqui Taylor, and  Stephen Osberg

Minnesota Alcoholic Beverage Taxes

Minnesota imposes two types of taxes alcoholic beverages:

Special excise taxes are imposed on manufacturers or wholesalers of alcoholic beverages.  The taxes are based on a fixed dollar amount per unit, which is either per barrel or by liter.  The rates are different based on the type of beverage.

A special gross receipts tax of 2.5 percent is imposed to the retailers making both on-sale (bars and restaurants) and off-sale (liquor stores or other sellers) sales.[1]

Beer:  Alcohol by Weight                  Tax per Barrel of 31 Gallons
3.2% or less                                       $2.40
More than 3.2%                                $4.60

                                                            Per Liter         Per Gallon
Distilled Spirits                                  $1.33              $5.03
Wine: Alcohol by Volume                            
14% or less                                         $.08                 $.30
More than 14% to 21%                   $.25                 $.95
More than 21% to 24%                   $.48                 $1.82
More than 24%                                  $.93                 $3.52
Sparkling Wine                                  $.48                 $1.82
Cider:  0.5% to 7% alcohol             $.04                 $.15[2]

There are 234 brewers and importers of beer who are taxed.  There are 97 distributors of wine and distilled spirits.[3]


         FY 2009
      FY 2010
Distilled Spirits

Liquor Gross Receipt 2.5%

In comparison with other states, Minnesota’s wine and beer excise taxes are average or below average.[4] 

In the Midwest, Minnesota has a higher alcohol beverage tax rate than neighboring states.

Spirits Excise Tax (per gallon)
Wine Excise Tax (per gallon)
Beer Excise Tax (gallon)
Gross Receipts Tax
North Dakota
South Dakota

Demand for any particular alcoholic beverage is fairly elastic, so price increases through taxation do change consumer and producer behavior.  Tax increases based on quantity, such as Minnesota’s special excise taxes, do affect overall consumption slightly more drastically, but also lead to product substitution.  The impact of price increases on overall alcohol consumption is likely decreased further by alcohol’s addictive and intoxicating qualities.

According to the Minnesota Tax Incidence Study, alcoholic beverage taxes are regressive, meaning they constitute a higher share of income for lower income families and individuals.[5]

The revenue-raising capacity of Minnesota’s alcoholic beverage taxes is moderate to low.  The taxes have the benefit of relying on a large base of taxpayers and of being fairly low rates, but the revenue they provide is not as large compared to that provided by some other taxes.

The feasibility of Minnesota’s alcoholic beverage taxes is high.  The taxes are fairly easy to administer and straightforward and are also well-received politically.[6]

The Minnesota Legislature’s 2009 omnibus tax bill increased the alcohol gross receipts tax from 2.5 percent to 5.0 percent.  The omnibus tax bill also increased the alcoholic beverage excise tax by about two cents a drink for beer and wine and about three cents a drink for distilled spirits.  The omnibus tax bill was vetoed.  These changes would have brought in $263 million in FY 2012-2013.[7]

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