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F I S C A L I M P A C T R E P O R T

SPONSOR Vigil

ORIGINAL DATE

LAST UPDATED

2/27/07

HB 1158

SHORT TITLE Increase Liquor Excise Tax

SB

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

$69,216.0

$70,600.0 Recurring General Fund

$2,633.0

$2,686.0 Recurring

Local

Governments

$34,483.0

$35,173.0 Recurring DWI Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 1158 increases the excise taxes on different types of alcoholic beverages:

Current Law HB1158 Difference ($) Difference (%)

Spiritous liquors

1.60

$

4.98

$

3.38

$

211%

Beer (except micro)

0.41

1.85

1.44

$

351%

Wine (except small grower)

0.45

1.46

1.01

$

224%

Fortified wine

1.50

2.77

1.27

$

85%

Beer (Micro)

0.08

0.08

-

$

0%

Wine (Small grower) < 80,000 liters

0.10

0.10

-

$

0%

Wine (Small grower) 80,000 - 560,000 liters

0.20

0.20

-

$

0%

Cider

0.41

0.41

-

$

0%

House Bill 1158 – Page

2

The effective date is July 1, 2007.

FISCAL IMPLICATIONS

The impact of more than doubling of the excise taxes is enormous at over $100 million. There

are three impacts that combine to form the total: increase in the excise tax, increase in gross

receipts collected, and a decrease in the consumption of alcohol, either through substitution of

the beverages that did not have the tax hiked, less consumption, or increased purchases of non-

taxed beverages.

TRD:

The liquor excise is paid by the distributor and is passed through to the consumer in the

retail price. Liquor sales are also subject to gross receipts taxes, the state wide average

GRT rate is 6.6%. The total GRT increase is approximately $6.8 million, 60% will be

deposited to the General Fund and the remaining 40% distributed to local governments.

The price increase will have an elasticity effect and decrease quantity sold. The table

below demonstrates the elasticity effect of the tax increase by liquor base on volume

estimates for fiscal year 2008.

Spirits Fortified Wine Beer

Current $1.60

$1.50

$0.41

Proposed $4.98

$2.77

$1.85

Tax increase $3.38

$1.27

$1.44

Retail Price $27.00

$8.00

$6.50

Price Increase 12.52%

15.88%

22.15%

Elasticity (0.39)

(0.58)

(0.16)

Volumes Decrease -4.88%

-9.21%

-3.54%

Source: TRD

The table below calculates that increase in liquor excise tax collections a based on

volume for fiscal year 2008. The quantity decrease has been calculated and the proposed

tax rates applied to the net volumes. Spirits and fortified wine volumes are in liters, beer

is gallons.

In Thousands Spirits Fortified Wine

Beer

Total

Volumes 9,859

100

50,000

Elasticity Effect (481)

(9)

(1,772)

Net Volumes 9,378

91

48,228

Current Revenue $15,774

$150

$20,500

$36,424

Proposed Revenue $46,701

$251

$89,221

$136,173

Net Increase $30,926

$101

$68,721

$99,749

Source: TRD

House Bill 1158 – Page

3

SIGNIFICANT ISSUES

As TRD has reported, this would reduce the consumption of these items. Whether it results in

less consumption of alcoholic beverages is uncertain. While most alcoholic beverages have few

substitutes, wine can be ordered from other states over the internet and so this increase may drive

up online purchases which generally do not result in tax revenues (these purchases are not

necessarily tax-free but the collection is difficult to impossible).

NF/nt