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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

1/30/08

HB 357

SHORT TITLE Increase Liquor Excise Tax

SB

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

57,646.0

57,646.0 Recurring General Fund

40,895.0

40,895.0 Recurring Local DWI

Grant Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance and Administration (DFA)

SUMMARY

Synopsis of Bill

House Bill 357 proposes to significantly increase the excise tax on spirits, beer and wine as

follows:

Current Law HB357 Unit

Spirituous Liquors

$ 1.60 $ 4.98 Liter

Beer (except microbrew) 0.41 1.85 Gallon

Wine

0.45 1.46 Liter

Fortified wine

1.50 2.77 Liter

The new rates will go into effect on July 1, 2008.

FISCAL IMPLICATIONS

DFA compiled data from Taxation and Revenue Department and, using an elasticity function

which measures how the demand of beer, wine, or spirits changes with changes in price. The

conclusion was that the increases in the excise taxes would lead to a significant reduction in

House Bill 357 – Page

2

quantity demanded. In the case of spirits the quantity demanded falls by 25 percent. However,

the fall in demand does not offset the revenue generated by the new tax rates and the net fiscal

impact is an increase in revenue of $98 million, $57.6 million of which goes to the general fund

and $40.9 million goes to the DWI Grant Fund, all of which would be distributed to the counties

based for DWI programs.

Bee

r

Wine Spirits

gallo

n

lite

r

liter

Retail Price

8.4

6

20

Price Minus Excise

8

5.6

18.4

Current Excise

0.41

0.45

1.6

Consumption (000)

49,125 14,191 10,217

Taxes Collected (000 $)

20,141 6,386 16,347

42,874

Proposed Excise

1.85

1.46

4.98

New price

9.8064 7.0328 23.38

Elasticities (Leung and Phelps)

-0.3

-1

-1.5

Percentage Increase in Price

17%

17%

17%

Percentage Decrease in Consumption

-5.20% -16.80% -25.40%

New Consumption (000)

46,588 11,811 7,627

Taxes Collected (000$)

86,189 17,244 37,982

141,415

DFA and TRD Calculations

Excise Tax Collections Under Proposed Law (HB357)

TOTAL

SIGNIFICANT ISSUES

New Mexico is already higher than the US median in terms of excise taxes on liquor. HB357

would push the state to the top with the highest taxes, above Alaska.

As the DFA analysis shows, these changes would have an impact both on revenues and on

consumption. However, there may be an incentive to order wine from other states or go to

neighboring states for purchasing liquor. Alternatively, it could be a boon for the microbrew,

cider and small winery business as consumers substitute consumption of the higher taxed liquids

for the lower taxed ones.

NF/mt