Alcohol taxes, sales and licensing
mean big bucks for state's coffers
It's the time of year when a cold one sounds pretty good, and for every top you pop, the state will collect revenue. How much? Well, we get thirsty in the Lone Star State, and revenues from alcohol taxes, sales and licensing add up to millions each year.
In 2001, Texas took in more than $990 million in alcohol excise and sales taxes and almost $28 million in licensing fees. The state taxes alcohol primarily in three ways: collecting an excise tax on quantity, usually on what's sold from wholesalers to retailers; collecting the mixed beverage tax on mixed drinks sold to the public; and collecting sales tax on sales to the public when the mixed beverage tax does not apply.
Pump up the volume
"Generally excise taxes are levied on businesses as opposed to individuals," says Dean Ferguson, a revenue analyst with the Texas Comptroller of Public Accounts.
In the case of alcohol in Texas, the excise tax refers to one of five volume-based taxes. Four of these taxes include the taxes levied on the volume of liquor, beer, wine or malt liquor sold by wholesalers to retailers.
In 2001, wholesalers paid $2.40 per gallon of liquor, 19.4 cents per gallon of beer, 20.4 cents per gallon of wine and 19.8 cents per gallon of malt liquor.
Those tax rates translated to almost $48 million in tax revenue for the state from liquor, more than $6.6 million from wine, almost $4.7 million from malt liquor and approximately $100 million from beer.
The fifth volume-based tax is the airline/passenger train beverage tax. When a plane is in Texas airspace or a train is within Texas borders, the state charges a 5-cent tax on every drink served to passengers. That tax resulted in more than $609,000 in state revenue in 2001.
Ferguson says the airline/passenger train beverage tax used to apply to limousines as well, but a crafty club owner once tried to take advantage of the system by parking a limo outside his club and sending customers outside to the limo for their drinks. The result, Ferguson says, is that "limo companies no longer provide alcoholic beverage service--they just let their customer bring their own alcohol. Thus they don't need an alcoholic beverage permit or license."
Sales to the public
The mixed beverage tax is a value-based tax. This tax is assessed as a percentage of a drink's sales price, so the higher the price of a drink, the more taxes the state collects on the drink.
Retailers that hold a mixed beverage permit report gross sales from mixed drinks to the state, and the state assesses their mixed beverage taxes based on that figure. In 2001, the mixed beverage tax rate was 14 percent of gross receipts. Gross receipts for retailers in 2001 were more than $2.7 billion, netting more than $380 million for the state.
Almost half the revenue the state takes in from alcohol comes from sales tax. In 2001, sales tax collections amounted to $450 million. That figure includes both state and local taxes. All businesses subject to sales tax on alcohol pay a county and state tax, and businesses located in a city pay an additional city tax.
Sales tax is charged when any retailer who does not hold a mixed beverage permit sells alcohol to a customer. This includes not only grocery stores or liquor stores, but restaurants or clubs that hold a different kind of license to sell alcohol than the mixed beverage permit.
The state sales tax rate is 6.25 percent, and combined local tax rates cannot exceed 2 percent, so the maximum sales tax in Texas is 8.25 percent.
The state also collects revenue by issuing permits. Texas Alcoholic Beverage Commission (TABC) issues 63 different kinds of permits allowing people or businesses to manufacture, store, transport, sell or offer to sell alcohol.
According to Charlie Kerr, TABC director of Fiscal Services, the state issued or renewed more than 93,000 licenses and permits for the sale of alcohol in 2001, resulting in nearly $28 million from license/permit fees.
The permits are divided into two types: those for on-premise consumption and those for off-premise consumption. The three main kinds of on-premise permits are the mixed beverage permit, the wine and beer retailer's permit and the retail dealer's on-premise license. The mixed beverage permit allows a retailer to sell any kind of alcohol; the wine and beer retailer's permit allows a retailer to sell wine, beer, ale or malt liquor; and the retail dealer's on-premise license only allows a retailer to sell beer.
In 2001, the agency issued 6,397 mixed beverage permits, 9,151 wine and beer retailer's permits and 2,082 retailer dealer's on--premise permits. The price difference for obtaining the permits is substantial.
The beer-only retail dealer's permit costs $150 plus a surcharge of $45 per year. The city and county can each add up to $75 to the cost for the permit, for a maximum charge of $345 per year. The wine and beer retailer's permit costs $175 plus a $45 surcharge per year. The city and county can each add up to $87.50 for a maximum charge of $395 per year.
The mixed beverage permit is substantially more expensive. The first year, the permit costs $3,000 plus an $80 surcharge. The second year it runs $2,250 plus the $80 surcharge. The third year costs $1,500 plus $80. The fourth year and every year thereafter, the cost is $750 plus $80, and the city and county can add up to $375 each to the cost.
In addition to the licensing costs, mixed beverage permit holders pay the higher 14 percent tax rate, compared to the 6.25 percent sales tax rate for other kinds of permit holders.
Wet and dry
With a higher licensing fee and higher tax rate, why would anyone want the mixed beverage permit?
"The answer would be that the opportunity for profit is greater with the mixed beverage permit," says Brian Guenthner, director of license and permits for TABC.
Guenthner also says that the reason there aren't more mixed beverage permits might not be as much about cost as about local laws.
"Local option elections also determine what people can sell," he says. "A lot of people would like to sell mixed beverages but can't."
Texas has dry counties, wet counties and counties that are wet for only certain kinds of alcohol.
"In the city of San Angelo, for instance," Guenther says, "they're only wet for on-premise beer unless they've got a mixed beverage permit."
Out of the loop
The revenues collected from the various alcohol taxes help pay for a variety of services at the state and local level, according to Ferguson.
"With one exception it all goes into the state's General Revenue Fund," Ferguson says. "That exception is for the mixed beverage tax. About 79 percent goes into the General Revenue Fund and the remaining 21 percent is allocated to counties and cities in which the taxpayers are located."
One area of alcohol sales where the state often misses out on the taxes it's due is direct shipping from out-of-state manufacturers or retailers.
Most transactions with Texas consumers take place inside Texas with a retailer who holds a license to do business in the state. The wholesaler who sells to that retailer pays the excise tax, and though the state doesn't care whether the business or the consumer pays the sales tax on each transaction, traditionally the retailer collects the tax and pays it to the state.
According to John Heleman, the assistant manager for the Comptroller's Revenue Estimating Division, however, an out-of-state business is under no legal obligation to collect Texas sales tax. Even if an item is purchased out of state, if it is used in Texas, the state is due sales tax. Heleman says that when the retailer doesn't collect the tax, it's the consumer's responsibility to report and pay sales tax to the state.
This rule applies to any item, not just alcohol, that a Texas consumer purchases from out of state through the Internet, phone or by mail. Heleman says the state loses a substantial amount of revenue that way on a variety of items.
"We feel the state is losing about $370 million," he says.
Alan Gray, director of governmental affairs for Licensed Beverage Distributors, says that not only do the people of Texas lose out when the state doesn't collect the taxes it's due, but Texas distributors and retailers are put at a disadvantage by having to pay taxes not paid by those out-of-state sellers.
"There are huge inequities when any out-of-state entity is allowed to sell to Texans," he says. "We think that laws of the state of Texas should be complied with."
Gray says it's hard to know how much the state loses in alcohol sales tax specifically, but he says, "You can ballpark it, and it could be substantial."
He estimates that in 1999, the state lost $300,000 in uncollected alcohol excise taxes from out-of-state sales.