Sales Tax Adds to Alcohol Tax Burdens in Illinois

Published November 11, 2009

With taxes on beer, wine, and spirits in Illinois having jumped nearly 25 to 90 percent,  depending on the item, on September 1, buyers of alcoholic beverages knew they’d have to open their wallets a lot wider. But with the way the tax hikes are built into the purchase price, consumers must pay even more than most expected.

In addition, taxes on candy, soft drinks, flavored water, sports drinks, chewing gum, and personal grooming items including toothpaste, shampoo, and deodorant have soared. These items had been taxed at 1 percent but are now subject to the state sales tax of 6.25 percent. Lawmakers also approved a huge increase in gambling.

Covers Big Spending Hike

It’s all part of a plan to raise revenue for a $31 billion capital spending program Illinois Governor Pat Quinn (D) signed in July.

State Senator Pam Althoff (R-McHenry) supported the spending plan and funding mechanisms and said in a statement, “The plan does come with a price-tag, however. In order to pay for it, the state is increasing fees on driver’s licenses and license plates, legalizing video poker at drinking establishments, and implementing a slight increase on alcohol taxes. While I didn’t particularly feel any of these measures were ideal, lawmakers came together in a bipartisan fashion to pass this plan because the cost of doing nothing was far worse.”

Critics of the state’s $31 billion capital spending program contend it will do economic harm.

Taxes Already High

Tax hikes like these “are terrible for consumers and hurt business, which ultimately costs jobs,” said Ben Jenkins, a spokesman for the Distilled Spirits Council of the United States. “We fought hard against it. Taxes already are so high for the region. In Chicago, consumers face eight different direct taxes every time they purchase a bottle [of spirits],” including federal and state excise taxes, Cook County and City of Chicago excise taxes, state, county, and city sales taxes, and a Regional Transportation Authority tax.

“Before this latest excise tax increase went into effect, nearly 60 percent of the purchase price [of spirits] in Chicago went toward taxes. Chicago’s spirits taxes were 78 percent higher than New York City’s. Those percentages are even higher now,” Jenkins said.

He said the hospitality industry in Illinois has lost 19,000 jobs in the last 12 months because of the recession and could lose another 4,500 jobs because of these tax increases.

Magnified Impact

Illinois’ tax system magnifies the impact of the tax hikes on beer, wine, and liquor, said Bruce Abrams, director of operations at Binny’s Beverage Depot, a chain of 22 Chicagoland liquor stores.

“The way the tax is collected in this state, the [liquor] distributor puts it into the cost of goods. This means it winds up in the selling price. So the consumer pays sales tax on top of the other taxes, which makes the total cost even higher,” said Abrams.

The excise tax on a gallon of beer is now 23 cents, up 24 percent from the previous 18.5 cents a gallon. The tax on a gallon of wine is now $1.39, up 90 percent from $0.73. The tax on a gallon of spirits is $8.55, up 90 percent from $4.50.

Bipartisan Backing

The $31 billion spending program the tax hikes and gambling expansion are supposed to fund had bipartisan support. Backers argued spending on infrastructure is badly needed and will provide tens of thousands of jobs.

State Representative Mike Tryon (R-Crystal Lake) said in a statement, “Although I was not completely comfortable with each of the funding mechanisms approved, this capital plan was critical in capturing federal dollars dedicated to transportation projects in our area. I also believe that this capital plan will help put hundreds of thousands of people back to work and jumpstart the economy.”

Liquor Distributor’s Lawsuit

The fate of the funding mechanisms could hinge on the outcome of a lawsuit filed by Wirtz Beverage, a major Illinois liquor distributor that is paying its new taxes under protest and hopes to get the money back.

Wirtz Beverage claims the new taxes are “unreasonable and unlawful.”

The lawsuit filed in Cook County Court says “there is no rationale expressed to explain the increases,” and that it is illegal to tax “identical subjects and objects at different rates.” The lawsuit notes candy had been taxed at 1 percent, rather than the 6.25 percent assessed on other food, but the new law kills that exception except for “candy containing flour or requiring refrigeration,” in which case it continues to be taxed at 1 percent.

Wirtz also argues the new law illegally combined several unrelated matters, in violation of the Illinois Constitution’s “single subject rule.” Bridge and road weight standards, and amendments to the state’s Environmental Protection Act, were included in the legislation.

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.