Return to the Tax Calculator

FREQUENTLY ASKED QUESTIONS

1. How does the calculator work?

2. The data was last updated in 2018. Why were more recent data not used?

3. What are the standard definitions for the three categories of alcohol product (beer, wine, spirits) listed on the calculator?

4. Do I have to enter a tax increase for each category?

5. Why are the suggested increases in dollars and cents instead of percent?

6. What if my state taxes beer by the gallon and wine by the liter? Can the calculator accommodate this?

7. When I select my state from the drop down menu, a message appears telling me it is a ‘Control State’ for spirits and/or wine. What does this mean?

8. Why is sales tax revenue included in the results box?

9. What does it mean if the sales tax revenue is negative?

10. What if the sales tax revenue is zero?

11. Can I be certain to see this exact amount of revenue in my state?

12. What is a proof gallon? Can the calculator be used to estimate revenue for taxes levied by proof gallon?

13. What equations were used to generate the tax revenue estimates?

14. What are the limitations of the calculator?

15. Where do I get more information?





1. How does the calculator work?

The revenue calculator is based on a relatively simple mathematical formula. The exact formula is available in the methodology document. In short, it takes the most recent reliable data for consumption and tax rates, adjusts them for the user’s suggested tax increase, calculates decreases in consumption in accordance with those changes, and generates a new estimate of revenue based on the modified tax and consumption levels.

2. The data was last updated in 2018. Why were more recent data not used?

Because of the changes in the alcohol sales environment owing to the COVID-19 pandemic, consumption data from 2020 or later became skewed in ways that may take several years to properly discern. Year 2018 had the most recent full consumption data available. The calculator will be updated further when the upheavals from the pandemic-related lockdowns subside.

3. What are the standard definitions for the three categories of alcohol product (beer, wine, spirits) listed on the calculator?

Beer -  This category includes malt beverages, strong beer, ale, malt liquor, and similar types of beverages--such as alcopops and hard seltzers--depending on state law and reporting practices. It does not incorporate cider.

Wine - This category includes wine and other beverages. This does not always include champagne or sparkling wine, as many states tax these products under a different rate. Like beer, wine taxes are determined by ABV in some states, so the calculator has been set to use median rates.

Spirits - Generally, this category includes liquor greater than 21% alcohol by volume. The category of distilled spirits is the broadest of the beverage categories. It includes whiskey, scotch, gin, cordials, and liqueurs, depending on legislation within each state. Tax rates and definitions of spirits tend to be highly heterogenous across states, and tax categories will sometimes be referenced by percent alcohol or color of liquor. Where possible, a median tax rate was identified. However, in some cases where this was impossible, the rate was set to zero. While this still allows the calculator to return a useful estimate, we strongly advise calculator users interested in these “zeroed” spirits to contact the respective state liquor control boards for precise details on tax schema.

4. Do I have to enter a tax increase for each category?

No. You may enter an amount for one, two, or all three categories.

5. Why are the suggested increases in dollars and cents instead of percent?

The tax calculator assumes the changes will be in excise taxes. With some exceptions, excise taxes in the United States are flat quantities of money paid by manufacturers per unit of alcohol prepared for sale. 

6. What if my state taxes beer by the gallon and wine by the liter? Can the calculator accommodate this?

Absolutely. For each category, you can choose whatever unit of measurement makes sense. The example below shows how you would input the numbers to raise beer excise taxes by a dollar a barrel, wine taxes by thirty-cents a liter, and spirits taxes by five cents a drink.

7. When I select my state from the drop down menu, a message appears telling me it is a ‘Control State’ for spirits and/or wine. What does this mean? 

In control states, the state government regulates alcohol sales in one or more beverage categories. Because profits flow directly to the government, these states do not generally levy excise taxes in those alcohol categories. We have attempted to estimate the excise tax based on revenue and production figures when it was possible for those states, but in cases where there is no flat-rate excise tax, those are conservative approximations.

You may plug tax increases into the calculator for all categories regardless of whether they are state controlled. But keep in mind that control states handle revenue differently in controlled beverage categories, and so revenue estimates must be put into context with a state's particular laws and regulations.

8. Why is sales tax revenue included in the results box? 

The alcohol industry typically passes all excise taxes and fee increases on to the consumer by raising prices. For example, if the state raises its excise beer tax by a nickel a drink, beer producers will usually respond by raising the price of a six-pack by thirty-cents or more. We have assumed that industry passes on 100% of the tax to consumers, even though it's usually more. Higher retail prices in turn generate higher sales tax revenue in states that have a sales tax, up to a point (see below).

9. What does it mean if the sales tax revenue is negative?

The flipside of charging more for a six-pack of beer is that some people will buy less beer. Even though sales tax revenue on a six-pack is higher when the price goes up, if enough people drink a little less beer, the total alcohol sales tax revenue will drop, indicated by a negative number. This may sound drastic, but in California a five-cents per drink beer tax increase would likely result in people drinking only 1.3% less beer. And, such an increase would generate an estimated $362 million in new revenue-plus another $14 million in sales tax revenue.

10. What if the sales tax revenue is zero?

This probably means your state has no sales tax on alcohol and/or no ad valorem retail taxes. (It is also possible, but very unlikely, that the tax increase you chose happened to be the mathematically perfect amount that would lead to no expected change in the sales tax revenue.)

11. Can I be certain to see this exact amount of revenue in my state?

The calculator is intended to be used as a guide to estimating potential new revenue. Actual revenue collections may be different than predicted levels.

12. What is a proof gallon? Can the calculator be used to estimate revenue for taxes levied by proof gallon?

A "proof gallon" is a gallon of beverage that is 50% alcohol by volume, or "100 proof." The tax calculator was designed to estimate revenue from volumetric tax increases (e.g. a ten-cent tax increase per gallon of beer sold), rather than proof gallon based taxation, because almost all alcohol sold in the U.S. is currently taxed by volume. (The federal government is a notable exception, taxing spirits --and only spirits--by proof gallon.) The idea of switching to taxing alcohol by proof gallon has been gaining popularity because some lawmakers believe it is more fair to tax alcoholic beverages based on the amount of alcohol they contain.

To switch from gallons to proof gallons requires an estimated average ABV per product. As of 2021, the National Institute on Alcohol Abuse and Alcoholism defined the “standard” ABV for each product class as 5% for beer, 12% for wine, and 40% for distilled spirits. Therefore, to estimate a change in proof gallon using the “gallons” setting on the tax calculator, multiply the outputted excise tax increase by:

10.00 for beer
4.17 for wine
1.25 for spirits

13. What equations were used to generate the tax revenue estimates

The following equation is based on current beverage, consumption, and state tax information, as well as research from the leading public econometric studies of the alcohol industry. For more information on these figures, please see the references below.

Increase in Tax or Fee Revenue = New Fee or Tax Revenue - Old Excise Tax Revenue
= (tc + ti) * [cc *( 1 + pi/pc * e)] - (tc * cc) 

Increase in Sales Tax Revenue = New Sales Tax Revenue - Old Sales Tax Revenue
= {(pc + ti) * [cc *( 1 + pi/pc * e)] - (pc * cc)}*ts 

Where:
tc = current excise tax rate
ti = new excise tax or fee increase
cc = current consumption volume 
pc = current retail price
pi = retail price increase due to tax or fee
e = elasticity of demand
ts = current sales tax rate

14. What are the limitations of the calculator?

Due to the nature of alcohol taxes and the variability of definitions between states, this calculator should only be used for reference purposes to understand the impact of tax increases for distributors and provide historical context of changing tax rates. Given this, the limitations of the calculator are listed below.

(1) The average price of a drink is based on the most recent United States average (priced to inflation) from the U.S. Bureau of Labor Statistics. This calculation may slightly overstate revenue increases for states with lower-than-average alcohol prices. Beer, wine, and spirits pricing are calculated using the consumer price index (CPI) and inflation rate from 2010 to 2018. These are estimates.
(2) Consumption data is an estimate including populations who are under legal drinking age in the United States. (Source: Slater, Megan E., and Alpert, Hillel R. (2020) “Apparent Per Capita Alcohol Consumption: National, State, and Regional Trends, 1977-2018.” U.S. Department of Health and Human Services Public Health Service. National Institutes of Health.)
(3) This calculator used the Tax Administration, Tax Foundation, and state sites to determine sales and local excise tax rates. This does not include a comprehensive list of taxes for each state.
(4) Revenue estimates are all rounded.
(5) Due to variability in the categorization of alcoholic beverages, Alcohol Justice determined a rate that fit a generalized beer, wine, and spirits category. Please see item 3 for these definitions.
(6) The calculator is only relevant to off-premises alcohol pricing. On-premise taxes will vary.
(7) State sales taxes referenced do not include outlier sales rates that are specific to certain alcohol sales. For uniformity, the calculator uses the same state sales tax rate for all alcoholic beverages referenced.
(8) For sales taxes, the city, county, and municipal rates vary. These rates are weighted by population to compute an average local tax rate. Some states levy mandatory, statewide, local add-on sales taxes at the state level. These are included in state sales tax. Special taxes in local resort areas are not counted. (Sources: Sales Tax Clearinghouse; Tax Foundation calculations; State Revenue Department websites.)
(9) For control states selling wine (Pennsylvania, Utah, and Wyoming), all wine sales are through the state stores. Revenue in these states generates various taxes, fees, price mark-ups, and net profits. When possible, Alcohol Justice incorporated these rates into the calculator. Source: Tax Administration website.
(10) For 17 control states selling spirits, these states’ revenues are generated from several taxes, fees, price mark-ups, and net liquor profits. When possible, Alcohol Justice incorporated these rates into the calculator. Source: Tax Administration website and state sites.

15. Where do I get more information?

Full references are available on request.
For questions or concerns, please email Alcohol Justice.