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Question of the Month ~ July/August 2014

 

Q. How do states in the Midwest tax and regulate the sale of alcoholic beverages?

Most states in the region have a private license system for the sale of alcoholic beverages. Private enterprises, including liquor and grocery stores, apply for a license to sell alcohol. The licenses are granted at the discretion of the licensing authority in the state.
Three states in the region — Iowa, Michigan and Ohio — are called control states. None of these states operates retail liquor stores, but they do control the sale of distilled spirits at the wholesale level.
In Iowa, the Alcoholic Beverages Division sells spirits to private retailers, while wine and beer are sold by private companies. Michigan and Ohio operate the same way: Distilled spirits are wholesaled by the state and sold privately; wine and beer wholesaling are handled privately.
More than half the states in the region have an appointed board or commission that oversees alcohol regulations and enforcement.
In states without boards or commissions — Kansas, Minnesota, North Dakota, South Dakota and Wisconsin — oversight duties are handled by other state agencies. The departments of revenue provide this function in Kansas, South Dakota and Wisconsin. In Minnesota, enforcement duties lie with the Department of Public Safety, and in North Dakota, these duties are split between the attorney general and the Tax Commission.
One of the most important functions of the oversight process is the review and issuance of licenses to sell alcohol. In some states this is done by state authorities, while in others, the local government issues licenses or controls the number that can be issued.
State regulations cover the days and hours that alcohol may be sold, but some local governments may add other restrictions.
States tax alcohol sales both through excise taxes, which are collected from the producer or distributor (not directly from the consumer), and through sales taxes, which are paid by the consumer.
Excise taxes per gallon of distilled spirits range from $35.22 in Washington state to $1.87 in West Virginia. Michigan, a control state, has the Midwest’s highest markup on alcoholic beverages (see table), and Illinois has the region’s highest excise tax rate. Kansas and North Dakota have the lowest excise tax rates, at $2.50 per gallon.
The general sales tax applies to distilled-spirits sales in most Midwestern states. Kansas has a 10 percent retail tax on purchases that are taken off-premises, nearly four percentage points higher than the general sales tax.
In Minnesota, there is a gross receipts tax of 2.5 percent for the purchase of alcoholic beverages in addition to the general sales tax. North Dakota has a 7 percent sales tax on the gross receipts of the sale of alcoholic beverages, two percentage points higher than the general sales tax rate.

 

Article written by Ilene Grossman, CSG Midwest assistant director. Question of the Month highlights an inquiry received by CSG Midwest through its Information Help Line.