How Much Tax Is on Alcohol? Federal & State Rates
Uncover the complex layers of taxation on alcohol and how they shape what you pay.
Alcoholic beverages in the United States are subject to a complex system of taxation that contributes to their final retail price. These taxes are levied at federal, state, and local levels, meaning a portion of the cost consumers pay is attributed to governmental revenue collection.
Federal Excise Taxes on Alcohol
Federal excise taxes are charges imposed on the production or sale of goods, typically applied at the manufacturer or importer level. These taxes are volume-based, calculated per unit of alcohol rather than as a percentage of price.
For distilled spirits, the federal excise tax rate varies by production volume. Distillers pay $2.70 per proof gallon on the first 100,000 proof gallons produced or imported annually. A proof gallon is one gallon of liquid that is 50% alcohol by volume. For larger volumes, the rate increases significantly, reaching $13.50 per proof gallon for production above 22.23 million proof gallons. This tiered system provides a reduced rate for smaller producers.
Wine is subject to federal excise taxes depending on its alcohol content and whether it is still or sparkling. Wines with 16% alcohol by volume or less are taxed at $1.07 per wine gallon. Sparkling wines are taxed at $3.40 per wine gallon. Lower rates may apply for the first 750,000 gallons produced in a given year.
Beer, or fermented malt beverages, is taxed federally per barrel, with one barrel equivalent to 31 gallons. The standard federal excise tax rate for beer is $18.00 per barrel. Smaller breweries benefit from reduced rates, such as $3.50 per barrel on the first 60,000 barrels for those producing 2 million barrels or less annually. These federal excise taxes generated $11.1 billion in fiscal year 2023, with distilled spirits contributing the largest share.
State Alcohol Taxes
All 50 states and the District of Columbia impose their own alcohol taxes, varying significantly in structure and rates. These state-level taxes are often excise taxes, calculated per gallon or liter of product. States commonly tax distilled spirits at a higher rate per unit of alcohol content compared to wine and beer.
State excise tax rates on beer range from $0.02 per gallon to $1.29 per gallon. For wine, rates fall between $0.20 per gallon and $2.50 per gallon. Distilled spirits face the highest state excise taxes, with rates ranging from $1.50 per gallon to over $36 per gallon. These rates can also differ based on alcohol content, place of production, or sale location.
Many states also apply general sales taxes to alcoholic beverages, calculated as a percentage of the retail price. Some states may have a specific, higher sales tax rate for alcohol. This means the total tax amount paid by consumers increases with the product’s price.
Certain states operate as “control states,” where the state government directly controls the wholesale distribution or retail sale of some or all alcoholic beverages. In these 17 control states, revenue is generated through product markups rather than, or in addition to, traditional excise taxes. The state sets minimum prices, effectively embedding the tax into the price consumers pay at state-run stores.
Local Alcohol Taxes
Some local jurisdictions, such as cities or counties, may impose their own taxes on alcoholic beverages. These local alcohol taxes are less common than federal or state taxes and represent a smaller portion of the overall tax burden, though they contribute to the final price.
Local taxes can take various forms, including excise taxes applied per unit of volume. For instance, a county might levy an additional excise tax on beer per barrel or on wine per gallon. Some local governments may also impose sales tax surcharges specifically on alcohol, or general sales taxes. These taxes are collected by the local government from wholesalers or retailers within their jurisdiction.
Examples include specific fees or privilege taxes. A city permitting alcohol sales for on-premises consumption might levy a local privilege tax on businesses selling mixed drinks. Local inspection fees on retail liquor licensees also contribute to the local tax structure. Their rates are generally much lower than federal or state levels.
How Alcohol Taxes Affect Consumer Prices
Federal, state, and local taxes on alcohol collectively influence the final retail price consumers pay. These taxes are generally levied at earlier stages of the supply chain, such as at the producer, importer, or wholesale distributor level. This means taxes are embedded within the product’s cost before it reaches the retail shelf.
Producers and importers pay federal excise taxes, and distributors often pay state excise taxes when acquiring products. These costs are passed down through the distribution network to retailers. Each entity incorporates these tax costs into their pricing strategies. Consequently, when a consumer purchases an alcoholic beverage, the price already includes these accumulated taxes, rather than being itemized separately at the point of sale, though sales tax may be added at checkout.
The extent to which these taxes are passed directly to the consumer can vary. Higher alcohol taxes lead to higher retail prices, though the pass-through rate is not always dollar-for-dollar. Retailers may absorb some tax increases, or even increase prices by more than the tax. A substantial portion of the tax burden is ultimately borne by consumers through higher prices, influencing their purchasing decisions and consumption.