How the WA State Liquor Tax Works

Washington State imposes some of the highest liquor taxes in the nation, a reality that directly affects consumers through higher shelf prices and creates a complex compliance environment for businesses. This system is largely a consequence of the state’s decision to privatize liquor sales, shifting from state-controlled stores to a private market. The resulting tax structure is multifaceted, with different rules and rates applying to various types of alcoholic beverages.

Breakdown of Taxes on Spirits

The tax structure for distilled spirits in Washington is a primary driver of their high cost and consists of two main components levied at the state level. These taxes are distinct from the general sales tax and apply specifically to beverages like vodka, gin, and whiskey. The combination of these taxes places Washington with the highest effective excise tax rate on spirits in the country.

The first major tax is the Spirits Sales Tax (SST), a percentage-based tax on the selling price of the product. For the general public purchasing spirits, the SST rate is 20.5%. This tax is calculated on the retail price before the application of any general local and state sales tax. It is an ad valorem tax that scales with the price of the spirit, meaning more expensive bottles incur a higher tax amount.

In addition to the SST, the state imposes a Spirits Liter Tax (SLT), which is a volume-based tax. The rate for spirits sold to the public is $3.7708 per liter. Unlike the SST, this tax is a flat fee based on the amount of liquid in the container, regardless of the price or brand.

To illustrate how these taxes combine, consider a standard 750ml bottle of spirits with a base price of $20.00 set by the retailer. First, the Spirits Liter Tax is calculated: since a 750ml bottle is 0.75 liters, the SLT would be 0.75 multiplied by $3.7708, which equals approximately $2.83. This amount is added to the base price, bringing the new subtotal to $22.83. Next, the 20.5% Spirits Sales Tax is applied to this new subtotal, calculating to $4.68. The final shelf price, before general sales tax, would be the sum of the base price, the SLT, and the SST, totaling $27.51.

Taxes on Beer and Wine

The tax treatment for beer and wine in Washington differs significantly from that of spirits. These beverages are not subject to the high-rate Spirits Sales Tax or the Spirits Liter Tax. Instead, they are taxed under a much simpler excise tax system based on volume, which results in a considerably lower tax burden per serving.

Beer is taxed at a set rate per barrel, with a standard barrel containing 31 gallons. For most large breweries, the tax rate is $8.08 per barrel. However, the state provides a reduced rate for smaller breweries producing less than 2 million barrels annually. These smaller operations pay a lower rate of $4.782 per barrel on the first 60,000 barrels they sell in the state.

Wine is also taxed on a per-gallon basis, but the specific rate depends on the type of wine. The excise tax for most table wine is approximately $0.87 per gallon. This rate applies to standard wines that are not fortified. The clear difference in tax rates highlights the preferential tax treatment these beverages receive under state law.

How Liquor Taxes are Collected and Paid

The responsibility for collecting the Spirits Sales Tax and Spirits Liter Tax from the consumer falls on the seller at the point of sale. These collected funds are held in trust by the business until they are remitted to the Washington State Department of Revenue.

The primary tool for reporting and paying these taxes is the combined excise tax return, which businesses must file electronically. The Department of Revenue requires that spirits taxes be reported on the “Other & Quantity” section of the online return. This ensures that the specific amounts for both the percentage-based sales tax and the volume-based liter tax are accounted for separately from general sales tax and other business taxes.

Filing frequency is determined by the Department of Revenue based on a business’s estimated annual tax liability and can be monthly, quarterly, or annually. Payments must be made electronically. It is the business’s responsibility to accurately track gross receipts from spirits sales and the volume of spirits sold to ensure the correct tax amounts are calculated and submitted by the due date.

Sellers must also clearly itemize the spirits taxes for the customer, either on a visible price list or on the sales invoice. Simply stating that the price is “tax included” is not sufficient for compliance. This requirement ensures transparency for the consumer, showing them the exact amount of state-specific taxes they are paying on spirits, separate from the product’s price and the standard retail sales tax.

Where the Tax Revenue is Allocated

The substantial revenue generated from Washington’s various liquor taxes is distributed among several state and local government functions. A significant portion of the money collected is deposited into the state’s general fund, which supports a wide array of government operations, including education, public safety, and social services.

A designated share of the revenue is also distributed directly to local governments. Sixty-five percent of the revenue from the Spirits Sales Tax goes to the state general fund, while the remaining thirty-five percent is divided between counties and cities based on population. Similarly, revenues from the beer excise tax are shared with local jurisdictions to help fund local law enforcement and other community services.

Beyond general funding, some liquor tax revenue is earmarked for specific public health and research initiatives. For example, a portion of the wine excise tax is allocated to Washington State University for wine and grape research. Other funds are directed toward youth violence prevention and drug enforcement programs.