Tennessee’s Alcohol Tax: Rates and Requirements

In Tennessee, the system for taxing alcoholic beverages is multi-layered, with several distinct taxes levied at different stages of the distribution chain. These taxes apply to beer, wine, and spirits, with revenues supporting various state and local functions.

Overview of Tennessee State Alcohol Taxes

The primary state-level taxes on alcohol in Tennessee are levied before the products reach the retail consumer. For beer, the state imposes an excise tax of $1.29 per gallon, a rate that is among the highest in the nation. In addition, Tennessee collects a wholesale tax of $5.36 per case on the sale of beer. These taxes are paid by the beer wholesaler or the brewer who sells directly to a retailer, and the cost is then incorporated into the wholesale price a retailer pays, influencing the final shelf price.

Wine and distilled spirits are subject to their own specific state excise taxes, calculated on a per-gallon basis. The state levies a tax of $1.21 per gallon on wine, while high-gravity beer and other intoxicating liquors with 7% or less alcohol content are taxed at $1.10 per gallon. For distilled spirits, a significantly higher excise tax of $4.46 per gallon is applied.

In addition to the per-gallon excise taxes, Tennessee imposes a 17% wholesale tax on the sale of wine and spirits from the wholesaler to the retailer. This tax is calculated on the wholesale price and adds another layer to the cost that retailers must factor into their pricing. The responsibility for collecting and remitting this wholesale tax falls upon the wholesaler.

Local Liquor-by-the-Drink Tax

Beyond the state-level excise and wholesale taxes, Tennessee law permits local jurisdictions to levy a specific tax on alcoholic beverages sold for on-premise consumption. This is commonly known as the liquor-by-the-drink tax and is a significant source of revenue for cities and counties that have authorized it. The tax is applied to the retail selling price of alcoholic beverages, wine, and high-alcohol content beer served in establishments like bars and restaurants. It is collected directly from the consumer at the point of sale.

The standard rate for the liquor-by-the-drink tax is 15% of the gross sales of these beverages. Businesses have the option to either include the 15% tax within the stated menu price or to add it as a separate line item on the customer’s final bill. If the tax is not built into the menu price, the business is required to post a notice on its menu informing patrons that the tax will be added to their check.

This 15% local tax is administered separately from and in addition to the standard state and local sales taxes. While the retailer collects both, the liquor-by-the-drink tax is specifically targeted at on-premise alcohol sales and is remitted to the Tennessee Department of Revenue, which then distributes the funds to the appropriate local government.

Registration and Recordkeeping Requirements

Before a business can legally sell alcoholic beverages and remit the associated taxes, it must register with the Tennessee Department of Revenue. This involves obtaining the necessary tax accounts for the specific types of sales the business will conduct. A business selling alcohol for on-premise consumption will need to register for a sales tax account and a separate liquor-by-the-drink tax account.

Proper recordkeeping is a continuous requirement for any business holding an alcohol license. To accurately calculate and substantiate tax filings, businesses must maintain meticulous records. This includes keeping all purchase invoices from wholesalers, which will clearly show the amount of state excise and wholesale taxes that were paid as part of the inventory cost.

Daily sales records must be detailed and organized. These records need to segregate the sales of different product types, such as beer, wine, spirits, and food. For businesses subject to the liquor-by-the-drink tax, it is necessary to track the total gross sales of alcoholic beverages sold for on-premise consumption.

Filing and Paying Alcohol Taxes

The process of remitting the collected liquor-by-the-drink tax is handled electronically through the Tennessee Taxpayer Access Point (TNTAP) portal. This online system is the primary method for businesses to file their tax returns and make payments to the Department of Revenue. Payments can be made via electronic funds transfer from a business bank account.

The filing frequency for the liquor-by-the-drink tax is monthly. The tax return and the corresponding payment for a given reporting period are due by the 20th day of the month that follows. For example, taxes collected on sales made during the month of April would be due by May 20th.