The producer or seller of the product pays the tax on the wholesale transaction, but it's assumed the tax is then included in the final purchase price and thus passed on to consumers.  Additionally, some states and localities collect revenue from government-owned liquor stores. 

Alcohol taxes are sometimes called a corrective or "sin tax" because, unlike a general sales tax, the tax is levied in part to discourage the consumption of alcohol because the choice to use it has costs both to the consumer and the general public (such as increased health care costs). State and local governments tax cigarettes, and have begun taxing marijuana and soda, in a similar way.

How much revenue do state and local governments raise from taxes on alcohol?

In 2021, state and local governments collected $8.2 billion in alcohol taxes, or 0.2 percent of general revenue. In no state did combined state and local alcohol tax collections account for more than 1 percent of general revenue. The states with the highest share of general revenue from alcohol taxes in 2020 were Tennessee (0.7 percent) and Alabama and North Carolina (0.6 percent in both states).

Most alcohol tax revenue (83 percent) in 2021 came from state taxes. State and local governments also collected $12.7 billion from government-owned liquor stores , generating revenue through various taxes, fees, price mark-ups, and net profits. This revenue, like other "business-like" activities, is not included in the Census definition of state and local general revenue. In total, 22 states had government-run liquor stores in 2021, with state governments running stores in 16 states and local governments operating stores in five states. As such, states collected most government liquor store revenue (76 percent) in 2021.

State and local governments also collected $0.9 billion from license taxes for the manufacturing, importing, wholesaling, and retailing of alcohol. These comprised less than 0.1 percent of state and local general revenue. Much of the total revenue from alcohol license taxes came solely from Washington state ($213 million, or 20 percent of the national total).

How much do alcohol tax rates differ across states?

Alcohol taxes are generally remitted by producers and distributors who collect the tax during the wholesale transaction. However, it is assumed that the cost of the tax is then incorporated into the final retail price and thus ultimately paid by the consumer.

The alcohol excise taxes are per gallon taxes rather than being imposed as a percentage of price  and the rate is based on the type of alcohol. Liquor is taxed at a higher rate than wine and wine is taxed at a higher rate than beer. In some states, tax rates also vary based on the location of the seller and the quantity produced. For example, Georgia’s excise tax rate on wine is nearly four times higher for table wines produced outside of Georgia than wines produced in-state, and Montana's excise tax rate on beer is over three times higher for companies producing over 10,000 barrels of beer.

Tax rates also vary considerably across states. As of January 2023, the per gallon tax rates on beer ranged from $0.02 in Wyoming to $1.29 in Tennessee, the per gallon tax rates on wine ranged from $0.20 in California and Texas to $2.50 in Alaska, and the per gallon tax rates on liquor ranged from $1.50 in the District of Columbia and Maryland to $14.27 in Washington. Every state and the District of Columbia taxes beer, but three states do not tax wine and 17 states do not tax liquor. Instead, these states raise revenue from these products via government-run liquor stores.

In addition to the per-gallon excise tax, some states and localities also levy a special sales tax on the final purchase price of alcohol. For example, the District of Columbia levies both per gallon taxes on beer ($0.09), wine ($0.30), and liquor ($1.50), which are  built into the retail price of alcohol, and a 10.25 percent alcohol sales tax on the final purchase price (higher than its 6 percent general sales tax rate).

Updated January 2024