Business Environment Profiles - United States
Published: 21 October 2024
Excise tax on distilled spirits
12 $
-5.3 %
The excise tax on distilled spirits represents the sum of average federal and median state taxes levied on distilled spirits. Figures are adjusted for inflation, with base year 2025. Not included in this calculation are the 17 states in which the state government directly controls the sale of distilled spirits. Revenue in these states is generated from various taxes, fees and net liquor profits, and cannot be simplified into a single figure. Data is sourced from the Alcohol and Tobacco Tax and Trade Bureau and the Tax Policy Center.
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The nominal aggregate tax (sum of the federal average and median state tax) on distilled spirits had remained unchanged from $17.25 per gallon for over a decade until the passage of the Tax Cuts and Jobs Act of 2017 (TCJA). Meanwhile, consistent increases in the retail price of distilled spirits drove a steady decline in the tax rate in real terms. As a result, the excise tax has represented a smaller and smaller share of the retail price of distilled spirits for over a decade. Prior to the TCJA, the average nominal federal tax levied on producers was $13.50 and the nominal state tax was $3.75 per gallon.
The TCJA, which went into effect in 2018, significantly reduced the average federal nominal excise tax for producers, further driving down the price of the excise tax in real terms. The average nominal federal excise tax dropped 27.1% in 2018, from $13.50 to $9.85 per gallon. Accounting for inflation, the excise tax in real terms dropped an estimated 22.9% in 2018, contributing to a relatively significant annualized decline over the five years to 2022. In recent years, the excise tax rates have not changed which is resulting in them decreasing due to inflation. IBISWorld estimates that the aggregate excise tax (in real terms) is forecast to decline at an annualized rate of 3.5% to $12.90 per gallon in 2024.
States will occasionally increase excise taxes on alcoholic beverages to fund various state projects, although these tax increases are often given expiration dates. State increases have been minimal and have not resulted in a significant change to the US median nominal state excise tax rate for over a decade. In 2018, the US median nominal state tax rate increased very slightly from $3.75 per gallon to $3.77 per gallon. In 2021, the $13.62 excise tax was comprised of a $9.85 per gallon tax levied at the federal level and a US median state tax rate of $3.77. Most states are near the median, but Washington state levies the country's highest tax of $14.27 per gallon, followed by a $12.80 tax rate in Alaska. Maryland and the District of Columbia levy the lowest tax rate of $1.50. In general, states in the Southeast tend to have lower excise tax rates, while tax rates in the northeast tend to be higher.
Over the five years to 2030, the real tax value on distilled spirits is projected to decline furt...
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