January 22, 2024
For the first time in at least a decade, annual liquor tax revenue in Illinois declined.
The modest 0.3% drop from $318.9 million in fiscal year 2022 to $318.1 million in fiscal year 2023 also ends a five-year run where the state saw annual off-premise liquor tax collections increase by at least $2 million a year.
That includes fiscal year 2021, which saw a pandemic-fueled $15.3 million increase in liquor tax revenue from the previous year, a 5.1% spike year-to-year, according to figures from the Illinois General Assembly’s Commission on Government Forecasting and Accountability.
Because liquor tax rates are set by the gallon, the decline in tax revenue indicates less booze being purchased for off-premise use as well during the past fiscal year. Some worry the loss of tax revenue might spur legislators to increase tax rates to recoup any losses and bolster future budgets.
“The industry is greatly impacted by shifts in taste, the cannabis industry and trends toward ‘Dry January’ and ‘Sober November,’ where consumers don’t partake in any adult beverages,” said Daniel D. Clausner, executive director of the Illinois Licensed Beverage Association. “We’re hopeful the state won’t raise liquor tax rates to make up the revenue, but we’re always concerned there may be an increase.”
It’s been 15 years since the state legislature last adjusted the tax rates for liquor. Before that, the rates had gone untouched for a decade, according to the state report.
“That’s always a concern that they’ll increase the taxes,” said Al Buchanan, owner of Geneva Wine Cellars and Tasting Room. “Legislators and elected officials, with a few exceptions, have a voracious appetite for money, and they will dig deep for it. Lots of businesses are suffering because of that.”
Currently, the state adds $8.55 a gallon for distilled liquors. The tax is $1.39 per gallon for wine with an alcohol content of less than 14% as well as wine and other spirits with an alcohol content between 14% and 20%. Beer is taxed at 23.1 cents per gallon.
While not the highest in the country, those rates are generally much higher than any of the states that border Illinois.
Missouri, Kentucky and Wisconsin all tax beer at 8 cents per gallon or less. It’s 11.5 cents per gallon in Indiana and 19 cents per gallon in Iowa. The highest rate in the country is Tennessee at $1.29 a gallon, according to state records.
Wine tax rates are all less than 50 cents per gallon in bordering states except Iowa, which taxes at $1.75 per gallon.
Elsewhere, Alaska charges $2.50 per gallon on wine with less than 14% alcohol content, the highest nationally. For wine and spirits with alcohol content between 14% and 20%, Alabama has the highest tax rate at $9.16 per gallon, the COGFA report shows.
Wisconsin taxes distilled liquor at $3.25 a gallon, the highest level among the border states, but still much less than Illinois. Iowa doesn’t have a tax rate on distilled liquors because the state controls the retail aspect of that type of alcohol. Nationally, Washington has the highest tax rate on distilled liquor at $14.25 per gallon.
There is currently no proposed legislation that would increase liquor tax rates in Illinois, but the legislative session has only recently restarted.
“I would be leery voting for an increase in the liquor rate because businesses are still struggling from COVID,” said state Rep. Stephanie Kifowit, an Oswego Democrat who also sits on the House Revenue Committee. “But I’m surprised it didn’t come up before the pandemic.”
Passing tax rate hikes on anything isn’t an easy sell for most legislators, even on so-called sin taxes like liquor, said Ralph Martire, executive director of the nonpartisan Center for Tax and Budget Accountability.
“The politics of a tax increase are always difficult even for a sin tax, because you can generally make the case that you’re going to accomplish other societal good by raising the tax,” he said. “But the problem with too frequent adjustments is that it creates a perception in the taxpayer’s mind of being nickeled and dimed.”
Most of the money generated by liquor taxes goes to the state’s general fund, which covers a wide variety of state expenses. In 2009, legislators earmarked a certain percentage of liquor taxes each year toward the state’s Capital Projects Fund, COGFA noted in the report. While providing nearly a third of a billion dollars annually, liquor taxes represent about 1% of the state’s annual revenues.
“If it is increased, it will likely be passed on to the consumer,” said Alixe Lischett, owner of Cabernet & Company in Glen Ellyn, adding that as long as hikes are “not shocking” customers won’t be turned off.
“I’ve been in business for more than 30 years and the past increases didn’t slow sales.”