Distilled spirits have taken the lead in American alcohol sales, outpacing beer for the second consecutive year in 2023. This shift has been fueled by the rise of spirits-based hard seltzers and ready-to-drink cocktails, blurring the lines of a categorical tax system and sparking a spirited competition throughout the alcohol industry, including calls for tax policy reform.
However, distilled spirits face the highest tax rates of all alcoholic beverages. This is due to a combination of their higher alcohol content and the higher tax rates applied per alcohol content. For instance, a one-ounce shot of a 40 percent alcohol-content spirit carries greater taxes than a 12-ounce beer with 4.8 percent alcohol content, despite both containing the same amount of alcohol.
Across the U.S., states apply a variety of policies to the sale of distilled spirits. In 17 states, the government operates a monopoly of state-controlled liquor stores, leveraging its market power to inflate prices instead of levying a formal tax. These states include Alabama, Idaho, Iowa, Maine, Michigan, Montana, North Carolina, Ohio, Oregon, Pennsylvania, Utah, Vermont, Virginia, Washington, and West Virginia.
Washington state levies the highest excise tax rate on distilled spirits at $36.55 per gallon, followed by Oregon ($22.85), Virginia ($22.04), Alabama ($21.67), and North Carolina ($16.62). On the other end of the spectrum, distilled spirits are taxed the least in Wyoming and New Hampshire, where the government gains revenue directly from alcohol sales through government-run stores. Missouri, Colorado, and Texas also have relatively low tax rates.
The disparity in tax rates across states underscores the complex tax and regulatory environment surrounding distilled spirits. As the product landscape continues to evolve and calls for policy reform intensify, it is crucial that public policy changes support both industry growth and responsible consumption with neutral, simple, and transparent taxes.
For a more detailed breakdown of distilled spirits taxes by state, you can refer to the Distilled Spirits Council of the United States (DISCUS).