How Much Of What You Pay For Beer Is Tax?

I have some bad news for you.  When you pony up your money for a cold one at the bar or take home a 12 pack for the game, much of what your paying goes to tax, not beer. 

According to this report:

Surprisingly, taxes are the single most expensive ingredient in beer, costing more than the labor and raw materials combined. A detailed economic analysis (Global Insight / Parthenon Group, 2005) found that if all the taxes levied on the production, distribution and retailing of beer are added up, they amount to more than 40% of the retail price!

Now, that report was prepared by the Beer Institute, who may or may not have a vested interest in garnering sympathy.  I get a kick out of the fact that there’s an entity called the beer institute.  Back in my misspent youth if I were to work at a think tank, I was more destined to land at the Beer Institute than say the Cato Institute. 

As always I wanted to see beer taxes by geography, so I went to the Tax Foundation and found just that. 

Where does your state fall on the beer tax spectrum?  

As always geographic patterns emerge.  You might be thinking, “those states in the Southeast have something against beer.”  Well, they kind of do. 

According to this article the reason is that states in the Southeast have high “sin taxes” due to their historical Baptist roots.  So the tax is meant to discourage alcohol consumption.  I’ve spent some time in the Southeast, and I don’t think that’s working out so well.

I also love noticing trends with a historical context.  Notice that there are two states tied for the second lowest tax per gallon ($.06) Wisconsin and Missouri. 

If you’re young you may not realize that Wisconsin, mainly Milwaukee, is where most of Americas cheap yellow beers came from back in the day.  Pabst is a Milwaukee beer familiar to most young people since hipsters famously gave it a second life in this century.  And Miller is still a huge and well known Milwaukee brewery.

But other brands like Stroh’s and Schlitz were behemoths in the beer industry back in the day, and they all came from Milwaukee.  As BeerHistory.com explains, Milwaukee was once known as the “beer capital of the world.” 

Then there’s Missouri which is home to Budweiser, king of the cheap yellow beers.  I don’t even like Budweiser but I did tour their massive headquarters and brewery in St. Louis once.  It’s a sight to behold and is kind of like it’s own small city within St. Louis.  You can see the famous clydesdale horses too, which was pretty neat.

So naturally those two states keep their beer taxes low to be friendly to big corporations that provide jobs to their citizens. 

Wyoming has the lowest beer taxes in the country.  And if you look at the map again you’ll notice the entire west is slightly lighter color than the rest of the country.  If you live out west, you’re generally paying less to “the man” when you buy beer.

Get ‘Em At Every Step

While the retail taxes you pay on beer may be the only kind visible to you, beer is in fact taxed in many ways. 

From the Tax Foundation report:

While a state’s excise tax on beer is usually levied on retail sales, some variation in collection methods exists from state to state. For instance, some states levy taxes further up the supply chain by taxing brewers, importers, or other wholesalers as a percentage of revenue generated or at a fixed price per gallon, bottle, or case of beer sold. Many states also generate revenue by collecting license fees from beer distributors.

As the old saying goes, the only certain things in life are death and taxes.  We in the personal finance community focus a lot on tax optimization strategies and are hyper aware of our taxes.  Perhaps this post enlightened you to the dark side of beer.

So every time you tilt a glass of your favorite brew you now can take comfort in knowing that what you paid for your enjoyment was largely tax. 

Or not.