Media
Understanding the Proposed Gallonage Tax
Rep. Mike Turzai’s proposal to get state government out of the business of selling liquor (HB 11) would replace current alcohol taxes and fees with a “gallonage tax.” This proposal has been met with some confusion along with misinformation from the Pennsylvania Liquor Control Board.
Currently, the PLCB imposes an 18 percent Johnstown Flood Tax (first created in 1936 as a temporary tax to fund repairs following the Johnstown Flood), a $1.50 per bottle handling fee, and a 30 percent markup on all wine and spirits sold, some of which is in excess of the costs of doing business, and should be seen as an implicit tax on customers.
Under HB 11, the commonwealth would impose a “Gallonage Tax” on all wine and spirits:
- For most wines: $8.25 to $8.75 per gallon, based on alcohol content.
- For sparkling wines: $9 per gallon.
- For liquor: $11 to $12 per gallon, based on alcohol content.
- Rates would be adjusted for inflation after five years.
Impact on State Revenues
Based on sales data provided by the Pennsylvania Liquor Control Board, the gallonage tax would generate about $369 million in revenue, very close to what the Johnstown Flood tax and state store “transfers of profit” take in. The transfers of profit is not actually PLCB’s profit, but an amount set in the state budget, regardless of PLCB’s net revenues.
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PLCB Sales 2010 |
Estimated Gallonage Tax |
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Department Detail |
Ounces Sold |
Gallons Sold |
|
|
Regular Spirits |
2,102,086,167 |
16,422,548 |
$188,859,304 |
|
Regular Wine |
2,634,966,822 |
20,585,678 |
$174,978,265 |
|
Sparkling Wine |
70,127,159 |
547,868 |
$4,930,816 |
|
Total |
4,807,180,148 |
37,556,095 |
$368,768,385 |
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Source: Sales Data by Product provided by PLCB on request |
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Calculations by the Commonwealth Foundation, www.CommonwealthFoundation.org |
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The state sales tax of 6 percent would continue to be imposed on all sales as is current practice, retaining about $110 million in collections. Based on sales data for calendar year 2010, HB 11 would generate $479 million for the General Fund under HB 11, compared with $497 million from the PLCB in fiscal year 2010-11.
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General Fund Revenue from State Liquor Stores, 2010-11 |
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|
|
Current |
Under HB 11 |
|
Johnstown Flood Tax (18%) |
$281,746,000 |
$0 |
|
State Sales Tax (6%)* |
$110,000,000 |
$110,000,000 |
|
State Stores “Transfer of Profit” (consumer markup) |
$105,000,000 |
$0 |
|
Gallonage Tax* |
$0 |
$368,768,385 |
|
Corporate Income Tax and Other Businesses Tax Revenue |
$0 |
?? |
|
Annual License Fees for Liquor Stores |
$0 |
?? |
|
Total |
$496,746,000 |
$478,768,385 |
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Sources: PA Department of Revenue, Monthly Revenue Report, June 2011; http://www.portal.state.pa.us/portal/server.pt/community/monthly_revenue_reports/14801; Pennsylvania Liquor Control Board, July 5, 2011 news release, http://www.lcb.state.pa.us/portal/server.pt/community/about_the_plcb/17499; |
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* Sales data provided by PLCB to CF for calendar year 2010 represents lower total sales than reported by PLCB in Fiscal 2010-2011 |
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Impact on Taxes per Bottle
As the gallonage tax is imposed on volume, the tax would be higher on wine and spirits that come in larger sizes and with higher alcohol content. This contrasts with the current Johnstown Flood tax, which is a higher tax on higher price items.
A comparison of the top-10 best-selling PLCB items by category and price range reveals:
- Compared to the Johnstown Flood Tax, the gallonage tax would represent a decrease in taxes for the top two prices categories for both wine and spirits, and an increase for the bottom three price categories.
- Adding in the $1.50 per bottle handing fee imposed by the PLCB, the gallonage tax represents a reduction in taxes for the top three wine prices categories and top four categories of spirits.
- Including all markup of the PLCB, the gallonage tax represents a reduction on taxes and fees imposed at all price levels.
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Average Gallonage Tax vs. Average Current Taxes per bottle/box, Top Selling PLCB Products |
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Wine |
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Category |
Johnstown Flood Tax (JFT) |
JFT + $1.50 Handling Fee (HF) |
JFT + HF + Markup |
Gallonage Tax |
Gallonage Tax Vs. JFT |
Gallonage Tax Vs. JFT + HF |
Gallonage Tax Vs. JFT + HF + Markup |
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|
Ultra Premium |
$2.55 |
$4.05 |
$8.30 |
$1.74 |
-32% |
-57% |
-79% |
|
|
Super Premium |
$2.39 |
$3.89 |
$7.88 |
$1.74 |
-27% |
-55% |
-78% |
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|
Premium |
$1.24 |
$2.74 |
$4.81 |
$1.74 |
40% |
-36% |
-64% |
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|
Standard |
$1.32 |
$2.82 |
$5.02 |
$4.59 |
248% |
63% |
-9% |
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|
Value |
$1.14 |
$2.64 |
$4.54 |
$4.28 |
275% |
62% |
-6% |
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Spirits |
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Category |
Johnstown Flood Tax (JFT) |
JFT + $1.50 Handling Fee (HF) |
JFT + HF + Markup |
Gallonage Tax |
Gallonage Tax Vs. JFT |
Gallonage Tax Vs. JFT + HF |
Gallonage Tax Vs. JFT + HF + Markup |
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|
Ultra Premium |
$5.47 |
$6.97 |
$16.09 |
$2.38 |
-56% |
-66% |
-85% |
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|
Super Premium |
$3.15 |
$4.65 |
$9.90 |
$2.51 |
-20% |
-46% |
-75% |
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|
Premium |
$2.64 |
$4.14 |
$8.55 |
$3.02 |
14% |
-27% |
-65% |
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|
Standard |
$1.79 |
$3.29 |
$6.28 |
$3.21 |
79% |
-2% |
-49% |
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|
Value |
$0.92 |
$2.42 |
$3.95 |
$3.73 |
305% |
54% |
-6% |
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Based on current prices of top 10 selling PLCB products by price category. Source: Sales data provided by PLCB to Commonwealth Foundation. |
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Questions for Policy Makers
Removing the PLCB from having a monopoly over liquor sales also requires revisiting the taxes imposed on wine and spirit consumers. Lawmakers have an opportunity to consider the best tax policy.
- Should taxes on liquor be imposed as a percentage of the price, or based on the amount of alcohol sold?
- Is it desirable to remain “revenue neutral” (as HB 11 is designed to be) collecting the same amount of taxes from Pennsylvania consumers, or is now an opportune time to reduce the state tax burden? That is, should Pennsylvanians continue to pay for the Johnstown Flood of 1936?