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Guess Which State Has the Highest Liquor Taxes in the Nation?

2 min readBy: Scott Drenkard, Johannes Schmidt

When voters in Washington took to the polls in November of 2011 to approve Initiative 1183, which ended the government’s monopoly on liquor sales, the last thing they expected was to pay more for their alcohol. But instead of cheaper alcohol, residents of the Evergreen State kept the 20.5% spirits sales tax and $3.77 per liter excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. , but also picked up several new fees. As we noted back in 2012, retailers now pay a liquor retailer license fee of 17 percent of gross revenues along with an annual renewal fee of $166. Distributors must pay a license fee of 10 percent of gross revenues. As a result, Washington has the highest liquor taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es in the nation, with tax bills that approach 100 percent of the sale price of some products.

In order to avoid these high taxes, Washingtonians have turned to their neighbors, Idaho and Oregon, where state taxes on spirits stand at $10.92 and $22.73 per gallon compared to Washington’s $35.22 per gallon. For context, the national median liquor tax is $5.53 per gallon.

So much cross border shopping has occurred that Idaho constructed a new liquor store on the border and has reportedly increased revenue by around $10 million from business with Washingtonians. In a very real sense, consumers are expressing their frustration with their feet.

Sen. Janéa Holmquist Newbry has proposed a bill that would lower the 20.5 percent liquor sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. to 6.5 percent over the course of eight years. Local sales taxes, which are currently not levied on distilled spirits, would be levied on liquor sales. The net result is a tax cut, and a small step closer to more reasonable liquor taxation in Washington.