The ABC Board overtaxes you when you buy directly from a distillery.
When you purchase liquor from a distillery in Alabama, part of the price includes the state excise taxes. Alabama effectively has two tax rates depending on the situation. In both situations, the rate is based on the manufacturer’s list price, or the price it sells to the ABC Board.
Two Tax Rates
If you buy directly from the state at an ABC Store, the tax is 75.6% of the bottle’s list price. Let us call this the ABC Retail Tax Rate.
If you buy from a private vendor, such as a package store that buys liquor by the case, the tax is 65.5% of the bottle’s list price. Let us call this the Wholesale Tax Rate.
The higher ABC Retail Tax Rate is presumably justified at the ABC Store because the state acts as the retailer and has higher costs. They maintain stores, pay employees, and manage inventory.
When the ABC Board does not provide that retail service, such as when you purchase from a package store, the lower Wholesale Tax Rate applies.
When You Buy from the Distillery
For sales at the distillery, the ABC is assessing the ABC Retail Tax Rate, requiring you to pay the highest possible tax. We believe this is inconsistent with the law and that the Wholesale Tax Rate should instead be applied.
In 2011, the state legislature authorized distilleries to sell directly to the public. That law included language to specify that distilleries must pay state excise taxes on those sales, but it was vague enough that the ABC believes it has the ability to require you to pay the highest possible rate.
We believe this is wrong, and that the ABC is incorrectly requiring that you pay too much in taxes.
How You Can Help
The Alabama Brewers Guild has engaged with the ABC to fix this error. At the last ABC Board meeting, on October 29, 2020, the chairman asked for comments from stakeholders as they consider the issue. We believe that you, the consumer that ultimately pays these excise taxes, are an important stakeholder that should be heard.
If you would like to give your opinion on this matter, you may contact the ABC Board at email@example.com. Comments should be addressed to ABC Board Chairman Colonel Alan Spencer, Board Member John Knight, and Board Member Melissa Morrissette.
Addendum: A Fuller Explanation
While the above explanation is accurate, it glosses over some complicated details. In the interest of complete transparency, I wanted to spell out those details here.
Alabama has a single state excise tax on liquor, a 56% tax that is applied after the ABC’s cost and markup. The markup is essentially the ABC’s profit margin, and there are two possible markups that ultimately affect the tax rate.
The effective tax rate can be determined with the following formula.
TEffective = [PList Price * (1 + MMarkup)] * EExcise Tax, where
TEffective = The effective tax rate paid by the consumer.
PList Price = The list price of the bottle, or the price the ABC pays to the manufacturer or broker.
MMarkup = The ABC markup of either 35% or 16.99%
EExcise Tax = The 56% state excise tax set by law
When the ABC sells bottles to a consumer, or if it sells less than a case at wholesale to restaurants, bars and package stores, the markup is 35%.
Tax Rate = (List Price * 1.35) * 0.56 = 75.6% of the List Price
This is what we call the ABC Retail Tax Rate above.
When the ABC sells case lots at wholesale to restaurants, bars and package stores, the markup is 16.99%.
Tax Rate = (List Price * 1.1699) * 0.56 = 65.5144%
This is what we call the Wholesale Tax Rate above.
In the case of a direct sale at a distillery, the ABC provides no retail or wholesale service. However, the ABC is requiring a tax rate as if it had sold the bottle at retail. We believe it is far more appropriate to require a tax rate as if it had been sold as a wholesale case lot.