Beer Institute says you might be surprised by how much of your beer money goes to taxes

CINCINNATI - Do you know what's the "single most expensive ingredient" in beer, according to the Beer Institute ?

It's one you can't taste, see or smell. It isn't hoppy, bold, bitter, bright or dark. But it comes right out of your pocket. No, not lint.

We're talking about taxes. And all combined--production, distribution, sales--they make upwards of 40 percent of the retail price of your favorite brew.

While some of these are set at the federal level, you may have noticed that the price of your go-to pint changes depending on the state. That's because each state taxes beer differently. 

Where does Ohio rank? According to a recently released infographic by the Tax Foundation , the Buckeye State is among the lowest-taxing in the Midwest but still taxes beer per gallon at a rate more than double that of Pennsylvania and triple Wisconsin.

The Tax Foundation said there “isn’t much” consistency when it comes to how states apply the taxes .

The group poured over data from the Distilled Spirits Council of the United States to come up with the rankings.

According to the Tax Foundation, those taxes can include: fixed-rate per volume taxes, wholesale taxes, distributor taxes, retail taxes, case or bottle fees and more.

tax foundation map

Kentucky sported some of the highest taxes in the US when all the figures were tallied up. The group said the Bluegrass State taxes about $0.78 per gallon; making it the sixth-most expensive state in the nation.

House Speaker John Boehner weighed in on the issue in a statement saying: “Over the years, brewers in Southwest Ohio have expanded their businesses and created jobs in our area -- it’s exactly what this economy needs. But like so many other industries, the tax code simply isn’t working for them.”

When asked about the issue, Rep. Brad Wenstrup, (R-Cincinnati,) released a statement stating: “Anybody who pays taxes knows our tax code is too costly, too complex, and too burdensome. Twenty-first century businesses and entrepreneurs are stuck under last century’s tax regime, which discourages innovation and growth. Ohioans deserve a system that is simpler and fairer.”

Effect on Ohio breweries

Cincinnati-area brewers said they are frustrated by the situation, but they know they can’t argue too much about them.

Scott LaFollette, owner and head brewer of Blank Slate Brewing, described the taxes as a “necessary evil.”

Bobby Slattery, co-owner of Fifty West Brewing, said they can get frustrated when the brewery has to be on multiple levels.

“It's not exactly clear why it's necessary,” Slattery said.

Over at MadTree Brewing, co-owner Kenny McNutt said the taxes can affect how they sell the beer and that it can erode margins for the manufacturer and distributors.

“The inconsistencies can hurt economic growth in those states, discouraging breweries' growth or distribution into those particular markets,” McNutt said.

Cost To Consumers

The Beer Institute says consumers pay about $5.6 billion per year in state and federal excise taxes on beer alone.

The trade group said if all the taxes on beer including production, distribution and retail were added up; it would amount to more than 40 percent of the retail price.

The institute released a study saying in one year, the total amount levied on the production, distribution and sale of beer was $31.9 billion.

The group’s study also claims the tax unfairly falls on middle-to-lower income earners. The reason is that those with modest incomes tend to drink more beer than people with higher incomes. According to the group's research, households earning less than $50,000 per year pay half of all beer taxes.

The institute also claimed the inequality in state taxes has a dampening effect on jobs. As consumers cross state lines to buy their beer, they tend to also shop and go to restaurants in the border state; thereby costing their home state money and jobs.

Rolling Back The Tax

The Beer Institute claims that cutting back on the beer excise taxes would be an efficient way to both provide relief to lower and middle-income workers and spur job growth.

One of the largest increases in the beer tax came on Jan. 1, 1991. At that time, the federal government raised the tax from $9 to $18 per barrel as part of a budget-balancing effort. The Beer Institute said at that time a luxury tax was also enacted, but it was repealed.

This follows a common historical precedent of using excise taxes -- often on luxury items or “sin” taxes -- to pay for wars or fix broken budgets.

However, the institute said many of those excise taxes have been rolled back or repealed over the years.

Except for the beer tax.

And if you think the beer tax is unreasonably high, check out how much state taxes add to the cost of spirits .

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