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Thursday, Aug. 6, 2009 12:34 pm

State hikes 'sin' tax

Increases expected to raise $119 million from beer, wine and spirits

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When MacArthur Frazier, the owner of Mac’s Lounge, 1231 E. Cook St., first heard last week about the state’s new tax increase on beer, wine and hard alcohol — included as a funding source for the $31 billion capital construction plan signed by Gov. Pat Quinn on July 13 — he wasn’t surprised.

“Politicians always feel safe taxing ‘sin tax’ people,” Frazier says. “It’s the safe thing.”

As part of the approved House Bill 255, the Liquor Control Act of 1934 was amended to increase the alcoholic beverage tax from $0.19 to $0.23 per gallon of beer or cider, from $0.73 to $1.39 per gallon of wine and from $4.50 to $8.55 per gallon of liquor and spirits. Sue Hofer, a spokesperson for the Illinois Department of Revenue, says the state expects to garner $119 million from the tax increases in fiscal year 2010.

The new law, which also raises taxes on soft drinks and legalizes video poker and Internet lottery sales in order to pay for state infrastructure projects, goes into effect Sept. 1.

“You didn’t hear much about [the tax increase] because it was always spoken about in terms of the capital program,” says Bill Olson, the president of the Associated Beer Distributors of Illinois. “That was separate from the budget, which you probably did hear a lot about.”

Olson says the new tax will cause a chain reaction in the state’s alcohol industry. Illinois law mandates distributors to import alcohol into the state, sell only to licensed retailers and collect sales taxes on the sold products. Under the new bill, distributors must increase the amount they charge retailers for their products, he says; retailers will then be forced to increase the amount they charge customers.

“The immediate effect is, of course, an increase in the cost to the consumer of beer, wine, spirits and cider,” Olson says.

Hofer estimates that after distributors apply tax increases, consumers will likely see a 2.6-cent increase for a six-pack of beer, a 13-cent increase for an average-sized bottle of wine and an 81-cent increase for a fifth of distilled spirits.

The Associated Beer Distributors of Illinois and the Illinois Licensed Beverage Association, in addition to other adult beverage and hospitality industry groups, opposed the alcoholic beverage tax increases when they were proposed in the spring.

Olson’s organization disagrees with instituting increases, as they become hidden taxes that are paid for by working class people.

“That is called a regressive tax,” he explains, “because lower-income people end up paying a higher percentage of their income than higher-income people.”

The Associated Beer Distributors of Illinois also suggests that increases could drive consumers across the border to purchase their alcohol in surrounding states with cheaper sales taxes. According to the organization’s estimates, 282 million gallons of beer, 28 million gallons of wine and 19 million gallons of spirits are sold in Illinois annually.

“It puts retailers at a competitive disadvantage,” Olson says. “They will lose sales.”

Daniel Clausner, the executive director of the Illinois Licensed Beverage Association, adds that Illinois will have difficulty drawing out-of-state visitors to conventions or special events due to high adult beverage prices. For example, according to his figures, distilled spirits are currently taxed at $1.94 per gallon in Kentucky, $2 per gallon in Missouri, $2.68 per gallon in Indiana and $3.25 per gallon in Wisconsin.

“We feel that the adult beverage industry and the hospitality industry are already taxed above and beyond,” Clausner says. “And now we’re going up further.”

Contact Amanda Robert at arobert@illinoistimes.com.

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