How does the calculator work? What assumptions underlie the revenue estimates?
Do I have to enter a tax increase for each category?
What if my state taxes beer by the gallon and wine by the liter? Can the calculator accommodate this?
When I select my state from the drop down menu, a message appears telling me it is a Control State for spirits and/or wine. What does this mean?
How do I interpret the Estimated Revenue results?
Why is sales tax revenue included in the results box?
What does it mean if the sales tax revenue is negative?
What if the sales tax revenue is zero?
Can I be certain to see this exact amount of revenue in my state?
How does the calculator work? What assumptions underlie the revenue estimates?
The revenue calculator is based on a relatively simple mathematical formula underpinned by the most currently available beverage, consumption, and state tax information-as well as research from the leading published econometric studies of the alcohol industry.
Increase in Tax or Fee Revenue = New Fee or Tax Revenue - Old Excise Tax Revenue
= (tc + ti) * [cc *( 1 + pi/pc * e)] - (tc * cc)
Increase in Sales Tax Revenue = New Sales Tax Revenue - Old Sales Tax Revenue
= {(pc + ti) * [cc *( 1 + pi/pc * e)] - (pc * cc)}*ts
Where:
tc = current excise tax rate 1
ti = new excise tax or fee increase
cc = current consumption volume2
pc = current retail price3
pi = retail price increase due to tax or fee4
e = elasticity of demand5
ts = current sales tax rate 1
1. Excise and sales tax information from Federation of Tax Administrators, The Tax Foundation and available state data. Does not include local or special taxes.
2. Consumption data from The Beverage Information Group's 2009 Wine and Spirits Industry Marketing Handbook, April, 2009. http://www.adamsbusinessresearch.com.
3. The average drink price is based on the most recently available per gallon US average (2007): $14.87 (beer), $40.21 (wine), $145.54 (spirits). Source: The Beverage Information Group's 2008 Beer Handbook, 2008 Wine Handbook, and 2008 Spirits Handbook. http://www.adamsbusinessresearch.com. These prices may slightly overstate revenue increases for states with lower than average alcohol prices.
4. Retail price estimates after a tax or fee increase assume the alcohol industry passes on 100% of the tax to consumers. This is a conservative estimate: Young D.J., Bielinska-Kwapisz A. Alcohol taxes and beverage prices. National Tax Journal. LV-1: 57-73. 2002.
5. Alcohol prices elasticities: -0.46 (beer), -0.69 (wine), -0.80 (spirits). Alexander C. Wagenaar, Matthew J. Salois & Kelli A. Komro. Effects of beverage alcohol price and tax levels on drinking: a meta-analysis of 1003 estimates from 112 studies. Addiction, Volume 104, Issue 2, February 2009, (p 179-190).
Back to top↑
Do I have to enter a tax increase for each category?
No. You may enter an amount for one, two or all three categories.
Back to top↑
What if my state taxes beer by the gallon and wine by the liter? Can the calculator accommodate this?
Absolutely. For each category, you can choose whatever unit of measurement makes sense. The example below shows how you would input the numbers to see how much new revenue could be generated by raising beer excise taxes by a dollar a barrel, wine taxes by thirty-cents a liter, and spirits taxes by five cents a drink.
Back to top↑When I select my state from the drop down menu, a message appears telling me it is a Control State for spirits and/or wine. What does this mean?
In control states, the state government regulates alcohol sales in one or more beverage categories. Because profits flow directly to the government, these states do not generally levy excise taxes in those alcohol categories.
You may plug tax increases into the calculator for all categories regardless of whether they are state controlled. But keep in mind that control states handle revenue differently in controlled beverage categories, and so revenue estimates must be put into context with a state's particular laws and regulations.
Back to top↑
How do I interpret the Estimated Revenue results?
The example below shows how much revenue a state could expect to raise if it increased its beer tax by a dollar a barrel and its spirits tax by five cents a drink.
By increasing the beer tax rate by a dollar a gallon, the beer excise tax revenue would increase by an estimated $669 million. The state could expect to raise another $25 million in sales tax revenue, for a total revenue increase of $694 million.
Similarly, by raising the spirits tax by five cents a drink, the state could expect to increase its spirits excise tax revenue collections by $213 million. Sales tax revenue would increase by $2.84 million, for a total of $215 million.
In total, by raising the beer tax by a dollar a gallon and in the spirits tax by five cents drink, this state could expect to see revenue collections increase by more than $900 million a year.
Note that the $0 revenue for wine does not indicate that wine revenues will be zero. It means that wine revenues will not be expected to increase if you choose to leave that blank.
Back to top↑
Why is sales tax revenue included in the results box?
The alcohol industry typically passes all excise taxes and fee increases on to the consumer by raising prices. For example, if the state raises its excise beer tax by a nickel a drink, beer producers will usually respond by raising the price of a six-pack by thirty-cents or more. We have assumed that industry passes on 100% of the tax to consumers, even though it's usually more. Higher retail price in turn generate higher sales tax revenue in states that have a sales tax, up to a point (see below).
Back to top↑
What does it mean if the sales tax revenue is negative?
The flipside of charging more for a six-pack of beer is that some people will buy less beer. Even though sales tax revenue on a six-pack is higher when the price goes up, if enough people drink a little less beer, the total alcohol sales tax revenue will drop, indicated by a negative number. This may sound drastic, but in California a five-cents per drink beer tax increase would likely result in people drinking only 1.3% less beer. And, such an increase would generate an estimated $362 million in new revenue-plus another $14 million in sales tax revenue.
Back to top↑
What if the sales tax revenue is zero?
This probably means your state has no sales tax on alcohol. You can verify this by checking footnote #1 below the revenue estimate table, which has your state's sales tax and excise tax rates. (It is also possible, but very unlikely, that the tax increase you chose happened to be the mathematically perfect amount that would lead to no expected change in the sales tax revenue.)
Back to top↑
Can I be certain to see this exact amount of revenue in my state?
The calculator is intended to be used as a guide to estimating potential new revenue. Actual revenue collections may be different than predicted levels.
Back to top↑
