Tennessee has the highest tax on beer in the United States.
Under the current tax structure, it is an honor that the state is virtually guaranteed to keep, as the state’s local wholesale beer tax of 17 percent automatically benefits from producer and wholesaler price increases. In fact, the wholesale tax is a tax on top of a tax, as it is calculated from the price of a barrel of beer, including state and federal barrel taxes.
Tennessee municipalities and counties have been beneficiaries of the tax structure that was originally passed in 1954. The tax is paid directly to the cities and counties, no pausing required in the state’s coffers. In 2011, those government entities received $125.3 million in wholesale beer tax revenue; the state collected an additional $16.4 million through the state excise beer tax, while the federal government nabbed $69 million through the federal excise beer tax. That is a frothy $210.7 million in taxes paid by the beer drinkers in Tennessee.
Our local governments have seen those revenues increase by a tasty 30 percent over the past 10 years, even while beer consumption declined by 5 percent.
This sin tax structure has cost jobs. The local wholesale beer tax was cited as the primary reason Sierra Nevada Brewing Co. selected Mills River, N.C., for its second brewery and first in the eastern U.S. (North Carolina’s beer taxes are about 50 percent of Tennessee’s.) Virginia is actively recruiting Kingsport craft brewer Studio Brew, offering a reported $500,000 in incentives to leave Tennessee. The drink local movement has helped craft brewing become a fast-growing industry, one that is unlikely to see Tennessee as a welcome place to brew or sell beer.
The Tennessee beer industry is looking for a little relief in a bill introduced by Sen. Brian Kelsey, R-Germantown, that would convert the local wholesale beer tax from a percentage of the wholesale price to a tax by volume — the way federal and state excise taxes are calculated. Kelsey and Rep. Cameron Sexton, R-Crossville, who is sponsoring the House bill, say the conversion to a volume tax would not reduce the 2013 tax rate or the revenue paid to local governments; it would, however, stop the automatic tax increases based on wholesale price increases.
The bill may be a tough sell to local governments. Davidson County, for example, collected more than $15.5 million in wholesale beer tax in 2011 (then collected sales tax on top of that — how neat: a tax on a tax on a tax, a governmental dream).
The General Assembly should reform the wholesale beer tax to a fairer volume-based tax, or even better, reduce the tax. Tennessee, which ranks 42nd in beer consumption, should not be No. 1 in taxes on it.