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Massachusetts Question 1: Sales Tax on Alcoholic Beverages:

Posted on  | October 12, 2010   Bookmark and Share
Written by | Robert Dwyer

Why Deciding How to Vote is Harder Than You’d Think

History tells us Massachusetts voters are willing to support tax increases, especially when they’re convinced it’s for a good cause. Need to build a new high school in your town? Chances are the tax increase will find support because folks in Massachusetts think highly of public education - especially in their own towns. What about a tax on alcohol earmarked for behavior health services? Do voters support funding these programs with an alcohol tax? We’ll find out November 2nd when voters cast their ballots on Question 1: Sales Tax on Alcohol Beverages.

Massachusetts hasn’t had a sales tax on alcohol since prohibition. Amidst an economic downturn in 2009, the state legislature decided to raise the sales tax rate from 5% to 6.25% and make alcoholic beverages subject to sales tax for the first time. Massachusetts retailers, especially those near the borders, say their business has suffered as a result.

Those opposed to repealing the alcohol tax say alcohol isn’t a necessity and does not deserve a special exclusion. They say revenues from the tax provide dedicated funding for more than 100,000 residents with behavioral health problems. Further, they point out that nearly every state has sales tax on alcohol in addition to an excise tax.

Those in favor of repealing the alcohol tax point out consumers have always paid a substantial excise tax. They consider the sales tax an unfair double tax since the excise tax is subject to sales tax. They suggest a vote to eliminate the sales tax on alcohol is a vote for to help small businesses.

Another way to look at this is to compare Massachusetts’ overall tax rates on alcohol. According to The Tax Foundation the state’s excise tax is surprisingly low. Compared to other non-control states, the Massachusetts beer excise tax ranks 10th lowest out of 42 states. Wine is 18th lowest out of 41 states, and spirits is 17th lowest out of 28 states. The other states in this comparison all charge sales tax on alcoholic beverages.

That’s pretty compelling evidence in favor of maintaining the taxuntil you consider that a state’s overall tax revenue is comprised of all the taxes its citizens are subjected to: Income tax, property tax, motor vehicle excise tax, tolls, etc. No single tax should be viewed in isolation of others. In this context we should ask: Did the appropriate tax rate for alcoholic beverages suddenly change in 2009? Or did the state’s need for revenue suddenly change? I would argue it’s the latter, and a yes vote on 1 is a way to roll back that mistake.

My view? If funds are needed for state-operated rehabiliation programs then increase the excise tax. Why? Because if you want to discourage excessive alcohol consumption you do it by taxing alcohol based on volume (as the excise tax does) rather than by dollar value (as the sales tax does). That’s why I’m voting yes on 1. But arriving at that conclusion was more complicated than I thought it would be.

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Robert blogs about wine at The Wellesley Wine Press where he’s been helping consumers enjoy wine more while spending less money since 2008. He’s completed WSET Intermediate coursework and has trained as a mixologist. You can connect with him on Twitter: @RobertDwyer

Comments

7 Responses to “Massachusetts Question 1: Sales Tax on Alcoholic Beverages:”

  1. Nathan Williams
    October 13th, 2010 @ 10:57 am

    It’s a good point that the excise tax would be a better control knob than the sales tax. However, I haven’t seen any such legislation or referendum on offer, so I’m not sure that this makes a compelling argument in terms of the upcoming vote.

  2. Robert Dwyer
    October 13th, 2010 @ 2:07 pm

    Thanks for sharing your thoughts on this Nathan.

    For me, the lack of a concurrent opportunity to increase the excise tax doesn’t justify retaining the sales tax. If indeed the right thing to do here is raise the excise tax and remove the sales tax we should move towards that one step at a time as we have opportunities. An opportunity is here now and as voters I think we should take it.

  3. Michael
    October 14th, 2010 @ 9:08 am

    If you want to discourage excessive alcohol consumption by making alcohol more expensive, then you want to use a combination of excise tax and sales tax. The excise tax disproportionately affects the low end of the market, because its effect on higher end alcohol is a small percentage of the selling price. Using the excise tax keyed to volume rather than price makes alcohol more expensive for poor people.

    For example, take a poor person who wants a $5 bottle and a rich person who wants a $50 bottle. Adding 6.25% to the price of each bottle makes them cost $5.31 and $53.13. The increase is 31 cents vs. over 3 dollars. Raising that same amount of revenue through the excise tax instead would mean adding $1.72 to each bottle, adding 34% to the price of the cheap bottle and only 3% to the price of the expensive bottle. That’s why the sales tax approach may seem more fair to many people, since it doesn’t raise all the revenue on the backs of the bottom of the market.

  4. Robert Dwyer
    October 15th, 2010 @ 7:41 am

    I think you raise a valid viewpoint Michael. Thanks for your comment.

    What’s the logical link between the rich person in the example who buys the $50 wine and state behavioral health services though? Shouldn’t money for these services come from the general fund?

    The current excise tax rate on wine is only a dime a bottle. I’m saying it seems low compared to other states. I think the excise tax should be increased. I don’t think increasing the cost of Charles Shaw from $2.99 to $3.09 would be a problem, and it would fund state behavioral health services as desired.

  5. jr
    October 15th, 2010 @ 11:47 am

    I think this really points out that the whole issue is being discussed in an information vacuum. Is the tax in fact meant to discourage consumption of alcohol? Its supporters claim that alcohol sales have actually increased since it was instituted. What are the success rates of the state-funded alcohol rehab/education programs? Does all of the tax money in fact go to them? (From what I have read, it does not necessarily.) What are the demographics of people who use state-sponsored alcohol rehab programs, and might it indeed be fair to more heavily tax certain types and price categories of beverages? Right now, this discussion is more about our wishes and hopes than about data, which is scary, because this involves actual money going someplace.

  6. Robert Dwyer
    October 19th, 2010 @ 9:22 am

    @jr your comments are on point. This vote is going to occur in an information vacuum. It’s discouraging seeing our elected officials, newspaper editorials, and folks arguing the issue from both sides presenting everything but the information I think voters need to make an informed decision on this issue.

  7. John
    November 2nd, 2010 @ 2:17 pm

    Compared to other non-control states, the Massachusetts beer excise tax ranks 10th lowest out of 42 states. Wine is 18th lowest out of 41 states, and spirits is 17th lowest out of 28 states. The other states in this comparison all charge sales tax on alcoholic beverages. — Wouldn’t a better comparison be comparing MA total taxes with total taxes rather than just comparing the MA excise tax against total taxes or excise tax v. excise tax?