The alcoholic beverage industry is subject to high excise taxes at both state and federal levels. At the third tier of the distribution system, retailers such as bars and restaurants are subject to state sales tax.
The state excise tax varies considerably from state to state and across the three categories of alcoholic beverages, or beer, wine, and spirits. For instance, Washington imposes the highest excise tax on spirits at $35.22 per gallon, compared to $12.80 in Alaska.
Spirits, the highest taxed category
Distilled spirits are taxed at a federal excise tax of $13.50 per proof gallon, which amounts to ~$0.21 per ounce of alcohol. Beer is taxed at $18 per barrel, or ~$0.10 per ounce of alcohol, assuming that the average alcohol content of beer is 4.5%.
Federal excise tax for wine is $1.07 per gallon, or ~$0.08 per ounce of alcohol, assuming an average alcohol content of 11%. The federal excise tax on alcoholic beverages was last raised in 1991 and prior to that in 1951.
Industries such as alcoholic beverages, tobacco, and gambling are burdened with heavy taxes by the government. Often called sin taxes, these taxes are imposed on products or activities that are considered socially undesirable.
Alcoholic beverage and tobacco companies such as Constellation Brands (STZ), Anheuser Busch InBev (BUD) (ABI.BR), Altria Group (MO), and Philip Morris International (PM) are part of the consumer staples sector, which constitutes about 9.70% of the SPDR S&P 500 ETF (SPY) and ~9.59% of the iShares Core S&P 500 ETF (IVV).
According to the Alcohol and Tobacco Tax and Trade Bureau, the annual tax revenue of about $23 billion obtained from the alcoholic beverage, tobacco, firearms, and ammunition industries is used to fund national priorities.
The Distilled Spirits Council of the United States says that the direct alcohol excise and sales taxes levied at the federal, state, and local levels account for more than one-third of the shelf price of many popular brands. The government at all levels earns $2 from the sale of alcoholic beverages for every $1 earned by producers, wholesalers, and retailers.