MINNEAPOLIS (WCCO) — Minnesota House Democrats this week voted to raise the excise tax on beer, claiming it will raise the price only 7 cents a bottle.

But is that true?

It’s complicated, but the arithmetic holds up.

What’s still not known is how much it will cost beer manufacturers,  distributors, retailers, and bars.

As a generally accepted political principle, raising beer taxes can be perilous. But House Democratic lawmakers say the alcohol industry has had a free ride for a long time.

“The excise tax has not been raised in 26 years,” said Rep. Ann Lenczewski, the DFL chair of the House Taxes Committee.

She added: “I challenge anyone…to tell me which tax has not been raised in 26 years? It’s a very modest 7 cent tax.”

It’s true that Minnesota last raised alcohol excise taxes in 1987. But many are questioning whether a beer tax hike will cost “a very modest” 7 cents a bottle.

Here’s what House Democrats did this week:

They voted to raise the beer tax from \$4.60 per 31-gallon barrel, to \$27.75 per 31-gallon barrel. That’s a 600 percent increase.

For comparison, the same tax for the same 31-gallon barrel in Wisconsin is \$1.86.

Small brewers who manufacture up to 200,000 barrels a year, however, would be exempt.

Here’s how it’s calculated:

A barrel of beer holds 331 12-ounce drinks. Dividing the number of drinks by the current tax, it’s about 1.4-cents a beer.

Using the same arithmetic, the higher tax per barrel adds between 7 and 8 cents a beer.

Here is the exact calculation used by the House Taxes Committee, verbatim:

The current law tax is a \$4.60 per barrel. A barrel contains 31 gallons. Since a gallon contains 128 ounces, a barrel contains 3,968 ounces (31 * 128 = 3968). Each beer equals 12 ounces (at least that is the standard size of bottles and cans sold). So a barrel contains 331 beers (3968/12 = 330.67). The current tax on a beer equals 1.4 cents per beer (\$4.60/331 = \$0.0139).

The bill increases the excise tax per barrel to \$27.75 or an increase of \$23.15 per barrel (\$27.75 – \$4.60 = \$23.15). Going through the same calculations to reduce this \$23.15 per barrel increase to a per drink increase yields a tax increase of 7 cents per beer (i.e., \$23.15/330.67 = \$0.07). This is the effect of the excise tax increase that’s in the bill.

Assuming this gets passed-through to consumers (as almost all economic studies show it will), the state retail sales tax and gross receipts tax will ultimately get added to the ultimate price paid by the consumer. This will raise the price by 6.785% (general sales tax) and by 2.5% (the gross receipts tax). Applying the combination of these two state retail taxes will raise the burden of the 7 cents by about another cent (0.06875 + 0.025 = 0.09285; 0.09285 * 7 cents = 0.65 cent). So the total state tax burden increase is a little less than 8 cents (rounding up it’s 8 cents, rather than 7 cents). In places where there are local taxes, those local taxes will further raise the burden a bit, but those are not state tax increases.

There’s similar confirming data from the Department of Revenue:

The proposal would increase the excise taxes on beer, wine, and spirits equivalent to 7 cents per drink.

Assuming that a drink equals twelve ounces for beer, five ounces for wine, and 1.5 ounces for distilled spirits, the tax rates would be changed as follows:

Current/ Proposed

3.2 Beer (per 31-gallon barrel) \$2.40 /\$25.55

Strong Beer (per 31-gallon barrel) \$4.60/ \$27.75

Cider (per liter) \$.04 /\$.51

Regular Wine (per liter) \$.08/ \$.55

Strong Wine (per liter) \$.25/ \$.72

Sparkling Wine (per liter) \$.48/\$.95

Spirits (per liter) \$1.33/ \$2.91

But down the chain from the brewer to the bar, the higher cost will get multiplied by calculating various markups as a percent of the total cost of the product.

And beer distributors say it will cost more to make, to ship, and to drink — at least 14-cents a drink.

That’s Reality Check.

Here are some of the sources we used for this Reality Check:

Minn. House Research
Issue Paper on Alcohol Beverage Taxes

Minn. Alcohol Distributors
http://www.mndistributors.com/facts.cfm

Summary of House Taxes Bill
Including Alcohol Excise Taxes

Full Text of House Taxes Bill
House Taxes Bill

MN Revenue Department Fiscal Analysis of Effect of Alcohol Excise Tax Increase
PDF Document