Tax Foundation map shows Tennessee has low beer excise taxes

Editor’s note: On Friday we published an item that ruled as False a claim the Tax Foundation made with a map that shows Tennessee ranking among the lowest in the nation in beer excise taxes. That item incorrectly characterized the map, which was labeled "State Beer Excise Tax Rates," as displaying overall tax rates on beer. We have changed the ruling statement to the more narrow definition of "beer excise taxes" and adjusted our ruling.
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A map published by The Tax Foundation makes it look like Tennesseans can get a cold one without paying too much in taxes.

On the March 5 map, titled "State Beer Excise Tax Rates (Dollars Per Gallon)," Tennessee is ranked No. 39, at $0.14 per gallon, well behind the top three states of Alaska ($1.07), Alabama ($1.05) and Georgia ($1.01).

This led to media reports saying that Tennessee has some of the lowest beer taxes in the nation, including one blog post that led with: "Tennessee may be in the Bible Belt, but its taxes on beer . . . are among the lowest in the country.""

But Linus Hall, brewmaster for one of Tennessee’s most successful craft breweries, Yazoo Brewing, pushed back on Twitter: "Do your homework! TN has 17% wholesale tax on top of excise tax, giving us the highest beer taxes in the country!"

Indeed, for years the Tennessee Malt Beverage Association, which represents beer wholesalers, has contended that the taxes Tennesseans pay for beer are among of the highest in the nation, so we decided to look into the claim.

The Tax Foundation map lists Tennessee’s flat per-barrel excise tax paid directly to the state, which has for many years stayed constant at $4.29 per barrel. Since there are 31 gallons in a barrel, that translates to about 14 cents per gallon, which is pretty low compared with flat per-barrel rates levied by other states. A color-coded map key puts Tennessee in the "Low Beer Tax" category.

An "excise tax" is "an indirect tax charged on the sale of a particular good," according to the website Investopedia. It is considered indirect "because the government does not directly apply the tax. An intermediary, either the producer or merchant, is charged and then must pay the tax to the government."

The industry’s national lobbying arm, the Beer Institute, calculates Tennessee’s beer excise tax rate by also including the 17-percent wholesale beer tax referenced by Yazoo’s brewmaster (the Institute does the same thing for Kentucky’s 11-percent wholesale beer tax). That tax, mandated by the state but applied and collected at the local level, pushes Tennessee’s beer tax to $35.61 per barrel, the highest in the nation by the Institute’s rankings (Kentucky moves from 45th in the Foundation rankings to seventh in the Beer Institute’s).

Put another way -- in 2010, a total of $16.6 million in beer tax revenue was collected by the state for its flat $4.29 per-barrel tax, but $122 million in beer tax revenue was collected by local governments for the 17-percent wholesale beer tax mandated by the state. For the consumer, these beer taxes are unavoidable, although as any beer-loving resident of a border county can tell you, beer is often cheaper in Mississippi, Alabama and Georgia (even if the Tax Foundation map suggests otherwise).

We found inconsistencies in the Tax Foundation's map. A footnote says, "Local rates are excluded unless they are statewide and uniform. Alabama and Georgia include statewide local rates." But we found that standard was not applied to Tennessee, which has a 17-percent wholesale tax on beer that is statewide, uniform and mandatory. Including the revenue it produces would push the state to No. 1 on the Tax Foundation’s rankings, just as it is ranked by the Beer Institute.

An email challenging our False ruling from Tax Foundation vice president for legal and state projects, Joseph Henchman, said a more appropriate ruling would be "True But Not Comprehensive." Richard Morrison, manager of communications for Tax Foundation, wrote in an email: "Yes, multiple taxes affect the ultimate price of beer in Tennessee – and if we had wanted to do an in-depth study on how the final retail price if beer is affected by all of those taxes, we would have. But that’s not what we did, and it’s not what we said we did."

Still, there is that footnote on the map that indicates the Tax Foundation included local tax rates in making Alabama and Georgia Nos. 2 and 3 in its rankings and it also says the ranking includes it applies "sales taxes specific to alcoholic beverages" in Maryland, Minnesota and D.C. So we find the map is inconsistent and misleading.

Scott Drenkard, an economist with the Tax Foundation, said the organization got its excise tax figures from the Distilled Spirits Council of the United States (DISCUS), which represents the liquor industry and had the most recent data available, September 2011. He said it can "get a little hairy" trying to factor in all the various state and local taxes on beer, but in an email Monday said the Tax Foundation’s map attempts to include what he called "statutory" tax rates and not "effective" rates. He also said local alcohol-specific sales taxes were included in calculating the excise tax rate for beer in Arkansas.

"A statutory rate is the legally imposed rate, whereas the effective rate is what is actually paid when the smoke clears." He explained later in the email: "The map does not purport to be anything more than it is: a statutory excise tax rate map on beer at the point of sale."

Drenkard said the Tax Foundation ultimately determined that the Tennessee wholesale tax on beer, despite being uniform and statewide, fell into the "effective" tax rate category and not the "statutory" one: "Tennessee has a ‘wholesale’ tax levied on the wholesale price, but collected at the retail level. Is this properly considered a wholesale tax, or a retail tax? We think this is simply a judgment call."

Rich Foge, a lobbyist for Tennessee’s Malt Beverage Assocation, and Jason Baird, Foge’s counterpart in Kentucky, both were surprised rankings of beer excise rates would exclude the high wholesale beer tax rates in both states. Lester Jones, the Beer Institute’s economist, makes his rankings of beer excise tax rates include things like city-specific beer and alcohol taxes, and says Tennessee and Kentucky’s wholesale beer taxes -- mandated statewide but paid at the local level -- should definitely be included.

"If you are going to include local taxes for Georgia and Alabama and other states and not include ours, then that map is false," Foge said. He added that it concerned him that DISCUS, which lobbies for liquor, was used as the Tax Foundation’s source on beer taxes. "Those are our competitors," Foge said. Drenkard said DISCUS figures were used because they were more recent than the Beer Institute’s tables showing breakdowns effective excise beer taxes for 2009 and 2010.

Hall, the Yazoo brewmaster, said that by including some local tax rates and not others, he felt the Tax Foundation had created a "misleading" map. "Anybody who wasn’t familiar would look at that map and get the opposite impression of what the truth is," Hall said.

Foge contends that even the Beer Institute’s calculation of Tennessee’s highest-in-the-nation $35.61 per barrel in beer taxes doesn’t tell the whole taxing story. That’s because when you buy a six-pack at the supermarket, you also pay sales tax on the purchase – an average of 9.25 percent statewide (state sales tax is 7 percent and local governments can tack on up to another 2.7 percent). See this PolitiFact item for our ruling on Tennessee’s high sales and grocery taxes being among the nation’s highest.

The wholesale tax is paid by beer wholesalers based on the value of the beer at wholesale level (including their profit markup), which varies from brand to brand. But when the 17 percent is added, that becomes part of the price at the retail level. Thus, Foge notes, the sales tax is in fact "a tax on taxes."

Since the wholesale tax is based on value, it increases as prices increase for beer – as they have over the years. Thus, the wholesale beer tax the state mandates be paid at the local level rises as beer prices go up while the flat "per barrel" beer tax paid directly to the state remains stable.

Hall, the brewmaster, said Tennessee’s taxes on beer mean Yazoo makes a higher profit off beer sold in other states, even factoring in shipping costs. Foge said that’s a big reason why many Tennesseans in the beer business find it "infuriating" when reports fail to include the wholesale beer tax when calculating Tennessee’s overall beer excise taxes.

Our ruling

The Tax Foundation published beer excise tax figures that included local taxes for other states, but excluded Tennessee and Kentucky’s wholesale beer taxes. While the map is accurate that Tennessee has a flat per-barrel beer excise tax of $0.14 per gallon, excluding the statewide wholesale beer tax creates a misleading impression that Tennessee’s beer taxes are among the lowest in the nation.

We rate the claim Half True.

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