State Liquor Control Taxes

On Saturday night, I was doing what I usually do, which is head over to the giant and amazingly well-stocked BINNY’S liquor store right by my condominium in Chicago (as documented in this “action” post) and roam the aisles a bit like a kid in a candy store before settling on some type of purchase. To my surprise, Binny’s was completely packed, with people who had shopping carts filled to the brim with every type of wine, beer and liquor. When I finally got up to the cashier (sadly enough, they recognize me and even let me in if I happen to be down there when the store is about to close) I asked what was going on and they said a tour bus pulled up out front from out of state and everyone was stocking up on liquor. The cashier said that this happens all the time. I asked the person behind me in line and she said that they were from Michigan and that she takes the tour every year around the holidays. I asked if this was legal and she kind of chuckled and that was that.
Sure enough, when I walked past the “Binny’s Booze Bus” the side doors facing the sidewalk under the seats were open and the spaces where the luggage was supposed to go were full of liquor of every variety, efficiently packaged by the case. (As an aside, I am switching back to cameras and kind of giving up on my Flip Video… because my posts were too boring w/out photos and the video software was too time consuming to mess with).

The first thought that crossed through my head was “I can’t believe that any taxes for anything are better in Chicago than anywhere else (other than our flat state income tax rate)” since we have the highest sales tax rate of any big city in the nation, and I figured we taxed liquor to death, too. But this bus full of booze-seeking Michigan residents offered tangible proof that the situation existed, so I decided to do some research.

Michigan does have higher liquor tax rates, although like everything else in our complicated state tax genre things are more complicated than they seem. According to this analysis, Illinois taxes liquor at $6.50 / gallon in Cook County (note the additional $2 surcharge over the $4.50 state rate) which seems higher than most. But Michigan is footnoted in this document. I went over to the Tax Foundation (a great organization that I encourage everyone to consider some sort of contribution to) and they calculated that the effective rate in Michigan was $10.53 and that the state controls all liquor sales so that this calculation was an estimate (which is why the other analysis was incomplete on Michigan). So by this relatively simple analysis it does look like there are some savings to be had in Cook County by these booze-tourists, but doing some more research I noted that another state on Michigan’s border, Indiana, had FAR lower tax rates of $2.68 / gallon. Sure enough, the State Police of Michigan have picked up on this obvious disparity and issued a Michigan State Police News Release titled “Alcohol Importation Laws to be Enforced” which explains the amount of alcohol that a resident can bring into the state and notifies residents that these laws will be enforced because of “numerous violations of state law in regards to importation of alcohol and spirit liquor”.

I have to take a quick time-out from the semi-meandering Binny’s to state liquor taxes to ask the obvious question – don’t police in Michigan have something better to do with their time than enforce laws designed to stop legal over 21 residents from purchasing liquor out of state? Like maybe tackling violent crime in a state famous for violent crime and anarchy?

Back to the post – the question is why were these tourists coming to Chicago for their booze purchases and not visiting Indiana, which had a greater tax disparity? All apologies to our blog-mate at LITGM Gerry, but there are a few other tourist attractions in Chicago that you don’t see when you cross the border into Indiana such as downtown and museums and everything else. So it seems to me that this group of modern day tax scofflaws weren’t solely focusing on the tax rates, but trying to combine a nice tourist visit with a bit of locally purchased cheap-er booze.

When you get to tax policy effects, there are two main elements of a sound tax policy – 1) raising revenue 2) encouraging some sort of behavior. Since prohibition, people have generally given up on limiting alcohol consumption (that temperance movement, by the way, was really centered in Evanston Illinois and only recently did some of those northern suburbs of Chicago allow locally purchased alcohol). Thus these policies are really only all about raising revenue for the state of Michigan on the backs of their drinkers. When compared with other types of revenue raising strategies, liquor taxes are reasonably effective because liquor is bulky and it is a deterrent due to the fact that it is a pain to load your car with liquor and drive to another state and then drive it back. Wine is easier to transport than beer but the states have been trying to kill interstate wine shipments for years to preserve their local tax monopolies.

I guess for the very frugal there is the fact that if you purchase the beer bottles in Illinois you don’t have to pay the 10 cent deposit return that Michigan is famous for and which was memorably mentioned in a famous TV episode where they attempt to fill a mail truck with bottles and drive them from NY to Michigan for the refunds.

So, all in all, Illinois has a slight edge on taxes over liquor from SOMEONE (certainly not Indiana). I guess that is a minor victory in the endless tax battle that we are fighting (and losing) in Illinois.

Cross posted at LITGM

20 thoughts on “State Liquor Control Taxes”

  1. Michigan is not the only state that owns and operates liquor stores. So does my home state, Pennsylvania, as do 20 other states.

    In Illinois you have many different brands of scotch, not so in Pa. The High Liquor Commissioner decides the brand that is sold in Pa after reviewing “sales materials” submitted by interested parties. Only those liquor producers with deep pockets can get their brands on the Control state store shelf. “Sales materials” cost over $120 billion per year in order to get shelf space in control states. Many small producers simply cannot raise enough money to get in the store. Others are too honest.

    Any Free state has roughly ten times as many brands as a Control state. Those tourists are buying products which are brands, styles, sizes or promos that will never be sold in the Control states.

    When the state runs a business, the customer suffers. That is why so many Canadians come to US for health care.

  2. Nonsense. New Hampshire has state stores and the prices are much less than in Mass and Ct and so folks from “free” states load up in N.H. I can not speak for your area but to blame it on the state control is just plain wrong. In fact how many Canadians come to the US for health services and hence indicate they can afford it. More and more Americans are going out of the country for better care, better prices –ie, India etc. Look it up before again boasting about are great health system–it is for those who can afford it. others use emergency rooms and our insurance plans cover this for them because the hospitals pass on ER costs to those with health plans

  3. Joseph Hill,

    New Hampshire has state store…

    Yes, but New Hampshire appears to make a lot of money from out of state sales. If the government is subject to market forces, then it’s customers will receive the benefits of market forces. If the state could not offload their taxes onto residents of other states, you would see liquor prices rise without a doubt because it happens everywhere else. The the compact nature of the states of New England mean that they experience effects not common to other states.

  4. Impossible to argue with you folks. Now it is geography that makes the state stores cheaper in N. H. so state stores are essentially no good but if market forces etc etc…Hey, N.H. using the market and other buying from it. That is the free market at work! and it works. Perhaps not out your way but you certainly don’t want to impose your system on those who have found a good one, do you? In fact, skipping taxes by buying in N.H. is illegal in Ct and Mass, though of course as in so much else of the under the counter market in America it is done.

  5. Not to knock New Hampshire but it essentially is a highway stop on the East Coast… it is a much bigger deal to have a pretty large state like Michigan (or Colorado, or Montana) take the state controlled liquor store approach, because adjacent states are often pretty far away. My experience with New Hampshire is pretty much driving through on the way to Boston, so I don’t know much.

  6. Joseph hill,

    Your problem is that you think of the free-market as political slogan instead of a collection of specific practices. The practices work regardless of who practices them. As long as consumers can freely choose between which producers and distributors they buy from then a free-market exist.

    In this case, we have a circumstance in which consumers can choose to buy liquor in several different states from a multiplicity of buyers. The average person in, say, Connecticut, can easily drive to Rhode Island, Massachusetts, New York, Vermont, New Hampshire and Maine. Given New Hampshire’s much lower cost of state government, they quickly realized that they could make a killing by charging less that prices imposed by surrounding states on alcohol and tobacco.

    If you want to argue against the idea of state stores, you need to control for variables such as state size. Compare Michigan’s or Pennsylvania’s state stores to state stores in states with a similar size and ease of out of state travel. Don’t try to compare Michigan to a state with a population of of a upper range mid-sized city, indeed only slightly larger than Detroit city itself.

  7. …don’t police in Michigan have something better to do with their time than enforce laws designed to stop legal over 21 residents from purchasing liquor out of state? Like maybe tackling violent crime in a state famous for violent crime and anarchy?

    From the POV of the police, no, because violent criminals don’t have money and tax scofflaws are less unpleasant to deal with. Police often function under incentives that encourage revenue collection over other activities.

  8. Joseph Hill says: New Hampshire has state stores and the prices are much less than in Mass and Ct and so folks from “free” states load up in N.H.

    I grew up in New England (CT to be specific) and then went to school in NH. Among the reasons that alcohol is cheaper in NH is that there is no sales tax (as well as cheaper prices). My dad was a salesman, and whenever he was going to pass through NH, he’d stop at the big state liquor store on the highway between Concord & Manchester, and bring home a case of wine.

    I don’t think people are trekking two hours to NH simply to buy alcohol; but if you’re visiting the state for any reason, it certainly is worth a visit to the local “ABC store”.

    Seeing how incredibly busy Chicago liquor stores always are, it makes one wonder if a 10 cent tax on every bottle of alcohol sold would help fund the CTA. ;)

  9. People in Massachusetts absolutely (no pun intended) do travel two hours to NH to buy liquor, usually taking the opportunity to stock up. And my in-laws regularly travel from the northern outskirts of Philly down to Delaware to avoid having to shop at the PA state stores, both for reasons of price and of selection.

    By the way, the no-sales-tax prices at the NH state stores are very comparable to the with-Chicago-taxes prices at large stores like Binny’s and Sam’s.

  10. The Temperance movement was centered on Evanston, Illinois?! Wow, having just visited the area and having bounced between all of the local restaurants, I can only imagine the impact if Prohibition had not been repealed..

  11. It is only recently that you could buy booze in the northern suburbs of Chicago (you could drink, but there were few bars and many restaurants didn’t serve alcohol, and there were few or no liquor stores). My father went to Garrett seminary at Northwestern.

    A version of the same issue is that that Highwood which is right next to all the rich suburbs up there was the only little town where they had lots of restaurants and booze and they used to do big business before everything opened up. Now that whole town is being torn down and redeveloped because their schools failed and were merged with Highland Park.

  12. Ohio had a state store system as well. Over the last few years, the retail stores were privatized, but the wholesale monopoly remains in place. Here is the price list.

    I go up to Chicago frequently because two of our kids are up there. I buy booze in Chicago when I want items that are not available in Ohio, such as Wild Turkey Rye, and Old Fitzgerald Bourbon. I do not have the impression that prices are very different.

    We spend a lot of time in Evanston. Even in the years that we have been going up there (since 2000) when the oldest child started Northwestern (the youngest is a sophomore now) the sophistication of eateries has increased immensely. The ghost of Francis Willard has been exorcised. EV-One liquor on Davis is pretty good.

    I have never been to a binny’s. I need to give it a try. There is one a couple of blocks from our daughter who lives off Lincoln Park.

  13. Binny’s is very good, and so is Sam’s.

    One day I will write a post about that parking lot at Sam’s and best buy during xmas – it is literally insane. You have a seizure just thinking about parking there, and I stumble back and forth from binny’s, so I choose binny’s, but I am sure that if a sams was across the street I would just go there, instead.

  14. Under the heading of wacky liquor laws.

    Texas lets each country vote itself wet or dry and then in wet counties each precinct can vote itself wet or dry. Further, each county can set it own rules for liquor sales in establishments and stores. Its changed a lot but back when I was a stupid kid, I mean young adult, you had to know the local rules to a drink in any particular town.

    One trick was for liquor store owners to incorporate themselves into a little town just outside a dry area, vote itself wet and then cram the town with liquor stores. In the seventies, they did this outside of Abilene and founded the town of “Impact”. Impact had four mobile homes and five liquor stores all in area the size of strip mall. The store owners let people live in the trailers for free as long as the followed their enlightened self-interest and kept voting Impact wet.

    A similar institution evolved outside of Lubbock. A strip of highway side property perhaps 2 miles long got voted wet. It was the only wet jurisdiction for a hundred miles. The put giant liquor box stores there with drive through lanes and dollies to wheel out the booze to your truck.

    It did teach me an important political lesson. Every few years people in Lubbock would try to vote the town dry and every time the issue came up, the religious conservatives argued strongly against it and the liquor store owners donated a lot of money to the cause to ensure their continued monopoly.

  15. It may also have to do with the fact that Chicago is big enough and far enough away that the MSP can not patrol the stores. I agree that there’s not much to see in IN (I went to school there), and most of the MI-native purchases were probably made at stores just over the border, which the Michigan authorities can monitor.

    WVA had this issue when I was a kid, and WVSP and WVLCB undercovers used to case the stores just over the the VA and MD borders to see if any WVA plates were in the store parking lots. Then they’d alert the cops waiting over the borders to stop such and such a car with plate XYZ 123. Barstuds.

  16. Three points:

    1. The biggest liquor stores I’ve ever seen by far were a Sam’s in Chicago and the New Hampshire state store(s?) on I-95. (I forget whethere there are actually two stores, one for each direction, or one with ramps to both sides of the Interstate — it’s been a few years.) I don’t know which was bigger, but both were huge. I-95 in New Hampshire is only about a dozen miles from the Massachusetts line to the Piscataqua River Bridge into Maine, and it’s obvious that most sales in the store were to out-of-staters passing through one way or the other. Not all of these were from Massachusetts or Maine — a lot of New Yorkers would stop by on their way to Maine vacations. It appears that New Hampshire was making up in volume (and then some) what they lost by charging lower taxes per gallon.

    2. State stores don’t just have a limited selection of brands, they have a limited selection of liquors. Here in North Carolina I cannot buy any brand of Calvados or Akvavit, just to name two tasty liquors. I don’t believe they’re available in Virginia state stores, either, so I would have to go all the way to D.C. or Maryland to get any brand of either, assuming that’s even legal. I find that really annoying.

    3. I don’t know about North Carolina — haven’t checked — but it’s illegal to bring more than a certain amount of liquor into Virginia — 1 liter per month, I think it was last time I checked. For a while, something like 10 or 15 years ago, undercover Virginia law enforcement officials were hanging around the parking lots of the larger D.C. liquor stores copying down the license numbers of anyone with Virginia plates seen loading significant quantities of liquor into their cars. They radioed the numbers to colleagues, who arrested the drinkers and confiscated their liquor as soon as they crossed one of the bridges back to Virginia. That stopped when the D.C. police started arresting them on charges I’ve since forgotten (interfering with a legitimate business? loitering?).

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