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A Note on Small, Locally-Owned Liquor Stores in Massachusetts and the Alcohol Sales Tax

What ever happened to the sales tax on alcoholic beverages?

In November 2010, the Massachusetts sales tax on alcoholic beverages was voted out by a margin of just under 4%. The sales tax on alcoholic beverages lasted just over one year (enacted on August 1, 2009 and repealed January 1, 2011), which is remarkable considering that Prohibition endured 13 years, surviving through three presidential administrations after its enactment.

As many residents of Massachusetts have observed, the Commonwealth has maintained a temperate mindset toward alcohol that began with the Puritan settlers, by enacting and maintaining multiple laws restricting the sale and consumption of such beverages. The Commonwealth has heavily regulated transactions involving alcohol, going so far as to forbid several practices permitted in other states including happy hours, selling alcohol on certain holidays including Thanksgiving and Christmas, and the purchase of alcohol before noon on Sundays.

Long before the sales tax was added to the purchase price of alcoholic beverages in Massachusetts, there was an excise tax in place. The tax is a fastidious one, with a rate adjusted according to the type of alcoholic beverage (beer, wine or liquor) and amount of alcohol it contains. For example, alcoholic beverages containing more than 50% alcohol are taxed at a rate of $4.05/wine gallon, Alcohol sold in containers of one gallon or less at $4.05/proof gallon, and wine at $.55/wine gallon. The proof is important in terms of taxation because the Federal Government taxes by the “Proof Gallon.” The difference between a Proof Gallon and a Wine Gallon is as follows; 200 proof, pure Ethanol has two (2) “Proof Gallons” per every one (1) gallon of Alcohol. The actual physical quantity of one (1) gallon is then referred to as a “Wine Gallon.” 190 proof Ethanol has 1.9 proof gallons per wine gallon of Ethanol.

The average purchaser of alcoholic beverages in the Commonwealth is likely unaware of this excise tax because it is absent on sales receipts, while the sales tax is clearly printed below the subtotal. The presence of the double tax that a sales tax on alcohol would create was one of the two major rationales stated by proponents of the sales tax repeal. The second criticism of the sales tax on alcohol is that it drove many customers to New Hampshire to make their purchases, putting Massachusetts liquor stores near the New Hampshire border in dire straits, and steering revenue and jobs across state lines. This is particularly troubling in Massachusetts given that most liquor stores in the state are small, locally-owned businesses as a result of the state law which forbids any person or entity from holding more than three liquor licenses in the Commonwealth for the purposes of operating a liquor store which sells alcoholic beverages that are not intended for consumption on the premises;

“No person, firm, corporation, association, or other combination of persons, directly or indirectly, or through any agent, employee, stockholder, officer or other person or any subsidiary whatsoever, shall be granted, in the aggregate, more than three such licenses in the commonwealth.”

This law gave support to the argument of those advocating for a repeal of the state sales tax on alcoholic beverages because not only did the additional tax detract from the customer base of Massachusetts liquor stores, but those liquor stores on the border of New Hampshire suffering the most were small, locally owned businesses. Although the repeal of the alcohol sales tax is a step in the right direction, repeal of all of Massachusetts’ outdated liquor laws (such as prohibiting sales before a certain time on Sundays or holidays) would benefit the Massachusetts economy by boosting the revenues of many small, locally-owned and Massachusetts-based businesses.

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