Two Proposed Booze Taxes Could Give Local Govts $75 Million

Thursday morning’s House Taxation hearing fields three tax bills of interest to eaters and drinkers.

The Democratic caucus, rebuffed last week on its sensible call to focus the Amazon tax on lowering the sales tax on food, will present House Bill 1238, its traditional measure to zero the food tax and make up the difference with an extra 0.35 percentage points of sales tax on everything else.

After killing that bill, House Taxation will turn to two booze taxes. First, House Bill 1294 would impose a new tax on wholesalers and manufacturers of alcoholic beverages, including farm wineries and artisan distillers:

1. Malt beverages: 53¢/gallon.
2. Wines, ciders, and diluted beverages: $1.27/gallon.
3. Everything else alcoholic: $4.27/gallon.

Half of the revenues raised by this new hooch tax would go to municipalities in proportion to population. The other half goes to counties, with a quarter divvied up evenly among all counties and the other three quarters distributed proportionately to population.

Let’s run some numbers on HB 1294:

1. In 2015, South Dakotans consumed 22.8 million gallons of beer, 1.5 million gallons of wine, and 1.7 million gallons of spirits. (That’s the tenth-highest per-capita alcohol consumption in the U.S. Cheers.)
2. Applying HB 1294’s tax rates to the above quantities would produce $21.3 million in new tax revenue.
3. HB 1294 would split that sum into $10.7 million for cities and $10.7 for counties.
4. Every county would get $40,400 from the smaller uniform share of HB 1294’s county allocation.
5. Minnehaha County, with 21.6% of the state’s population, would get 16.6%($1.77 million) of the HB 1294 hooch tax.
6. Jones County, which has 0.11% of the state’s population, would get 0.46% ($48,989) of the HB 1294 hooch tax.
7. South Dakota’s ten most populous counties, making up 63.3% of the state’s population, would get 51.3% of the HB 1294 hooch tax.

House Bill 1308 seeks a new quarter-a-drink tax. It imposes per-gallon rates like HB 1294 but categorizes beverages a bit differently, taxing ciders like malt beverages instead of like wine:

1. Malt beverages and ciders: $2.66/gallon.
2. Wines: $6.40/gallon.
3. Distilled spirits: $21.33/gallon.

Apply those tax rates to the above 2015 consumption figures, and South Dakota gets $107 million in new revenue. HB 1308 keeps half of that hooch tax for the state to use on “any purpose related to alcohol harm, including public safety, alcohol treatment programming, underage alcohol and drug prevention programming, healthcare, mental healthcare, child and family services, or adjudication of alcohol-related criminal activity.” HB 1308 then divides the remaining revenue among municipalities and counties by the same formula used by HB 1294. Whereas HB 1294 simply deposits the money in the locals’ general funds, HB 1308 specifies that the locals use the hooch tax revenue for the same purposes as the state to address alcohol-related harms.

According to the above consumption data, HB 1308 would provide cities and counties with 2.5 times more money that HB 1294.

House Taxation will likely reject the Democrats’ revenue-neutral food-tax trade-off. But they will hear city and county governments clamoring for the $75 million these two revenue enhancers would give them to help them address the costs of alcohol consumption in their jurisdictions. Will House Taxation respond to the pressing needs of local governments? Or will they work to keep South Dakota’s reputation for low taxes and cheap booze? Find out Thursday morning in Room 414 at the Capitol!