The latest debate over Sunday liquor sales in Minnesota has featured claims that Minnesota is somehow missing out on $10 million in tax revenues.
I've debunked parts of this claim via twitter and comments sections, but thought it worth a post because this shows how interest groups can use data to mislead the public and policy makers. I wrote about this when it came up last session and won't repeat myself here.
Let's focus on this commentary by the Distilled Spirits Council published in the Strib with the subhead: "The Sunday ban on liquor sales costs state an estimated $10 million." The author says:
Colorado, the most recent state to enact Sunday sales, even saw its 2008 alcohol excise tax revenue collection increase by 6 percent despite the toll of the recession.
Well, not quite. Colorado's 2008 alcohol tax revenue, according to the state's annual report, only increased by 1.5 percent over 2007. But since Sunday sales took effect July 1, 2008, perhaps the author meant the 2009 fiscal year ending July, 2009. A Denver news report says:
Colorado State Treasury’s data shows that liquor, beer and wine tax revenues increased by $2,056,858 in the 12 months following July 1, 2008, when the bill allowing Sunday liquor sales went into effect.
Now, there may be various reasons why Colorado saw a bump in 2009, but why should we suppose the growth in FY 2009 was due to Sunday sales? Especially when Minnesota's alcohol tax revenues increased almost $3 million between FY 2008 and 09 [PDF], without benefit of adding Sunday sales?
Another claim made in the piece:
A national analysis of states that allowed Sunday sales between 2002 and 2005 (12 states) showed that in 2006 each state saw an average 5 to 7 percent increase in tax revenues.
I have no doubt that's true, since during the same period, Sunday-deprived Colorado saw a 10.3 percent gain and Minnesota saw a 3.3 percent gain.
In other words, revenue from alcohol sales slides around from year to year, and depending on the period you select, you can make the numbers dance your dance.
But the most troubling thing to me is the takeaway the Strib opinion piece is allowed to leave. Even by the Distilled Spirit Council's own estimate, only about half of Colorado's $2 million gain in one year could be attributed to higher liquor store sales. (Two percent of the 6 percent gain was the national average gain and about 75 percent of the alcohol taxes collected come from package liquor stores, according to the Council,)
Allowing for Minnesota's higher alcohol tax rate overall (it takes in roughly double what Colorado does), how do we get to $10 million more in tax revenue with Sunday sales?
And if you think the difference is coming from recaptured sales lost to Wisconsin, please comment here so I can debunk that one, too.
— Charlie Quimby
Cross-posted from Across the Great Divide
Count Sales Taxes, Too?
Since beer and liquor excise taxes are based on volume, not retail price, this revenue doesn't grow with inflation or consumption of higher-priced beverages. So Minnesota also has a 2.5 percent gross receipts tax on alcohol to account for sales growth. Some counties and cities also levy a liquor tax at retail. Excise tax amounts vary by product.
Only these alcohol-related tax revenues are reported by the state in the numbers above, so let's be generous and include the other retail sales taxes applied to alcohol sales in our attempt to justify the $10 million tax figure.
Just as an example, the excise tax on a 6-pack of strong beer is 8.4¢. The total sales tax on a $7.99 6-pack purchased in a Hennepin County suburb this week was 78¢ for a total of 86.4¢.
Counting all the state and local taxes applied to the sale, it would take more than 11.5 million additional 6-packs sold to produce $10 million in new tax revenue. Liquor excise taxes are much higher and would account for a portion of the increase, so obviously we wouldn't have to drink that much more beer.
But you get the idea. The a state that saw its liquor consumption drop by 8.1 percent in 2009 would have to see millions of additional sales with dollars that would otherwise be spent on non-taxable items in order to produce significant new tax revenues.
The Wisconsin Dash
Since it's unlikely Minnesotans will drink that much more if they are given one more off-sale day a week, another theory is that these increased tax dollars will come from Minnesota residents currently buying on Sunday in an adjoining state.
Most of these theoretical sales would have to come from Wisconsin, where the biggest tax differential between states exists — and where Minnesota has a sizeable population within a 20-minute drive to a Wisconsin border town. This is not the case in Colorado, but might be in Connecticut, where the same battle is ongoing, with the Distilled Spirits Council running ads that claim ending the ban will generate $8 million in new revenue per year.
The Distilled Spirits Council champions Sunday sales laws nationally, not the local retail sellers, and is the primary purveyor of the increased taxes story. The industry's own fact sheet [PDF] shows that liquor sales in Colorado were flat from calendar year 2008 to 2009, when the state went from half a year of Sundays to a full year.
No wonder the predicted numbers aren't showing up — the Council is looking for ways to boost its sales.