Repeal Day: Illinois’ sobering alcohol taxes, regulations a reminder of Prohibition
With the ratification of the 21st Amendment, 1933 marked the end of Prohibition in the United States. The Land of Lincoln, however, has continued to serve a cocktail of prohibitive regulations on alcoholic beverages.
On Dec. 5, 1933, the country toasted to the ratification of the 21st Amendment to the U.S. Constitution, in celebration of its renewal of personal liberty. An entire industry that was outlawed overnight in 1919 had re-emerged from the underground, bringing with it a whole new sector of jobs and new tax revenues amid the Great Depression.
Punishing taxes and regulations the Prairie State imposes on alcohol sales, however, have left Illinoisans nursing a post-Prohibition hangover.
High-tax hangover
While Cook County’s notorious – now-defeated – “soda tax” generated headlines, most state laws restricting and taxing the sale of alcohol have quietly persisted.
Among neighboring states, Illinois has the second-highest taxes on beer, outmatched only by Kentucky, according to data from the nonpartisan Tax Foundation. Illinois’ taxes on distilled spirits are the 14th-most onerous in the U.S., and its wine taxes are 12th-highest.
Illinois’ high alcohol tax rates are especially hard on liquor retailers nearest to state borders, as Illinoisans flock to nearby states for cheaper drinks. Beer in Illinois is taxed at 23 cents per gallon, for example, while in Indiana it’s only 12 cents per gallon.
Bob Myers, president of the Associated Beer Distributors of Illinois, estimates Illinois is losing up to $30 million per year to cross-border alcohol sales.
Those losses might explain why some trade organizations have thrown support behind anti-competitive legislation.
Icing out competition
With the passage of the Liquor Control Act in 1934, Illinois established its alcohol distribution system, dividing it into three tiers: manufacturers, distributors and retailers. Under this system, manufacturers, such as breweries and wineries, produce alcoholic beverages and sell them to distributors – the middlemen – who then supply the product to retailers, such as bars and liquor stores.
While this arrangement is common among the states, Illinois policymakers have used it to tilt the table in favor of connected parties by restricting competition.
The restrictiveness of Illinois’ system was further cemented in 2016 when Gov. Bruce Rauner signed into law Public Act 99-0904, which, in addition to raising licensing fees, strengthened penalties against anyone who transports alcohol into the state without having obtained the requisite license. In some cases, running afoul of the statutory distribution system can trigger a Class 4 felony.
In November 2017, Crain’s Chicago Business profiled some small-business owners who’ve suffered under the law, as other states reciprocate by imposing restrictions on Illinois wine merchants who had previously shipped to customers in those states.
Recipe for reform
Fortunately, two recent reforms to the Liquor Control Act suggest that more permissive attitudes toward alcohol may be brewing in Springfield.
For one, Rauner signed Senate Bill 2436 into law in August, which gives local communities in Illinois more control over the process of liquor licensure. Previously, state law prohibited businesses located within 100 feet of a school, church or hospital from obtaining liquor licenses – unless state lawmakers passed a bill through the General Assembly granting a special exemption. State Rep. Sara Feigenholtz, D-Chicago, remarked at the time that, “Sixty-eight pages of the 72-page liquor control act are exemptions.”
The second reform Rauner signed into law this year was House Bill 4897, which overturned regulations that banned taprooms from purchasing and serving beer produced by outside breweries. The law also allows certain breweries to circumvent the state’s “three-tier” distribution system by storing fixed amounts of beer at their own offsite warehouse facility, rather than going through a wholesaler.
Regulations that narrow breweries’ beer and cider variety serve no conceivable purpose in regard to public health and consumer safety – nor do those rules designed to enforce the distribution chain of liquor. Instead, these laws protect established industry incumbents from competition posed by newcomers at the expense of consumers.
Illinoisans celebrating Repeal Day this year should drink – or brew – to the dismantling of overly restrictive laws that impinge on liberty in the Land of Lincoln.