Six States Raise Wine Taxes

A handful increase taxes to close budget gaps, but many others reject them

Wine lovers in some of the country's biggest markets are paying higher taxes on wine at a time when customers are already trading down. State legislatures have raised alcohol excise taxes as part of their efforts to balance budgets during the recession.

While retailers in the six states that raised taxes are frightened they'll lose business during already tough times, 11 other state governments rejected possible tax increases. But with the economy just starting to show slow signs of recovery, the budget pain will undoubtedly continue, and higher taxes on wine aren't off the table yet.

Leaders in four states—Illinois, New Jersey, New York and North Carolina—approved excise tax increases on wine that range from 11 cents a gallon in New York to 63 cents a gallon in Illinois. Massachusetts and Kentucky consumers will feel the biggest pain, as both states changed their tax codes to apply sales tax on wine bought at retail stores.

Unsurprisingly, the wine industry was not happy. "Increasing the state excise taxes on wine results in eliminating jobs and raising prices on consumers," said Bobby Koch, president and CEO of the Wine Institute. "The economy is struggling right now, and we are doing our best to preserve the 820,000 jobs that our industry generates in the U.S."

Tax hikes on alcohol sales have long been a favored budget-balancing tool in hard times. So-called "sin taxes"—taxes on tobacco and alcohol—are usually more popular with voters than raising income taxes or property taxes. Retailers are reporting that consumers have been "trading down" in the past six months, buying lower-priced wines. Bottles selling for less than $10 have seen a big increase in sales. Any increase in tax obviously adds to the price.

Not surprisingly, anti-alcohol groups are supporting the proposed increases. Most were calling for increases during boom economic times, arguing that higher excise taxes are an effective way of curbing alcoholism.

But the vogue for sin tax hikes may be over. This was the second year in a row that many states opted not to raise the excise taxes, possibly a sign that wine's growing popularity has made it harder to hike the price. In 2008, 27 states voted down increases. This year, proposed hikes in 11 states failed.

But with unemployment over 9 percent as of September and plenty of budget red ink in next year's forecast, excise tax hikes may not be gone for good. "The wine folks are not out of the woods yet," said Patrick Fleenor, chief economist at the Tax Foundation, a nonpartisan think tank.