I used the Show-Me Institute’s newest web tool, IDEAS: Interactive Database for Economic Analysis and Synthesis, to compare the tax rates on on beer, wine, spirits, and gasoline in Missouri compared with its eight neighboring states: Arkansas, Illinois, Iowa, Kansas, Kentucky, Nebraska, Oklahoma, and Tennessee.
We see that Missouri residents enjoy lower taxes on beer, wine, spirits, cigarettes, and gasoline than those who live in neighboring states. Kentucky is the only neighboring state that has a lower tax on spirits, and it’s only 0.8 cents lower than Missouri’s. As we’ve discussed before on Show-Me Daily, this discrepancy gives non-Missouri residents an incentive to travel to Missouri to purchase these products. As a positive unintended consequence, Missouri benefits from increased tax revenue.
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Note: The trend of taxation on spirits in Iowa looks wonky, and this is because Iowa’s state government directly controls the sale and distribution of distilled spirits within the state. Because they are taxed differently, it is difficult to compare spirits across states. Beginning in 2005, the graph shows an implied excise tax rate, which is calculated using a methodology that the Distilled Spirits Council of the United States (DISCUS) designed. The Iowa Alcoholic Beverages Division has an explanation on its website:
Tax on distilled spirits in Iowa is levied through a 50% mark-up on product sold through the Iowa Alcoholic Beverages Division wholesale liquor distribution system. The mark-up system was enacted with the privatization of state stores in 1987 and was originally set at 60%. The General Assembly reduced the mark-up to 50% later that year in April 1987.
I encourage our blog readers to use the IDEAS web tool to perform similar comparisons.
