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What happened to the price of my beer?

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Anno Domini 2014, that's what happened. The new year brought with it some new tax laws, so bear with us as we attempt an explanation. I promise to make this as painless as possible, which means a minimum of math for you.

To begin, some basics of the industry. First, bars, pubs and restaurants operate under two different types of licenses in Texas with two different tax rates. There are places that serve only beer and wine (no liquor) with one license, and others that serve a full bar with beer, wine and mixed drinks under another license.

Second, these two different licenses have two different tax rates for on-premise sales. Beer-and-wine-only licensed sales are subject to state/local sales tax (currently 8.25%) but mixed beverage permits were not. Full-bar licenses had a separate excise tax of 14% on all alcoholic beverages -- beer, wine and liquor -- reported simply as a combined "gross receipts" of sales in their accounting. (This is an important detail.)

Third, taxes required by the state are usually built into the pricing of the beverage. (Ever wonder why drink prices are often whole dollar amounts?) This is the retailer adding in the tax to their own costs and rounding off pricing for ease of the transaction. You, the consumer, never saw this amount itemized on a tab but it has always been there.

Now for the 2014 changes: In an effort to increase transparency and equity in taxation, mixed beverage licenses are now subject to state/local sales tax as well with the excise tax being reduced from 14% to 6.7%. This new calculation yields about the same level of taxation as before (6.7 + 8.25 = 14.95%) and now you will see that sales tax appear itemized on your final bill going forward.

All this accounting really is the concern of the retailer but this is where the changes start appearing for you, the consumer. The retailer is required to pay the new taxes as described here but has the option of how to adjust their own pricing in response. Some places will continue to subsume the taxes in the final customer prices to maintain sales. Most are simply passing along the new sales tax directly to the consumer on the final bill, using last year's final beverage prices. This is why your $5, 2013 pint of beer is now a $5.41 pint in 2014.

Note this change is only to the mixed beverage license, and includes all sales. Even beer or wine purchased at a full bar will be subject to the new rate (remember, "gross receipts"), which is a little inequitable for beer consumers but just part of doing business with the tax man. Beer/wine-only establishments should not see pricing changes -- however, a few have now added explicit sales tax on the bill for reasons yet unclear.

Barely a week into the new year and new tax model, pricing is still in flux everywhere as retailers work to grasp the complicated details of the changes and adjust their prices verses costs accordingly. I would expect craft beer prices to float and shift for a month or two as owners and managers sort things out.

(Of course, I'm neither a tax officer nor an accountant, so anyone with authority or clarifications please step in and correct me where necessary.)

Cheers!
paul@scientist.com

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