Michigan's Liquor Taxes Among the Stiffest in the Nation

Liquor stores nationwide are about to see their first major revenue spike of the year during the week of the 4th of July. Independence Day brings about increased liquor sales in the states. Michigan is no exception, but with each hard-liquor purchase, Michiganders are paying significantly more to the state.

A recent Tax Foundation publication, How Stiff Are Distilled Spirits Taxes in Your State?, compares state distilled excise tax rates across the 50 states and the District of Columbia. With an excise tax rate on distilled spirits of $11.95 per gallon, Michigan has the 10th highest rate in the country.

All alcoholic beverages are subject to sin taxes – taxes that aim to reduce socially undesirable products and activities. It follows that spirits, which traditionally have a greater alcohol content than other alcoholic drinks, receive significantly higher excise tax rates. When compared nationally, though, Michigan’s tax on spirits is disproportionately higher than its other excise taxes.

Michigan taxes $0.20 per gallon on beer, $0.51 per gallon on wine, and $0.51 per gallon on champagne. When those rates are compared nationally, Michigan has the 29th highest rate for beer, the 35th highest for wine, and the 37th highest for champagne. That means Michigan has lower excise taxes on alcohol than over half the country, except for when it comes to distilled spirits, where it makes the top 10 highest.

Of those top 10 states, Michigan is included in the eight that are control states. Control states impose monopolies over the sale of alcoholic beverages which tends to drive up prices. The Michigan Liquor Control Commission uses their published goal to “promote the public health, safety, and welfare” to justify regulations.

Michael LaFaive, the senior director of the Morey Fiscal Policy Initiative at The Mackinac Center for Public Policy, has published two analyses, one in 2011 and one in 2020, that challenge the widely-accepted notion that increased regulation reduces the negative societal impact of alcohol consumption. His studies found that – regardless of whether a state imposed heavy control, moderate control, light control, or just required a license – there is little correlation between regulation and public safety. It is even noted that Montana, the only heavy control state, had the third highest alcohol-attributable deaths.

While the research found regulations on alcohol did not impact public safety, it did affect prices. Liquor prices were found to be 3% higher in control states. Additionally, a 10% increase in the length of a liquor control code was associated with a 10.4% increase in price.

The impact of Michigan’s excessive taxes on spirits is more vast than pricier liquor for the average Michigander. It hurts the state’s distilleries, especially small producers who are committed to sourcing locally.

“Michigan’s high excise taxes for distilled spirits makes it difficult for small distillers to compete with national brands that can afford to make less per bottle in Michigan, while making more in other states – they have the ability to offset those costs and we don’t,” said Scott Ellis, Owner of Michigrain Distillery. “Due to those higher taxes, the price-per-bottle for a small distillery is typically higher, which makes it difficult for bar owners to support their local distilleries, because they either have to eat that extra cost or their customers do.”

Michigan’s hard-liquor regulations promote higher prices and disrupt business competition while doing little to nothing for public health and safety. It’s time for Michigan lawmakers to question whether or not the state should continue its monopolistic regulation on alcohol.