Repeal Day: Illinois’ sobering alcohol taxes, regulations a reminder of Prohibition

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. But that hasn’t stopped the Land of Lincoln from serving a cocktail of prohibitive regulations on alcoholic beverages.

On Dec. 5, 1933, the country celebrated as the ratification of the 21st Amendment to the Constitution ushered in renewed personal liberty. An entire industry that was outlawed overnight in 1919 emerged from the underground, bringing with it a whole new sector of jobs and new tax revenues amid the Great Depression.

Alcohol taxes and regulations in the Prairie State, however, still impede the freedom of Illinoisans.

While Cook County’s notorious – now defeated – “soda tax” generated headlines, state laws restricting and taxing the sale of alcohol have quietly persisted.

Among neighboring states, Illinois has the second-highest taxes on beer as of January 2017, next to only 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 the 11th-highest in the country as of January 2017.

Illinois’ high alcohol tax rates are especially hard on liquor retailers nearest state borders, as Illinoisans flock to nearby states for cheaper drinks. For example, beer in Illinois is taxed at 23.1 cents per gallon, while in Indiana it’s about half that.

Bob Myers, president of the Associated Beer Distributors of Illinois, has cited estimates that show Illinois is losing up to $30 million per year to cross-border alcohol sales, according to the Illinois News Network.

Perhaps these losses can partially explain why some trade organizations have been throwing their support behind anti-competitive legislation.

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, policymakers have used it to tilt the table in favor of connected parties by restricting competition.

The restrictiveness of Illinois’ system was cemented further 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 come cases, running afoul of the statutory distribution system can trigger a Class 4 felony.

Crain’s Chicago Business profiled some small-business owners in November who’ve suffered under the law, as other states reciprocate by imposing restrictions on Illinois wine merchants who previously shipped to customers across the country.

Illinoisans celebrating Repeal Day might offer a toast to renewing efforts to dismantle overly restrictive laws that impinge on liberty in the Land of Lincoln.

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