State Liquor Control Taxes

On Saturday night, I was doing what I usually do, which is head over to the giant and amazingly well-stocked BINNY'S liquor store right by my condominium in Chicago (as documented in this "action" post) and roam the aisles a bit like a kid in a candy store before settling on some type of purchase. To my surprise, Binny's was completely packed, with people who had shopping carts filled to the brim with every type of wine, beer and liquor. When I finally got up to the cashier (sadly enough, they recognize me and even let me in if I happen to be down there when the store is about to close) I asked what was going on and they said a tour bus pulled up out front from out of state and everyone was stocking up on liquor. The cashier said that this happens all the time. I asked the person behind me in line and she said that they were from Michigan and that she takes the tour every year around the holidays. I asked if this was legal and she kind of chuckled and that was that.
Sure enough, when I walked past the "Binny's Booze Bus" the side doors facing the sidewalk under the seats were open and the spaces where the luggage was supposed to go were full of liquor of every variety, efficiently packaged by the case. (As an aside, I am switching back to cameras and kind of giving up on my Flip Video... because my posts were too boring w/out photos and the video software was too time consuming to mess with).

The first thought that crossed through my head was "I can't believe that any taxes for anything are better in Chicago than anywhere else (other than our flat state income tax rate)" since we have the highest sales tax rate of any big city in the nation, and I figured we taxed liquor to death, too. But this bus full of booze-seeking Michigan residents offered tangible proof that the situation existed, so I decided to do some research.

Michigan does have higher liquor tax rates, although like everything else in our complicated state tax genre things are more complicated than they seem. According to this analysis, Illinois taxes liquor at $6.50 / gallon in Cook County (note the additional $2 surcharge over the $4.50 state rate) which seems higher than most. But Michigan is footnoted in this document. I went over to the Tax Foundation (a great organization that I encourage everyone to consider some sort of contribution to) and they calculated that the effective rate in Michigan was $10.53 and that the state controls all liquor sales so that this calculation was an estimate (which is why the other analysis was incomplete on Michigan). So by this relatively simple analysis it does look like there are some savings to be had in Cook County by these booze-tourists, but doing some more research I noted that another state on Michigan's border, Indiana, had FAR lower tax rates of $2.68 / gallon. Sure enough, the State Police of Michigan have picked up on this obvious disparity and issued a Michigan State Police News Release titled "Alcohol Importation Laws to be Enforced" which explains the amount of alcohol that a resident can bring into the state and notifies residents that these laws will be enforced because of "numerous violations of state law in regards to importation of alcohol and spirit liquor".

I have to take a quick time-out from the semi-meandering Binny's to state liquor taxes to ask the obvious question - don't police in Michigan have something better to do with their time than enforce laws designed to stop legal over 21 residents from purchasing liquor out of state? Like maybe tackling violent crime in a state famous for violent crime and anarchy?

Back to the post - the question is why were these tourists coming to Chicago for their booze purchases and not visiting Indiana, which had a greater tax disparity? All apologies to our blog-mate at LITGM Gerry, but there are a few other tourist attractions in Chicago that you don't see when you cross the border into Indiana such as downtown and museums and everything else. So it seems to me that this group of modern day tax scofflaws weren't solely focusing on the tax rates, but trying to combine a nice tourist visit with a bit of locally purchased cheap-er booze.

When you get to tax policy effects, there are two main elements of a sound tax policy - 1) raising revenue 2) encouraging some sort of behavior. Since prohibition, people have generally given up on limiting alcohol consumption (that temperance movement, by the way, was really centered in Evanston Illinois and only recently did some of those northern suburbs of Chicago allow locally purchased alcohol). Thus these policies are really only all about raising revenue for the state of Michigan on the backs of their drinkers. When compared with other types of revenue raising strategies, liquor taxes are reasonably effective because liquor is bulky and it is a deterrent due to the fact that it is a pain to load your car with liquor and drive to another state and then drive it back. Wine is easier to transport than beer but the states have been trying to kill interstate wine shipments for years to preserve their local tax monopolies.

I guess for the very frugal there is the fact that if you purchase the beer bottles in Illinois you don't have to pay the 10 cent deposit return that Michigan is famous for and which was memorably mentioned in a famous TV episode where they attempt to fill a mail truck with bottles and drive them from NY to Michigan for the refunds.

So, all in all, Illinois has a slight edge on taxes over liquor from SOMEONE (certainly not Indiana). I guess that is a minor victory in the endless tax battle that we are fighting (and losing) in Illinois.

Cross posted at Chicago Boyz