KPMG Tax Study
For many years, beer distributors and their advocates have spoken about the important role distributors play in the collection of state and local excise taxes and how distributors are the most efficient way for states to collect these taxes. Unfortunately, as more economic interests have litigated to try and bypass distributors in the supply chain, simply explaining the vital role distributors play in tax collection is not enough to satisfy the courts.
To legitimize and quantify distributors’ important role in tax collection, NBWA contracted KMPG’s Washington National Tax Office to conduct a study on the structure and administration of state and local taxes imposed on the distribution and sale of beer. The report provides an extensive overview of the beer industry and the various types of taxes that are collected such as gallonage taxes, retail and special sales taxes and unique additional taxes some states place on beer. The report is based on independent research as well as interviews with tax administrators, state association executives and beer distributors in various states.
It is important to note, that while beer distributors generally oppose tax increases, this report does not make public policy recommendations on whether beer taxes should be raised or lowered. Rather, this study examines how beer taxes are collected and delves into the general types of state and local taxes that are imposed on beer. There is much debate about the proper level of beer taxation, but there is little attention paid to how beer taxes are currently collected or how to ensure that the high rates of beer tax compliance continues if the system were to be deregulated.
While the report details many relevant topics and assesses numerous tax structures, one of the most relevant findings is about the role the alcohol regulatory structure plays in ensuring tax compliance:
“Other features of the regulatory system governing the sale of alcoholic beverages, including the three-tier system of distribution, exclusive territories for beer wholesaling and various controls on the retailing of beer, significantly contribute to the administration of all types of taxes on beer. These regulations, taken together, create the opportunity to monitor the flow of alcoholic beverages in the state, provide state regulators and tax administrators with a limited number of points to tax and/or exercise control over the flow of alcoholic beverages, limit opportunities for contraband (i.e., untaxed) alcoholic beverages to enter the distribution chain and ensure compliance with the various tax systems. In particular, requirements that suppliers must sell only to licensed wholesalers and that retailers may purchase product only from certain licensed wholesalers is fundamental to ensuring compliance with beer taxes in an efficient manner. Without these controls, the level of resources necessary to achieve any given level of compliance would be substantially greater than at present.”
The lead author of the report, Harley Duncan, currently serves as the Tax Managing Director of KPMG. Prior to that, Duncan served for 20 years as the executive director of the Federation of Tax Administrators and for nearly six years as the secretary of the Department of Revenue in Kansas. Harley has clearly established himself as an expert in the field of tax administration.
Download the full report (PDF) or contact the NBWA Industry Affairs Department at 800-300-6417 to have a hard copy of the report mailed to you.