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Liquor Tax

Table of Contents

Background

Colorado’s liquor tax was enacted in 1935, when the state first permitted the production and sale of alcoholic beverages following Prohibition.1 The liquor tax is an excise tax levied on the sale of beer, wine, or spirits according to the quantity sold.  The tax is collected only once within the state.  Liability for payment of the tax is assigned to the beverage manufacturer or the licensee that first receives alcoholic beverages when they arrive in the state.  These businesses are responsible for collecting and remitting the liquor tax to the Department of Revenue, and are required to file a report for each month’s sales by the 20th day of the following month.  Revenue from the liquor tax is subject to the TABOR Amendment's limitations on revenue and spending.

 

Tax Rate

Manufacturers or the first Colorado wholesalers are liable for liquor taxes, which apply to the following alcoholic beverages:

Beverage
Description
Tax Rate
Fermented malt beverages
Any beverage obtained by the fermentation of barley, malt, hops, or similar product containing not more than 3.2 percent alcohol by weight or between 0.5 percent and 4.0 percent alcohol by volume.
8¢ per gallon
Hard cider
Any beverage containing between 0.5 percent and 7.0 percent alcohol by volume that is made by the fermentation of natural juice from apples or pears.
8¢ per gallon
Malt liquors
Beer and any beverage obtained by the fermentation of barley, malt, hops, or similar product containing more than 3.2 percent of alcohol by weight or 4.0 percent alcohol by volume.
8¢ per gallon
Colorado vinous liquors and other vinous liquors 
Wine and fortified wines containing between 0.5 percent and 21.0 percent alcohol by volume.
13.33¢ per litera,b (includes 5¢ and 1¢ surcharges)
8.33¢ per literb   (includes 1¢ surcharge)
Spirituous liquors
Any alcoholic beverage obtained by distillation and mixed with water and other substances in solution, including brandy, rum, whiskey, gin, and every liquid or solid containing at least 0.5 percent alcohol by volume that is fit for use for beverage purposes.
60.26¢ per liter
a For vinous liquor produced by Colorado wineries, an additional surcharge of 5¢ per liter applies to the first 9,000 liters produced, 3¢ per liter for the next 36,000 liters, and 1¢ per liter for all additional amounts.  The surcharge amounts are to be transferred from the General Fund to the Colorado Wine Industry Development Fund.
b Surcharges added 1¢ to all vinous liquors taxes effective July 1, 1990 through June 30, 2000.  Effective July 1, 2000, a 1¢ per liter wine development fee is imposed.

 

Tax Exemptions
Alcoholic beverages shipped outside of Colorado by a licensed manufacturer or wholesaler are not subject to the liquor excise tax.  The following alcoholic beverages are also exempt from the tax:
  • sacramental wines sold and used for religious purposes;
  • fermented malt beverages, or malt liquor, or vinous liquor made for family use and not for sale;
  • wines sold at public auctions administered by the Department of Revenue where the purpose is to dispose of liquor obtained by reason of salvage of damaged shipments, foreclosure of a lawful lien, or donation;
  • up to four liters of beer, wine, or spirits brought from a foreign country by a passenger arriving at a Colorado airport; and
  • vinous liquor manufactured by institutions of higher education for research and education purposes.

 

Distribution

Via the Old Age Pension Fund, liquor tax revenue is allocated to the General Fund for spending on general operations at the discretion of the General Assembly.2  The excise tax surcharges collected on wine and fortified wine are credited to the Colorado Wine Industry Development Fund.

 

Federal Taxes

The federal government levies excise taxes on beer, wine, and spirits.  Beer is taxed at a rate of 57¢ per gallon; wine at a rate of $1.07 per gallon; and spirits at a rate of $13.50 per gallon.

 

State Comparisons
In 17 states, the state government directly controls the sale of spirits and collects revenue from sales.  All states that allow private sales collect excise taxes.  Among these states, the highest taxes on distilled spirits are levied in Washington which assesses an ad valorem tax at a rate of 20.5 percent.  The lowest taxes on spirits are levied in Missouri (2.00¢ per gallon).  Colorado’s tax is assessed on a per-liter basis.  The state’s equivalent per-gallon tax is $2.28, among the lowest in the country.
 
In five states, the state government directly controls the retail sale of wine and collects revenue from sales.  All states that allow private sales collect excise taxes.  Among these states, Colorado’s wine tax and surcharge (32¢ per gallon) is the eighth-lowest in the country.  California and Texas each levy a 20¢ tax per gallon, the lowest in the country, while Kentucky's ($3.17 per gallon) is the highest.
 
All states collect excise taxes on beer.  At 8¢ per gallon, Colorado’s beer tax is the fourth-lowest in the country, after Wyoming (2¢), Missouri (6¢), and Wisconsin (6¢).  Tennessee ($1.29 per gallon) levies the highest state beer tax.
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1Section 12-47-503, C.R.S.
2Pursuant to Article XXIV, Section 2 of the Colorado Constitution, 85 percent of the revenue from excise taxes (excluding transportation-related excise taxes) is constitutionally required to be credited to the Old Age Pension Fund, which funds a program offering financial assistance and medical benefits to low-income adults aged 60 or older who meet certain eligibility requirements.  The amount of revenue collected from excise taxes well exceeds the amount required to fund the Old Age Pension program.  This excess revenue is allocated to the General Fund for spending on general operations at the discretion of the General Assembly.
 
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