Demystifying Excise Taxes on Ready-to-Drink Beverages

Unsplash Licensed. Credit: Drew Tilk

Ready-to-drink beverages, often abbreviated as RTDs, have become quite popular among folks looking for convenient, pre-mixed alcoholic cocktails. These beverages come in cans and are ready for consumption right out of the fridge. However, behind the convenience lies a tangled web of taxation complexities, especially when it comes to excise taxes.

Firstly, let’s understand what RTDs are. These beverages typically contain alcohol, usually ranging from 4.1% to 6% alcohol per volume. They fall into three main categories:

  1. Malt-based RTDs: These include beverages like hard seltzers, hard kombucha, and hard tea, all of which start with malt-based alcohol.
  2. Spirits-based RTDs: This category encompasses ready-to-drink cocktails, shooters, and seltzers spiked with spirits.
  3. Wine-based RTDs: Canned wine and wine cocktails packaged in tetra packaging fall into this group.

Why do manufacturers of RTDs need to pay excise taxes? Excise taxes are imposed on certain goods, like alcoholic beverages, and the amount paid depends on various factors, including the alcohol content.

The calculation of excise taxes differs among the categories of alcohol and may differ between the federal government and individual states, including Florida. At the federal level, taxes on distilled spirit products are calculated based on “proof gallons.” A proof gallon refers to one liquid gallon of spirits that is 50% alcohol at 60 degrees Fahrenheit. Proof, in this context, is twice the alcohol (ethanol) content by volume. As a result, the more alcohol that is within a distilled spirits products, the greater the federal excise tax on that product.

In Florida, excise taxes on distilled spirits products are calculated based on “gallons.” Here, a gallon (sometimes called a wine gallon to distinguish it from proof gallon) is a measurement of the total volume of any liquid. It is the total liquid volume of the product–not the alcoholic content–that determines the amount of Florida excise taxes on distilled spirit products.

If an distilled spirits RTD contains less than 17.25% alcohol by volume, the appliable Florida excise tax rate is $2.25 per gallon. Alcohol by volume (ABV) measures the number of milliliters of ethanol per 100 milliliters in a solution.

Liquor (% alcohol by volume) 
Less than 17.259%$2.25 per gallon
17.259% to 55.780%$6.50 per gallon
More than 55.780%$9.53 per gallon

Here’s where the problem arises: Since Florida taxes the entire volume of the beverage without considering its alcoholic content, RTDs with higher alcohol content end up being taxed disproportionately compared to those with lower alcohol content. For example, if you compare a low ABV spirit-based RTD, like Funny Water (3.75% ABV), to a high ABV spirit-based RTD, like Buzzballz (15% ABV), the alcohol content of the Funny Water is taxed at a much higher effective rate. This matters especially to Florida distributors, who are required to pay Florida excise taxes on most alcoholic products sold in Florida.

In conclusion, while ready-to-drink beverages offer convenience and enjoyment, navigating the taxation landscape can be a challenge for manufacturers and consumers alike. Understanding the complexities of excise taxes is crucial for ensuring fairness and transparency in the market.

Do you have any questions about Florida excise taxes on alcoholic beverages? Contact us to schedule a consultation with a beverage attorney.

Because we’re attorneys: Disclaimer. Originally posted 04/07/2024.

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