The Texas Legislature passed, and Governor Perry signed, a big change to Texas’ mixed beverage gross receipts tax. In short, the state just passed a tax increase on many alcoholic beverages. Further, a portion of the tax will be imposed on the consumer instead of the seller. Below, I’ll explain how the mixed beverage tax currently operates, how it will soon change, and what this means for customers and businesses alike.
Current Law: Mixed Beverage Gross Receipts Tax Only
Currently, bars and restaurants that Texas has licensed to sell liquor must pay a 14 percent tax on their gross receipts from the sale of beer, wine, and mixed drinks. Texas imposes this mixed beverage gross receipts tax on both the liquor in mixed drinks as well as the ice and non-alcoholic mixers in the drinks.
Bars and restaurants that Texas licenses to sell liquor must pay the mixed beverage gross receipts tax themselves. They may not directly collect the tax from their customers, otherwise charge their customers separately for the tax, or “back out” the tax from the purchase price. So, bars and restaurants that sell liquor must, in effect, build the tax into the price they charge consumers. However, they may give their customers a separate statement showing the amount of mixed beverage gross receipts tax they will pay on their receipts from the customer’s purchase.
On the other hand, bars and restaurants that Texas licenses to sell only beer and wine must only collect the regular 8.25 percent sales tax from their customers on their sales of beer and wine.
The Change: Mixed Beverage Gross Receipts Tax and New Mixed Beverage Sales Tax
The Texas Legislature made two changes to the taxation of mixed beverages in Texas. First, it reduced the mixed beverage gross receipts tax rate from 14 percent to 7 percent. Sounds great so far, right? Not so fast, though! The Legislature also imposed a new 8.25 percent mixed beverage sales tax on mixed beverage sold by bars and restaurants licensed to sell liquor. The bar or restaurant may collect the mixed beverage sales tax from its customers just like any other sales tax. However, the bar or restaurant must still pay the 7 percent mixed beverage gross receipts tax itself.
The mixed beverage sales tax differs from the general sales tax in two ways. First, the timely payment and prepayment discounts available to retailers who collect the general sales tax are not available for the mixed beverage sales tax. Second, a bar or restaurant must still pay sales tax when it buys items that it will resell subject to to the mixed beverage sales tax – the sale for resale exemption is not available for the mixed beverage sales tax.
The Bottom Line
What does this change mean for customers and for bars and restaurants? For customers, this change will likely make drinking more expensive. Between the mixed beverage gross receipts tax and the new mixed beverage sales tax, Texas now subjects mixed beverages to a total tax of 15.25 percent – 1.25 percent higher than it was before.
Further, the Texas House Research Organization’s analysis of the bill states that opponents of the bill believe that it may increase the total amount that a customer pays for a drink even further. The opponents note that bars and restaurants have already set their drink prices to cover the 14 percent mixed beverage gross receipts tax, and suggest that it’s likely that most bars and restaurants will not reduce their drink prices, but will instead just collect the new mixed beverage sales tax on top of what they’ve already been charging for drinks. It remains to be seen whether bars and restaurants will reduce their drink prices or not.
The impact on bars and restaurants is mixed. If bars and restaurants opt not to reduce their drink prices, the change in the law could mean additional profits, assuming that customers do not alter their drinking habits in response to the increased tax. However, the change certainly makes things more complicated for bars and restaurants. These businesses will now have to deal with two different types of tax, with two different sets of rules, and two different sets of associated paperwork and procedures. It is unclear why such a complicated taxation scheme is necessary for these types of businesses.
Those who operate bars and restaurants that sell liquor will likely face many questions as they work to comply with this change in the law. In particular, these taxpayers will have several options for how to disclose the taxes on receipts. Under these circumstances, it may be useful for these businesses to seek the advice of a Texas tax professional, such as a Texas tax attorney, in order to help ensure they are in full compliance with the law.