Drink up now, Texas, because the price of booze at your neighborhood bar may be on the rise.
A new law taking effect on New Year’s Day will basically slash the liquor taxes paid by full-service bars, but it will shift the tax burden to customers.
That means bar owners are now deciding how to adjust their prices, either absorbing the additional cost themselves or possibly even making more money off their patrons.
The law reduces the liquor taxes paid by bars with mixed beverage permits from 14% to 6.7%. At the same time, it imposes an 8.25% sales tax on customers. Do the math and you’ll quickly figure out the state will collect an additional .95% on every drink.
“Well, that’s what usually happens, isn’t it?” said Mark Slaughter, dining on lunch at Arturo’s Italian Restaurant in Houston’s Uptown Park. “They kind of obfuscate the thing, but really everybody ends up getting hit with more taxes.”
A fiscal analysis of the law predicted it would bring the state more than $21-million in new revenue during the 2014-2015 fiscal year. Cities and counties were expected to gain $6.1-million.
“Most of all, it shows the financial pressure that’s being put on state and local governments,” said Bob Martin, a Houston accountant and commentator on financial issues. “This was another way to raise state and local sales tax through the back door.”
Maybe you recall already paying sales tax on a bar tab. That’s because customers at bars and restaurants that serve only beer and wine already pay an 8.25% tax. The new law extends the sales tax to bars with mixed beverage permits.
Many bar owners supported the new law, arguing that it will basically create transparency and make customers realize that – after sales taxes -- they’re actually paying more for drinks at beer joints than they realize. But critics charge it’ll jack up the prices of customers’ drinks as bar owners just pocket their tax savings.
If a bar doesn’t adjust its prices and simply collects the tax from customers, it’ll turn a tidy profit thanks to the new business tax break. For example, the bar that currently charges $10 for a drink now pays $1.40 in taxes. When the new law takes effect, it drops to 67 cents.
So bar owners have been trying to decide whether they should lower prices and, if so, by how much.
“I’m lowering my price to offset it, because I don’t want to charge eleven dollars for a Grey Goose,” said Kristin Powell, the owner of Simone on Sunset in the Rice Village area. “I don’t think it’s worth it.”
“In the weak economy, we were just a little bit afraid to pass that on,” said Bill Sadler, the owner of Arturo’s. “But it’s squeezing us.”