What you might not know about Canadian-U.S. beer taxes

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What you might not know about Canadian-U.S. beer taxes

Canadians know that beer taxes are significant as “beer drinkers crying in their suds as taxes go up” is a frequent feature of media budget summaries, but they might be surprised to know just how much tax they pay and how those taxes compare to those paid by U.S. consumers.

Beer Canada recently asked me to look at beer taxes in the US and Canada and my study, Canada – U.S. Beer Taxes: A Comparison, released this month, shows that on average Canadians pay about 5 times as much beer tax as Americans -- around $20 per case in comparison to about $4 per case in the U.S. (converted to Canadian currency).

If that strikes you as a lot you are not alone.  Surveys conducted by Beer Canada find that Canadians routinely underestimate how much beer tax they pay.   One of the reasons for this is that a large chunk of beer taxes in Canada – approximately 75% - are hidden or embedded in the price of the product.   These hidden taxes include federal excise and provincial liquor board markups.   

Federal beer taxes in Canada account for $4.68 a case - an amount about 2.8 times more than federal beer taxes in the U.S.  Average Provincial beer taxes show an even bigger differential in relation to U.S. states: $15.63 versus $2.44 – or over $13 per case.  Together federal and provincial charges generate a whopping beer tax differential of around $16 per case.  

In both jurisdictions, taxes fluctuate depending on which province or state you live in.  In Quebec, for example, you are only paying about three and half times as much beer tax as your American neighbours.  In other provinces, however, consumers are not so lucky.  Beer drinkers in Saskatchewan, for instance, pay almost $24 in tax on a case of beer, or $20 more than their neighbours in bordering states. 

One of the reasons Canadian beer taxes are so much higher than those in the United States is the tax on tax effect.  For example, the federal excise beer is applied to the wholesale price of beer which is then marked up by provincial liquor boards and then marked up again by federal and provincial sales tax.  In fact, approximately 40% of the sales tax collected on beer sales in Canada is actually tax collected on tax compared to only 12% in the United States.

Not only are Canadian beer taxes among the highest in the world, they are getting even higher.  Provinces have implemented over 45 beer tax increases in the last eight years alone and these commodity beer taxes have increased twice as fast as inflation since 2010 -- up 26% compared to an average increase in state excise beer tax rates of only 2.9% during the same period.

The federal government recently compounded Canada’s ever-increasing beer tax problem by automatically increasing the wholesale excise beer tax by inflation every April 1st.   These excise changes will generate year over year provincial tax increases even if the provinces make no changes of their own, which in light of recent beer tax history, seems unlikely. 

I wish I had better news for Canadian beer consumers, but the current prognosis is brace yourself for higher beer taxes.  In fact, if current trends continue, Canadians in the not too distant future may pay more government tax when purchasing a case of beer than Americans do for the entire case. 

Doug Mander is Principal of Mander Consulting a company specializing in regulatory, taxation and public policy analysis. Doug has worked on regulatory and taxation matters for a variety of business sectors including the Ontario real estate industry, auto recyclers and the Canadian brewing industry.