Texas Reveals 'Hidden' Mixed Beverage Tax That May Cost Consumers More Money

A previously hidden tax on alcohol sales has been revealed by order of a new state law, however the taxes’ visibility could mean higher drink costs for consumers statewide.

Under provisions of the law, the mixed beverage tax went into effect on Jan. 1 and requires consumers to pay an additional 8.25 percent tax on all alcohol purchases made from a mixed beverage permit holder, i.e. any place with a full bar.

The tax is nothing new and most consumers have been paying it for years. Whereas before, restaurant and bar owners were responsible for a 14 percent tax that in many cases was included in the price of drinks, now a portion has been pulled out and applied to the customer.

“Basically, it was a hidden tax—the customers weren’t aware that they were paying it—the businesses were responsible for paying it, explains Texas Restaurant Association Vice President of Marketing and Communications Wendy Saari.

“Basically what this new law does is it just restructures it. The mixed beverage permit holders still have a 6.7 percent mixed beverage tax that they’re responsible [for] on their alcohol sales, and they just pulled the 8.25 percent out as a sales tax,” Saari says.

With drink prices at most establishments already figured to include the 14 percent mixed beverage tax of old, bars that don’t readjust their pricing to reflect the changes will end up costing their customers more.

Locally, owners are choosing a variety of avenues to adhere to the new law: some are lowering prices, others are remaining the same and still others charging the same prices plus the addition of the MB tax.

At Fuentes Café Downtown, the customer’s pocket book won’t be affected. “Whenever you would come in to pay and you bought a bottle of beer for $3.50, the 14 percent was included in that,” owner John Fuentes explained. “Now, they’ve added the 8.25 percent on the beer, so now instead of paying $3.50 you’re paying $3.23,” he says, noting that 27 cents in taxes puts the beer back at its former price.

Fuentes has been systematically dropping his beverage prices by 8.25 percent since the onset of the new year and adding that same sum in as tax at the bottom of the receipt so the end price remains the same.

But with several different options available, some have chosen other avenues to achieve the same ends.

“We didn’t do anything,” says Zero One Ale House owner Erik Zobel. “We just put…the required notice at the bottom of the receipt that says ‘mixed beverage tax included in the sales price.’”

Like most others in town, Zobel says his prices already had the 14 percent tax figured in. Circumnavigating the extra step John Fuentes took, Zobel didn’t actually lower the prices, rather just added a note to inform customers a tax was charged and is doing the math after the beverages are sold so as to not need to make price changes.

But not all San Angelo establishments have been so generous in light of the new law. The majority of bars, whose primary income stems from the sale of alcoholic beverages, have simply added the tax on top. Others have done a blanket price increase rather than charging the exact taxed amount. 

“As opposed to doing like the other bars, which they’re doing an across-the-board pay raise of 50 cents or a quarter on every drink, we’re charging an extra 8.25 percent tax on that,” says Clint Baker, owner of the Penny Pub and Grill. “That way the customer is not getting screwed with the money, they’re just paying what the tax rate is.”

Baker says that in the past his prices were also generated with consideration of the 14 percent MB tax, but identifies a key difference in the income streams between restaurants and bars.

“You have to realize that they (restaurants) aren’t paying near the beer taxes that I’m paying…you can’t put a true restaurant and a bar and grill in the same category,” Baker says, noting that a much higher percentage of his revenue comes from alcohol sales than that of a restaurant. Baker also noted that pub food prices tend to be lower than those in restaurants, implying that the application of the tax in a bar is comparable to its absence in an eaterie.

As with other barmen, Baker says that the new tax is posing its own set of unique problems. “It’s a pain in the rear for us, because we have to have extra pennies, dimes, nickels, whatever, but…it [wouldn’t be fair to the] consumer, to raise their price for our benefit.”

Like Baker, Fuentes is dealing with the issues of counting change. Bar prices are typically rounded to the nearest quarter to expedite counting cash and change on busy nights. Since the tax is resulting in odd bill totals, extra coin denominations have to be on hand and, “It is slowing us down a little on the weekends,” Fuentes said.

According to Bernay Sheffield, President of the Texas Restaurant Association, the inclusion of the tax on receipts has been a work in progress for about two years. One of the reasons for the new law is transparency, but there’s also the issue of fairness in relation to those holding beer and wine permits.

“I think a lot of it has to do with…trying to level the playing field between someone who has a beer and wine permit that pays just a regular 8.25 percent tax and someone who has a mixed beverage permit,” Saari says, noting that those who hold beer and wine permits have no additional taxes.  “So this way, from the consumer’s point of view, they’re seeing the same tax on their receipt.”

Saari suggests that the difference in taxes for the two permit holders may be a reason the state decided only to apply 8.25 percent of the MB tax to consumers and leave the remaining 6.7 to the owners.

Fuentes believes that in the future, the full MB tax may appear on customer’s receipts.

“The reason for that is, I think they wanted to ease in 8.25 and maybe next year do the full 14, because if you come in and see 14 percent tax for a beer…” he trails off, giving a ‘you know what I mean’ glance.

Whether or not the state will apply the full tax to consumers remains to be seen. According to Saari, the current law was intentionally designed to be flexible so that business owners could choose what would be best for their long-term operations.

Click here to see what San Angelo bar or restarant is selling the most alcohol in town.