In late May, a federal grand jury in Maryland indicted Republic National Distribution Company, LLC and its three employees on charges of wire fraud conspiracy, wire fraud, and money laundering. If convicted the three employees could each face up to 20 years in prison and a $250,000 fine. Further the Government seeks forfeiture of funds traceable to the offense, which the indictment estimates to be $9 million.

The charges result from a scheme to transfer liquor from Maryland, where the excise tax is $1.50 per gallon, to New York City, where the excise tax is $7.44 per gallon. Republic National is a wholesale distributor of liquor located in Maryland. The indictment alleges that Republic National’s employees knowingly sold liquor in Maryland to New York retailers for retail sale in New York City. The New York retailers then sold the liquor they obtained from Republic National without paying New York excise taxes. Further, Republic National allegedly filed false reports with the Maryland State Comptroller’s Office indicating that all liquor sold was intended for resale in Maryland.

This case illustrates the importance of understanding excise taxes. The typical reason for imposing an excise tax is to discourage consumption of the type of good in question. For this reason excise taxes are often referred to as “sin taxes.” Also, as one would expect, excise taxes raise a substantial amount of revenue for the state. Excise taxes are imposed on a specific good, such as alcohol, gasoline, or cigarettes. Unlike sales tax, which impose a tax on the total amount spent by the consumer, excise taxes are imposed per unit of good regardless of price. All fifty states impose an excise tax on alcohol. In California the excise tax is $3.30 per gallon of liquor (100 proof or less). In Oregon the excise tax is $1.00 per gallon. In Nevada the excise tax is $3.60 per gallon of liquor. Generally, the tax is paid by distilled spirits wholesalers based on sales to in-state retailers. In recent years, there have been calls on California’s legislature to increase the California excise tax. Proponents hope that it would raise additional revenue for the state, and also deter people from drinking which they claim will result in fewer drunk-driving accidents. However, the measures have been unsuccessful due in large part to the argument that the alcohol taxes are regressive, or in other words that they disproportionately affect the poor. Whether California decides to increase the excise tax or not, there is no denying that excise taxes greatly influence the economy, white collar crime, and our society as a whole.


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