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Texas law alters a mixed drinks tax at restaurants, bars

Arianna Auber

Texas laws that change how breweries and brewpubs can sell their beers received a lot of attention last year because breweries and their fans were thrilled at the opportunities the new laws offered for expansion.

But another law affecting how restaurants and bars can sell liquor has gone into effect much more quietly, even though it means customers may now have to hand over an additional 8.25 percent on their checks at places selling liquor on top of beer and wine, a sales tax at these dining spots that didn’t exist before.

HB 3572, which became effective on Jan. 1 this year, seeks to provide “a greater transparency and equity between restaurants and bars that sell only beer and wine and those that also sell mixed beverages,” said Richie Jackson, CEO of the Texas Restaurant Association, a group that supported the bill.

Previously, restaurants and bars that serve mixed drinks had a “mixed beverage gross receipts tax” of 14 percent – money that goes to the state – on each cocktail, glass of wine or pint of beer they sold. It was a hidden tax customers paid as part of the cost of the drink, and they weren’t aware of it. That was in contrast to restaurants and bars that offer only and beer and wine. While they don’t have to worry about that tax, they do charge customers a sales tax on all purchased beverages.

Jackson explained it this way: “If I have a $10 drink at a mixed beverages establishment, there’s a $1.40 embedded in the drink price that I have to provide to the state. Whereas if I have $10 glass of wine in an establishment that doesn’t sell mixed drinks, the restaurant receives the full $10 while the drinker also pays a sales tax that goes to the state.”

Now, however, restaurants selling liquor have to fork over only 6.7 percent of their drinks profits to the state through the mixed beverage gross receipts tax, and they have an 8.25 percent mixed beverage sales tax they can have the customer pay.

What does that mean for us? These restaurants and bars, Jackson said, have three options.

  • They can leave prices the same, but add the 8.25 percent sales tax to the bill.
  • They can lower their prices since they now have to give over less to the state.
  • They can build the sales tax into the price in the same way the mixed beverage gross receipts tax is (so customers won’t even realize they’re paying a tax).

Dining establishments making mixed drinks thus save money, and might even earn more of a profit, but they may pass an extra cost onto the customer. Even so, Jackson said he isn’t sure that customers will even notice much of a change on their bills.

“Restaurants are always working on their prices because of the competitiveness and the pressures they face in cost, and it may be that some leave it like it is because with this change, they won’t have to alter food prices,” he said. “It gives them more options than they had in the past.”

There might be a bit of a profit going in to the Texas books, too, with the law change. As D Magazine reported last summer, when the bill passed the House and Senate, the state comptroller’s office didn’t expect much of a revenue stream.

However, D Magazine said, “An argument could be made that some small restaurants avoid a Mixed Beverage license because of the current high costs. The reduction could sway them to upgrade or add a license, resulting in more taxes and licensing fees for the state. Another theory is that only a fraction of the drinking public are aware of the amount of sales tax added on a check and more people are upset when a martini costs $13, to pay for a hidden 14% tax. It might be the numbers calculate to even more revenue for the state.”