The State of Missouri released a revenue report this week showing that statewide tax revenues fell 16.3% year over year. However, one stream of tax revenue experienced an unexpected increase: Liquor taxes.

According to the State of Missouri, July and August liquor tax collection remained relatively flat before spiking in the month of September. The growth in liquor tax revenue was solely attributable to a phenomenal 41% increase in sales of hard liquor and wine. The St. Louis Dispatch estimates that $515,000 increase in hard liquor tax revenues would amount to increased sales of more than 1.29 million bottles of liquor. The increase in Missouri sales represents a $2-$3 million dollar loss in monthly Illinois tax revenues.

Why such a massive increase?

Missouri residents can thank the Illinois Legislature for the increased revenue as statewide increase in Illinois liquor taxes took effect in September. The massive increase in Illinois liquor taxes pushed Illinois tax rates to a level four times higher than their neighbor. For instance, Illinois now taxes hard liquor at a rate of $8.55 per gallon versus the Missouri rate of $2. Beer taxes in Illinois are now four times higher than their counterpart and wine taxes are triple the Missouri rate. As a result, Illinoisans living in earshot of Illinois' borders are purchasing their alcohol across state lines.

In Missouri, a bottle of the hard stuff will cost on average $3 less than a bottle purchased across the river. Retailers and Liquor associations fought against the increase in Illinois taxes as liquor, cigarettes and now Soft drinks and candy become the chosen products of increased taxation. Such associations warned the Illinois legislature that revenue estimates, just as in the past, would be much higher than actual revenue generated by the tax. Such warning of tax revenue overestimates were due to the legislature's failure to account for large segments of the Illinois population crossing into border states. As a result, industry associations warned that the alcohol tax increase could result in job losses and further budget shortfalls. However, the statehouse followed tradition and once again chose to institute new liquor taxes.

The information flowing out of Missouri comes on the heels of demands by Illinois' Governor Quinn that the legislature raise taxes on $1 per pack on cigarette sales to reinstate budget cuts to the Illinois MAP program. The State of Illinois has faced cigarette tax collection challenges in years past as Illinois residents flocked to bordering states to stock up on tobacco products. As a result, the State enacted a collection effort by requiring that Illinois residents disclose out of state cigarette purchases and pay an excise tax when filing their annual income taxes. However, its such voluntary collection efforts have largely failed and out-of-state purchases are likely to skyrocket if Illinois moves forward with current proposals. As a result, Missouri residents may soon be thanking the Illinois Statehouse for massive increases in revenue generated through tobacco taxes.