A new staff report is urging Toronto city councillors to back away from a potential five per cent tax on alcohol sales.

The city manager and director of corporate finance say there are too many difficulties involved in such a tax, the Toronto Star reports.

An earlier report to the city recommended a moderate alcohol levy of five per cent on purchases at beer and wine stores. The tax was estimated to generate $44 million a year for the cash-strapped city.

A proposal to tax drinks sold in bars, clubs and restaurants was estimated to bring in another $24 million.

Thursday morning's report noted alcohol is already highly taxed, and residents could easily bypass the higher prices by shopping outside the city, the Star reports.

City staff said the new tax would have also complicated the pricing structures at LCBO and Beer stores, and an in-store tax could have been ruled illegal, the Star reports.

"Raise a glass to city staff," Coun. Denzil Minnan-Wong, who opposed the tax, told the newspaper. "I'm pleased they exercised sober second thought."

Toronto is facing a budget shortfall of about $240 million next year after council passed a land transfer tax and vehicle registration fee on Monday night. Those two new taxes are eventually expected to bring in $356 million annually.

The recent creation of the Toronto Act has given the city more powers to implement new taxes, commonly referred to as "revenue tools."

In addition to the alcohol tax, other proposals have included a levy on cigarettes and movie theatre tickets.