They explained this on the Do's and Don'ts of Cruising just recently on the Travel Channel. I'm not an economics major, but my understanding is that "duty free" means that there is no import tax imposed. So items purchased at duty free shops can be significantly less expensive than purchased here in the states because import taxes have not been added. Hope that makes sense.
From Wikipedia: Duty Free is the term that is often used to describe goods bought at ports and airports that do not attract the usual government taxes and customs duties.
Some countries impose allowances in order to restrict the number of Duty Free items that one person can import into the country. These restrictions often apply to tobacco, wine, spirits, eau de toilette, gifts and souvenirs.
Ever wonder what that odd label is on a bottle of hard liquor? The red and white one that says "US ATF DISTILLED SPIRITS". That's the tax stamp, showing that the manufacturer paid the U.S. Federal tax on it. The tax is $13.50 per gallon of 100 proof liquor. So the tax on a gallon of 80 proof Bourbon would be 80% of $13.50 (or about $10.80). For a 750 ml bottle, that works out to about $2.70.
So in that case, a retailer in say, St. Maarten, could buy that bottle at the same price your local grocery store does, add the same profit your grocery store does, and still be able to sell it to you for about $2.70 less because there is no federal tax. Saving can be greater if you live in a state that also imposes a state tax on liquor. And of course, if the retailer is will to accept a lower profit margin that your grocery store at home, you save even more.
Dreams Unlimited Travel is committed to providing you with the very best vacation planning experience possible. Our Vacation Planners are experts and will share their honest advice to help you have a magical vacation.