States Find New Ways to Tap Alcohol for Revenue

Most Republicans don’t want to raise taxes on beer, wine and liquor. But they’re seeking to generate extra revenue with measures aimed at boosting sales.
by | July 5, 2011

By Pamela M. Prah, Stateline Staff Writer

Last month, the owner of the Wine Chap store in Nashville did something that would have been illegal just a few weeks before. He held two wine tastings in the store, letting customers sample high-end summer whites and sip expensive Bordeaux for free. Richard Payne figures he sold 10 cases of wine because of those tastings. He calls them “a good tool to get customers to try something that they might not have otherwise tried or thought too expensive.”

But Payne isn’t the only one who made money from the tastings. The successful promotions meant extra tax revenue for the state of Tennessee. And that’s one of the reasons lawmakers there decided this year to allow restaurants, bars and liquor stores to offer free samples of spirits.

Across the country, Republicans swept into office in 2010 vowing to cut, not raise taxes, even “sin” taxes like those on alcohol and tobacco, which historically have tended to go up when budgets get tight. In the recession year of 2009, more than a dozen states relied on higher alcohol or cigarette taxes to help dig themselves out of budget holes. But this year, Republican governors and legislatures decided they could generate needed revenue by changing their alcohol laws and leaving the tax rates alone.

Growlers to go

Of course, legalized tasting of spirits doesn’t in itself mean more money for the state. But increased sales, particularly of high-end products, can generate quite a bit in taxes. Nationwide, state taxes on alcoholic beverage sales produced $5.5 billion in 2010, according to the most recent U.S. Census data. Alcoholic beverages are taxed at a high rate by all levels of government -- more than 50 percent of the purchase price of a typical bottle of spirits goes to federal, state, or local taxes of some kind, according to the Distilled Spirits Council of the United States (DISCUS), which represents producers and marketers. DISCUS figures that alcoholic beverages bring in $41 billion a year in direct and indirect revenue for state and local governments. The group has lobbied in favor of free tasting laws.

“Policy makers at the state and local level are desperate to raise revenue without raising taxes or cutting programs,” says Ben Jenkins, vice president of government communications for DISCUS. “Modernizing dated alcohol laws is a positive way to do it.”

In addition to Tennessee, Washington State approved a bill this year that allows 30 state liquor stores to hold at least six tasting events throughout the year. The measure also allows restaurants to sell half-gallon, refillable glass jugs of tapped beer to go, known as growlers. The new law “not only will help our partnering craft beer industry, but will also spur economic growth in our industry,” says Bruce Beckett, director of government affairs for the Washington Restaurant Association. This year’s tasting laws come on top of liquor sampling bills passed in 2010 in California, Michigan, New Jersey and Virginia.

Thirst on Sundays

Another way states can get more revenue from alcohol is by extending the hours of legal sale. For the most part, that means allowing liquor stores to open (or open longer) on Sundays. This year, Georgia repealed its statewide ban on Sunday alcohol sales and will allow voters to decide whether their local communities want to offer it. Connecticut and Indiana are now the only states that still ban Sunday sales of liquor, wine and beer for consumption off-premises.

Liquor suppliers like to point out that rolling back “blue laws” controlling Sunday liquor sales is a way to help states with the bottom line. Between 2002 and 2005, 12 states liberalized their laws to permit Sunday sales. According to DISCUS, each state saw an increase in tax revenue of 5 to 7 percent. Pennsylvania, which has long had Sunday liquor sales, decided this year to expand them: It increased the number of state liquor stores allowed to open seven days a week and lengthened Sunday hours of operation.

But not every state has been willing to liberalize its liquor laws, despite the potential revenue impact. Legislation that would have allowed or expanded Sunday alcohol sales failed in Connecticut and Texas. Differences between manufacturers, distributors and retailers were part of the reason. Some privately owned corner liquor stores, often mom-and-pop operations, argued that adding hours and days to their schedule could increase the cost of doing business, making additional profits questionable. They also said that Sunday liquor sales might simply spread the same amount of business over seven days rather than six.

In Connecticut, the state Package Stores Association also opposed a Sunday sales law on the grounds that “a buy-more, drink-more policy without regard of the social, health, and public safety issues sets a dangerous precedent.” It cited potential harm to teenagers and problem drinkers. That position prevailed. Instead of allowing Sunday alcohol sales, which had the support of Governor Dannel Malloy, the legislature increased the alcohol excise tax by 20 percent as part of a sweeping tax increase package. The Sunday sales issue may resurface, however, as the state tries to close a $700 million hole in the budget that opened up after state workers rejected a benefits concession deal.

“Customers aren't asking for longer store hours,” insists Fred Marosko of the Texas Package Stores Association. He believes that DWI fatalities on Sundays would go up in the state if an expanded hours measure passed, just as he says they did in New Mexico after that state approved Sunday liquor sales. In Texas, in addition to voting down expanded Sunday sales, lawmakers rejected measures that would have allowed breweries to sell directly to consumers, and distillers to sell souvenir bottles to visitors who tour their facilities.

Tennessee’s liquor tasting measure actually was part of a package aimed at luring Sierra Nevada Brewing Co. to open a brewery in East Tennessee by allowing the sale of high-alcoholic content beer. “It’s about jobs,” says state Senator Doug Overbey, who introduced the bill. In the meantime, the Jack Daniel’s distillery in Lynchburg, Tennessee, is already planning tastings because of the new state law. “This will be good for business and for consumers,” says Jeff Arnett, a Jack Daniel’s master distiller.

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