Initiative 1183 – Privatizing the Liquor Industry – Part III – Taxes

December 4, 2011

This is a series, check out Part I and Part II if you haven’t seen them yet!

DISCLAIMER:  I am NOT an expert in either law or the liquor industry.  Anything I write here could be inaccurate, especially due to the varied and changing interpretations of the law as it goes into effect. I will try my best to get things right, and make corrections as need-be, but I make no guarantees as to the accuracy of what I write here.

Resources:

The Current Tax System:

We all know of the dreaded “sin tax”.  Those of us in Washington truly hate it, as it tacks on an additional (approximate) 50% onto the retail bottle price.  Most of this money is marked to go to the State General Fund, and the rest to the Liquor Revolving Fund.  To see the specifics, visit RCW 66.08.190 (that is way beyond my scope, as 1183 doesn’t touch it).  Anyway, there are two incomes on the Liquor Revolving Fund:  yearly licensing fees and sales tax.  We’ll get into the license fees in the licenses section, but we’ll tackle the sales tax here.  There are 3 forms of sales tax a bottle of liquor: a percentage of the sale price, a dollar-rate per liter, and a percentage of the already-calculated taxes (yes, that last one makes me cringe too).  Tax rates are different based on whether the consumption of a bottle is on-premise or off-premise (think restaurant/bar vs store purchase for home use).

What Changes:

Alright, so we know what the taxes are.  Comparing the current law and 1183, the numbers are exactly the same even.  So far so good.  The problem, as I see it, is that instead of dealing with the state’s 51.9% markup, we will now see a tax on the distributor.  For the first two years, it is 10% (and in the first year, that amount must reach a minimum of $150 million, to be divided by proportion of sales between distributors if it is greater than 10% overall sales tax), and then drops to 5%.  We don’t necessarily know how that 51.9% markup was used, so if it was more than sufficient to cover the costs of running stores and distribution centers, the state may see a decrease in income.  Regardless, they were taxing that 1.519% value on a bottle, so if prices on liquor go down, they could still be hurting for cash if enough sales aren’t made.

Next Up:

Licenses & Timeline

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