Extras on Excise: Learning the ABCs of Liquor Privatization and Taxes

In Virginia, the push to privatize state liquor stores has ebbed and flowed over the years, most recently gaining traction during the administration of former Gov. Bob McDonnell (R), whose proposal to dismantle the existing liquor infrastructure was killed in the General Assembly.

There is also a push for privatization in Oregon, despite the state having a clear view of the early travails being experienced by its neighbor, Washington state. While proponents withdrew a 2014 ballot initiative due to concerns with the timeline to gather signatures, they are expected to continue to push for privatization in the 2015 legislative session.

Virginia privatization advocates may have a new talking point in light of the plan, set forth by current Gov. Terry McAuliffe(D), to address the state’s budget deficit in fiscal year 2015 in part by increasing liquor prices. In Virginia, the Alcoholic Beverage Control Board controls the distribution of alcoholic beverages in the state, sells liquor at retail through its ABC stores and sets prices and fees, generating substantial revenue for the state.

Heeding the governor’s directive, the board voted in November to double the case handling fee charged to distillers, from $1 per case to $2 per case. In addition, they voted to increase the markup on mini bottles to 69 percent from 49 percent and to round the price of a bottle of liquor up to nine cents from five cents. Regular bottles of liquor are already priced at a 69 percent markup.

Last week, the board voted to change the round up to 10 cents, due to an obscure state law, and delay implementation of the price increases. The case handling fee increase and the increased mini bottle markup will now take effect on Dec. 16 while the rounding policy will take effect on Jan. 1.  

Virginia distillers have stridently opposed an increase in liquor prices, arguing that the 10 markups on spirits since 1980 increase the price disparity between beer and wine and spirits while also placing Virginia at a competitive disadvantage with Maryland and Washington, D.C. Virginia has the third highest excise tax on spirits in the country at $19.19 per gallon, according to the Tax Foundation. The liquor excise tax in Maryland is $4.41 per gallon and is $5.37 per gallon in D.C.

At least one state’s experience suggests that privatization may not be the answer to Virginia’s liquor tax woes. Washington state privatized liquor sales in 2012. While the number of liquor retail outlets has increased by more than 400 percent, Washington consumers have also seen the average cost of a liter of liquor rise to $24.39, up from $21.19 before privatization. Also, liquor excise taxes in Washington have increased to $35.22 per gallon, the highest rate in the country by far.

By: Jequetta Byrd

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