Image: Illinois liquor tax increase
Seth Perlman  /  AP file
A liquor store billboard in Springfield, Ill., reminds customers to beat a steep increase in state alcohol taxes. Illinois nearly doubled the sales tax on spirits to help address a projected $9.2 billion deficit.
By M. Alex Johnson Reporter
msnbc.com
updated 9/28/2009 8:10:06 AM ET 2009-09-28T12:10:06

Last week, residents across Lubbock County, Texas, began picking up six-packs of Lone Star on their way home. Legally.

For years, sales of packaged alcohol have been strictly regulated, limited mainly to private clubs, to some restaurants in the city of Lubbock and to a small part of the county known as the Strip. But after four months of planning, protests and appeals since voters overwhelmingly approved sales countywide, the Texas Alcoholic Beverage Commission last week issued 86 permits for packaged retail alcohol sales.

That terminated Lubbock’s claim to being, with those few exceptions, the biggest dry county in America — a distinction the county of 264,000 was willing to cede in exchange for a tax windfall during the worst economy in decades.

“For us, it’s from an economics standpoint,” said Matthew Kendrick, marketing director for a chain of convenience stores in the Lubbock region and a member of the political action committee that pushed the May 9 initiative. “It’s been legal in (much of) Texas for a long time now, and we’d like to reap some of the benefits.”

Those benefits can be substantial. M. Ray Perryman, author of the closely watched Perryman Economic Forecast, which tracks the Texas economy, estimated that sales taxes on beer, wine and spirits could generate $5 million a year in new revenue for Lubbock County, which had to draw $3.5 million from its reserve to balance its 2009 budget.

The transformation of Lubbock from dry to wet is merely one example of a national trend toward looser restrictions on spirits, as local governments take a hard look at whether the social policy challenges of increased alcohol availability are outweighed by new tax revenue.  Dry areas are going wet, and others are liberalizing their laws by approving Sunday sales or sales in grocery and convenience stores.

Meanwhile, at least 14 state legislatures have considered trying to boost their economies through new or increased alcohol taxes, which can already top $20 a gallon for hard spirits.

Wet or dry or ‘moist’?
Alcohol laws are notoriously byzantine, representing shifting calibrations of morality, public heath considerations and money.

Even most so-called dry localities aren’t totally dry — many allow individual establishments to sell beer and wine by the glass but not hard liquor, while others tolerate ostensibly private “clubs” that operate outside the liquor board’s authority. The word academics and government record-keepers use to describe such places is “moist.”

The number of localities you could call legitimately dry is quite small — about 500 of the nation’s approximately 87,500 towns, cities and counties, according to the National Alcoholic Beverage Control Association, which represents government alcohol boards. David J. Hanson, a sociologist at the State University of New York at Potsdam who specializes in government alcohol policy, calculates it a different way, estimating that dry municipalities are home to 6 percent of the American population, mostly in the rural South.

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Big retailers and restaurants in those locales have long complained that they lose business to establishments in neighboring wet localities. It’s a money-vs.-morality debate that often pits them against religious and community leaders who warn against the scourge of public drunkenness.

The Rev. John Dale, pastor of Glendale Road Church of Christ in Murray, Ky., where Calloway County officials last week rejected a petition to put packaged alcohol sales on the November ballot, said the issue was “the quality of life.”

“I’m dealing with people who are almost everyday problem drinkers — alcoholics. They are  really struggling,” Dale said. “They don’t want more and more availability of a product they can’t control.”

But Boone Chambers, president of a local group backing alcohol sales, lamented that “we’re losing millions of dollars each year out of the community.”

“The city could collect on those taxes and have more money circulating though town,” said Chambers, co-owner of the Big Apple Cafe in Murray, who said organizers would try again in the spring.

For small towns, chance of a big windfall
Washington County in the Florida Panhandle is moist, allowing sales of beer and wine but not liquor. As a result, businesses prefer to locate in surrounding counties “simply because they allow the sale of liquor and alcohol,” said Sheran Whitaker, chairwoman of Citizens for Economic Opportunity, which is seeking a referendum to turn the county wet.

The Rev. Alcus Brock, director of missions for the West Florida Baptist Association, has led a fierce fight against the proposal.

“We feel like, as responsible citizens of the community, that it is our responsibility and that we would be remiss if we did not try to educate the people on the ills of alcohol and some of the things that it would bring to our community,” said Brock, who heads Citizens for Positive Development, which was formed to oppose the effort.

For guidance, voters could look to places like Rockwood, Tenn., a town of 5,700 that opened its first liquor stores this month.

“We’re projecting around $80,000 a year to our budget, and that’s a whole lot for a small community like Rockwood,” said City Council member James L. Watts, who was mayor when the measure was passed by voters late last year.

Mark Green, a lifelong resident of Rockwood, which is in eastern Tennessee between Nashville and Chattanooga, said he had “mixed emotions.”

“I’m a Sunday school teacher, and I’m against drinking,” Green said. But at the same time, “We have felt the effects of the economy. A lot of people have been let go from industry in Rockwood, including myself, and it has hurt Rockwood.”

That’s the debate taking place in numerous communities, like Trigg County, Ky., which will decide whether to go wet in a referendum this week.The county executive, Stan Humphries, said the issue was so divisive that he simply wants the vote to be over.

Voters are similarly divided in Winona, Texas — so much so that when alcohol sales went on the ballot in May, the vote was a 94-94 tie. A revote will take place Nov. 3.

States look at raising current taxes
Raising taxes on alcohol also is an inviting option for lawmakers looking to close budget deficits or fund new programs. Some proponents of revising the health care, for example, have sought to hike federal alcohol taxes — currently 21 cents on a bottle of wine, 33 cents on a six-pack of beer and $2.14 on a fifth of hard liquor — to help expand the system.

In many areas, though, the push is on to increase tax revenue by increasing alcohol sales. The prime targets are Sunday sales and sales in grocery and convenience stores.

In Kentucky, retailers are lobbying the Legislature to allow grocery and convenience stores to sell wine alongside beer, which they can already stock. The proposal died in committee last year, but it’s expected to come up again this session.

“It’s a win for the consumer, it’s a win for the state, it’s a win for Kentucky’s winery industry, it’s a win for Kentucky’s vineyards,” said Luke B. Schmidt of the Food With Wine Coalition, which claims the expanded sales would generate an additional $30.1 million in tax revenue over two years.

In Indiana, a commission appointed by the Legislature began taking public testimony this month on whether to allow liquor sales on Sunday, which proponents claim would generate an extra $9 million a year in taxes.

In addition to religious leaders, the opposition includes operators of liquor stores, who say they would have to add staff, increasing their expenses. Jerry Corliss, who owns six Chalet Party Shoppes around Elkhart County, Ind., said it would cost him $75,000 in labor to open on Sundays just so he could spread six days’ worth of sales over seven days.

Arrests for operating a vehicle while intoxicated would also rise, Corliss predicted.

Ray Cox, owner of Elite Beverage Liquor in Indianapolis, said he feared that Sunday sales would price package stores like his out of business.

By forcing small merchants to compete on Sundays, “This is really Hoosier small businesspeople versus the giant Wal-Marts, Meijers and Krogers of the world that want to put us out of business,” Cox said.

Liquor a popular vehicle for taxes
Lawmakers historically have been more willing to heavily tax alcohol than they have other products, which is the main reason the retail price of a bottle of wine or liquor can more than double between the time it enters a state and the time you buy it.

Forty-seven states and the District of Columbia charge excise or production taxes on alcoholic beverages. (New Hampshire, Vermont and Wyoming are the exceptions.) Those charges can be as low as a couple of dollars to as high as the $20.76 that Oregon adds to each gallon of spirits.

This year, at least 14 of those states have considered legislation that would impose new or higher sales taxes on top of those excise taxes, according to the National Conference of State Legislatures.

Take Massachusetts, for example. Before a $10 bottle of Scotch can go on the shelf at the local liquor store, the state adds a 40 percent excise tax — or $4 — to the price.

In late July, the Legislature raised the state’s sales tax and extended it to include alcoholic beverages for the first time. That new 6.25 percent charge is calculated on the shelf price after the excise tax is included. So essentially the state collects a tax on a tax, equivalent to an extra 25 cents a bottle.

When all that is figured in, Massachusetts lawmakers are looking forward to a projected $80 million windfall this fiscal year. But Christie Faufaw, manager of Ryan and Casey Liquors in Greenwood, Mass., predicted that residents would simply drive over the border to buy their alcohol in tax-free New Hampshire. “How are we going to recoup those losses of taxes?” he asked.

Other states that approved raising taxes or other costs on alcohol sales this year include Kentucky, New Jersey, New York, North Carolina, Oregon, Vermont and Washington. In Illinois, where desperate officials face a budget deficit that could reach $9.2 billion, lawmakers dramatically raised sales taxes, nearly doubling them on wine and liquor and adding 25 percent to the tax on beer. 

Gauging the impact on sales
While it’s too soon to gauge the impact of such increases, retailers like Faufaw warn of a strong backlash from consumers. They point to Kentucky, where the state sales tax of 6 percent was applied to alcohol for the first time last spring, on top of an 11 percent gross receipts tax the state already collected.

Even with more tax being collected on each sale, tax receipts on spirits fell by 45 percent from March to April, the first month of the sales tax, and by 55 percent from April of last year, according to figures from the state budget office. Liquor tax receipts rebounded in May and have stabilized since then, but they were still were down in August by more than 17 percent from a year earlier.

Even though overall tax receipts fell by a much smaller 13 percent in April, Kentucky officials said the losses were due to the economy, not to the new tax.

Derek Schneider, manager of Charles Medley Distillery in Owensboro, wasn’t buying the state’s explanation. He called the drop “a classic example ... when you tax something more, people buy less of it.”

To which Washington state has its own solution: Throw the doors open and sell as much liquor as it can as quickly as it can. It’s significantly expanding operations at state-run liquor stores, the only retail outlets for hard spirits.

In June, the State Liquor Control Board announced that it hopes to raise $16 million in new revenue this fiscal year, which began July 1. It plans to do so by opening 15 more liquor stores across the state; expanding Sunday sales, which began in some stores in 2005; and debuting temporary “winter holiday” stores, which will sell themed gift packages in major shopping centers during the Christmas season.

And, for the first time, drinkers will be able to buy booze on major holidays, including New Year's Day, Memorial Day and the Fourth of July.

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