The Nebraska Supreme Court ruled Friday that sweetened malt beverages known as "alcopops" should be taxed as hard liquor instead of beer.
The ruling means the state can tax malt beverages such as Mike's Hard Lemonade and Smirnoff Ice at $3.75 per gallon, instead of the 31-cent-per-gallon tax imposed on beer, and could force beer-only stores to stop selling such drinks.
But lawmakers are expected to debate a bill this week that would effectively undo Friday's decision, allowing the drinks to again be taxed as beer.
Critics say the beverages are aimed at young customers because of their sweet taste. The Nebraska Liquor Control Commission classified brewed malt beverages as beer in 2006, to align the state's alcoholic beverage policies with federal rules.
The ruling answered a 2009 lawsuit filed by a mother and three Nebraska groups that fight underage drinking. The groups argued that the state commission ruling conflicts with Nebraska law — enacted right after Prohibition — that bans the mixture of hard liquor and beer. Nebraska is the only state with such a ban.
One of the groups, Project Extra Mile, contends the beer classification helped make the drinks popular with underage drinkers by keeping them on more store shelves and at lower prices. Assuming the higher taxes are passed along to consumers, the hard-liquor classification would significantly raise shelf prices.
The court said the commission exceeded its authority when it classified the beverages as beer, but acknowledged that the Legislature could change the definition.
"The Nebraska Liquor Control Commission plainly defines spirits as beverages that contain alcohol obtained by distillation," the court wrote in its opinion. "Up to 49 percent of the alcohol in flavored malt beverages is distilled alcohol. Therefore, a flavored malt beverage is a spirit."
The Nebraska Attorney General's office argued that flavored malt beverages meet the definition of beer under state law. The attorney general's office also questioned whether the mother and three groups had standing to bring the lawsuit because the classification of the drinks had no direct effect on them.
The group's attorney, Vince Powers, said taxing the malt beverages as liquor could yield an additional $2 million to $3 million annually for the state and helped fight underage drinking.
"Now these out-of-state corporations will have to follow the law and pay their fair share like the rest of us," he said.
But Nebraska lawmakers could begin debate as early as this week to redefine the beverages as beer for tax purposes.
State Sen. Russ Karpisek said he introduced the measure in anticipation of the court rejecting the commission's decision and classifying the drinks as liquor.
His proposal, LB 824, has won support from the beverage, grocery and convenience stores industries but was opposed by Project Extra Mile, the Omaha-based group that fights underage drinking. The Legislature's General Affairs Committee voted 8-0 to advance the measure for full legislative debate.
"That's why we put the bill in," Karpisek said of the ruling. "We wanted it just in case the ruling wasn't what we agreed with, or if there wasn't a ruling for a while."