November 22, 2010

Hospitality industry says “dime-a-drink” tax hike could be devastating

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By Barbara Pash
For MarylandReporter.com

Despite the deceptively simple catch phrase, bars, restaurants, wineries and alcohol wholesalers think that the “dime-a-drink” proposal to increase the state tax rate on alcoholic beverages will cost them a lot more.

“They can call it 10 cents a drink. I call it $3 a case of beer,” said Jack Milani, a partner in Monaghan’s Pub in Baltimore County. Milani is legislative co-chair of the Maryland State Licensed Beverage Association.

The trade group represents about 1,400 restaurants, bars and package liquor stores, and times have been hard, he said.

“A lot of our people haven’t fully recovered from the last two years of the economic downturn,” Milani said. “We’ve lost establishments in the state.”

Proponents of increasing taxes on alcohol point out that Maryland has one of lowest state tax rates in the country. It was last raised in 1972 for beer and wine, and in 1955 for distilled spirits.

Currently, the state tax is 9 cents per gallon on beer, 40 cents per gallon on wine and $1.50 per gallon on spirits. The increase would add  roughly 10 cents per “drink” across the board. While this seems small, calculations have shown that the actual taxes would increase by 700% to 1,300%.

The current state tax is an excise tax, which is applied at the distributor level.

“A tax increase has to be passed on to the consumer in order to get their profit margins,” said Milani. Making his own calculations based on that assumption, he figured that beer that now costs the public $2.40 is likely to end up costing $3.

There is also concern that an alcohol tax increase will send consumers across the border, to neighboring states and Washington, D.C. to buy their alcohol. Milani said Prince George’s and Montgomery counties would be most affected.

Nick Manis, deputy director of the Maryland Beer Wholesalers Association, said an increase from 9 cents per gallon to $1.16 per gallon represented a 700 percent increase on beer. This increase, which does not take all state taxes into consideration, would have a dramatic impact on the association’s members, 22 family-owned and operated wholesalers across the state.

“This is the alcohol tax they’re talking about. This is the state excise tax that is put on at the manufacturer level. This does not include the 6 percent sales tax,” he said.

Similarly, executive director of the Maryland Wineries Association Kevin Atticks predicted dire consequences for the state’s wine industry. The association represents all 43 wineries in 18 counties, mom-and-pop agricultural operations that would find “any increase in taxes devastating.” Tough economic times have made money tight for wineries, and many established vintners — as well as start-ups — have had problems getting loans.

“Any type of tax increase, we have no choice but to pass it on to the consumer,” Atticks said of the $15.4 million state industry.

However, Maryland Citizens’ Health Initiative and Health Care for All coalition president Vincent DeMarco said the time for the tax increase, for which he has been campaigning throughout summer, has come.

DeMarco figures that the increase he is proposing would mean an extra 60 cents per six pack of beer, 59 cents more per bottle of wine and $2.25 more for a bottle of spirits  “That translates to 10 cents per drink,” he said.

“The people support it,” he said. A poll taken in March 2010  showed 71% of voters are in favor of a tax increase.

Lawmakers seem to support the increase, too. Before the election, DeMarco circulated a petition among legislative candidates asking them supporting the alcohol tax increase. Enough did so that, he said, “We feel we have a majority in the House [of Delegates] and the Senate” to pass a bill.

In 2008, the current alcohol tax raised almost $29 million for the state. In addition to that sum, DeMarco projects that the increased tax would raise $214 million in new revenues. These funds would be used for an array of health services: developmental disabilities, addiction treatment and prevention, mental health, and Maryland Medicaid Trust Fund for childless adults.

An obstacle in DeMarco’s path to pass the tax increase is Gov. Martin O’Malley’s publicly stated opposition to tax increases this legislative session. DeMarco is hoping that the projects the tax would fund make a difference.

“We think the public differentiates among taxes that save lives, and this [tax] does,” he said.

In 2010, the hospitality industry opposed bills to raise the alcohol tax, and it will oppose similar bills this year, said Melvin Thompson, senior vice president for government affairs and public policy for the Restaurant Association of Maryland.

“Last year, supporters tried to sell [the tax increase] on the basis that it was necessary for funding health programs,” Thompson said. “We believe that it’s a little disingenuous and misleading to imply that the only way to adequately fund expanded health care programs is by increasing the alcohol tax.”

Thompson also said that the establishments serving the drinks need to be considered. Many typically operate on a slim 4 percent profit margin, which has been slashed in half because of the economic downturn, he said.

“We can’t afford another burdensome tax as the industry tries to pull itself out of this economy,” said Thompson.