Potential Ohio beer tax would have broad impact

Modern Brewery Age, May 23, 2005

AP--This year, Kentucky and Washington state increased liquor taxes. Legislatures in Montana, Indiana and North Dakota failed to do the same with beer. Lawmakers in Texas are considering an increase in alcohol taxes to help pay for public schools.

In Ohio, Gov. Bob Taft wants to double the excise tax of 18 cents a gallon on alcoholic beverages other than liquor: beer, wine, vermouth, champagne, mixed beverages and cider. It would be the first increase since 1993. The tax has commonly become known as the beer tax because beer makes up nearly 85 percent of the state's alcoholic beverage tax revenue.

While the House approved the tax, the Senate plans to remove it. Both sides must come to an agreement next month.

The impact on Ohioans' tabs would vary depending on how each manufacturer and retailer passes along the tax. An example: it could amount to about 2 cents more on a $2.50 12-ounce bottle of Budweiser at Brews Cafe in Granville, near Columbus.

But those pennies would add up to an additional $50 million for the state's general fund, much needed money as lawmakers try to balance a budget in the era of rising Medicaid, education and other costs. Ohio received $58.8 million in tax revenue from alcoholic beverages in the 2004 fiscal year.

Kentucky's General Assembly in March OK'd increasing the wholesale liquor tax from 9 percent to 11 percent, which is expected to raise $8.8 million this fiscal year. Washington's budget is expected to get $50 million from its $1.33-per-liter tax on hard liquor.

Kentucky Sen. Charlie Borders, the Republican chairman of the budget-writing committee, said the increase in liquor taxes was part of a comprehensive effort to update state taxes. The increase--the first in 50 years--allowed lawmakers to lower income taxes for the state's poorest families, he said.

"Our tax increase on liquor was minuscule compared to what some people thought it should be," Borders said. "Believe you me, we've had no grief from the liquor industry because they've been treated very well in my opinion."

Excise taxes, sometimes called sin taxes, are targeted to a product or service. They are a more palatable way to raise revenue for states than a broader tax, said Bert Waisanen, fiscal analyst for the Denver-based National Conference of State Legislatures.

Part of the reason is the moral message.

The Center for Science in the Public Interest, a Washington, D.C.-based nonprofit, has promoted in Ohio and other states hiking alcohol taxes as a good way to fight alcohol abuse.

George Hacker, director of the group's Alcohol Policies Project, which has studied such taxes for 23 years, said states and the federal government collected $18 billion in annual alcohol taxes from the $140 billion and growing industry.

"What's happening now is that states have run out of other revenue sources," Hacker said. "The recognition of this valuable revenue source as well as the fact that these taxes overall have been raised rather infrequently over the past 30-40 years are beginning to get through."

Ohio's proposed beer tax increase is part of a broader plan that would eliminate taxes on business equipment and inventory and lower business income taxes, among other things.

Taft spokesman Mark Rickel said the higher beer tax is necessary to help balance the $51 billion two-year budget.

Paul Jenkins, president of Columbus Distributing Co., the distributor of Anheuser-Busch and allied brands, said an increase could mean job cuts at his company if demand for the beers drop. Jenkins said he doesn't intend to absorb the cost of a higher tax.

"This tax is paid ultimately by the consumer. It's just the way the system works," Jenkins said.

Sellers are worried, too, especially those near Ohio's borders. With the increase, Ohio's beer tax would be well above that in neighboring states.

"It's going to fall hard on the small guys," said George Thompson, owner of D&J Carryout, an independent seller of beer and wine in Toledo. He estimated that 80 percent of his sales comes from beer.

Fred Lisy, who had a draft beer with lunch during a stop recently at Becky's, a popular tavern near Cleveland State University, said a few more cents probably won't deter him from buying beer. But still, Lisy is an opponent of the tax proposal. "It's just the whole principle of being taxed like that," he said. "It's distasteful."