How the State Budget Affects Your Beer Budget

Gentle readers, this is a sort of good news/bad news situation. The good news is that the sales tax on alcohol is going to go away. The bad news is that it won’t be until December 1 of this year, and until then, we’ll all be paying more.

In the 2014 budget that just passed, the sales tax on alcohol is slated to be removed, and the excise tax paid by distributors is expected to increase to compensate. I know, I know, this isn’t what you expect to see in the beer column, but believe me this is important. While the effect on beer is negligible, a mere 30 cent raise per gallon, the effect on wine and hard liquor is significantly greater. A 750 of wine will see its price go up about 16 cents at the distributor level, and hard liquor gets a whopping 33 cent increase for the same size. Again, this is at the distributor level.

For those unfamiliar, distributors are the alcohol wholesalers in this country. By law, the sale of alcohol from production to the public has to go through these intermediaries. These distributors face increases that, while on the bottle level amount to less than a dollar on average, at the bulk level add up quickly. An extra $4 per case in a shipment of 100 cases starts to get expensive, especially for warehouse-type liquor stores that buy in large bulk. The distributors will almost certainly trickle the price increase down. Don’t look at them like that; they have to raise prices, it’s their business. When costs go up, prices go up. They’re not the villains here.

Neither are the liquor stores that will have to raise prices in order to maintain their revenue. Unfortunately, this passes the expense onto the customers.

So, who are the villains in this story? Well … it’s complicated.

The idea was born out of a long-standing movement to eliminate sales tax statewide to foster better competition with Massachusetts and Connecticut. Liquor stores on the border of the state are losing business to the cheaper stores across the line. This is the result of an experiment in order to see if it’s feasible to eliminate the sales tax entirely to give RI a competitive edge. The trial run is slated to run for 15 months starting December 1 of this year, however, the new excise tax is going into place already.

Here’s where things backfire. With the sales tax still in place, prices are just going to go up, driving more consumers into the already less expensive border states. For the next six months, people will be looking at higher costs. Then come December, hopefully, the sales tax will drop off and people will come flocking. Ultimately, it will eventually lower the amount you pay for alcohol. However, this is a tough industry already, and the price increase at struggling local packies could spell doom for the business.

At that point, we can look forward to more job losses, loss of tax revenue because we’ll have lost sales venues for the alcohol taxed at distributor level, and possibly businesses filing for bankruptcy.

Things could be even worse for struggling bars and restaurants. An already cutthroat industry at times could become even more treacherous. Glasses of wine at restaurants are already fairly expensive as it is.

So the state government – they’re the villains? Well, not really, no. The idea is well-intentioned, but the execution is going to force a hardship on a lot of local businesses, as well as alienate already disconnected consumers. Even with the elimination of the sales tax at the end of the year, this forces a price increase during tourist season, when a lot of beach-dependent businesses need that income.

Essentially, the largest flaw in this new budget is the six month delay. While it may generate more revenue for the state, it does so at a pretty terrific cost. Everyone would love to pay less in taxes, but the burden has to be borne by someone. This is what makes it such a complicated issue. While you can try to blame business, government, or the liquor industry, the real villain is poor planning.

So, what can anyone do about it?

To start with, talk to your local representatives. Maybe the budget can be amended, or the kinks in this trial system worked out while it’s in effect. While it’s supposed to be a study to determine the feasibility of eliminating the sales tax for good, this study could cost people their jobs or their livelihoods. There will be more on the Motif website as this story develops, so check it out and get involved!