Keeping RI Liquor Stores Competitive

If you’ve been paying attention to the news lately, you know that the sales tax on alcohol is going away … in December. For the next five months, though, Rhode Island residents and tourists will be paying a double-tax on alcohol. First, the sales tax that has always been there, and then the increased excise tax that was imposed on distributors earlier this month. This tax, which forces distributor costs to go up, also causes, by extension, their prices to go up. The complicated issue has many ramifications for Rhode Island’s already complex liquor industry, but the bottom line is that for now, consumers will be paying more.

While this does sound bad, at the end of the five months, sales tax will be eliminated until at least 2014, which will make alcohol generally cheaper for the consumer should the program continue. Come December, the amount the average person pays for alcohol will drop, in some cases significantly. Beer itself is going to be the cheaper buy, as the excise tax on beer and similar beverages is significantly less than that on wine and hard liquor.

One of the architects of this program, designed to eliminate the alcohol sales tax entirely starting on December 1 of this year, is Rep. Jan P. Malik. Malik is the owner of a liquor store himself, Malik’s Liquors in Warren, and has been concerned about losing business to Massachusetts and Connecticut due to their lower taxes, or no taxes on alcohol.

Malik says that sales tax on liquor stores brings in about $24 million dollars every year – approximately $12 million for beer, $5.6 million for wine, and $6.6 million for hard liquor. “If you buy a bottle of wine at my store, say you spend $5.99,” Malik said. “After the 7 percent sales tax, you’re spending another 42 cents. Where, if you go to Massachusetts, you’re not.”               

While eliminating the sales tax would, indeed, make stores more competitive, the state of Rhode Island would be looking at a loss of revenue. After all, when taxes are cut somewhere, that’s money the state isn’t bringing in. If that number isn’t made up somewhere else, Rhode Island could face even more deficit than it already does. I asked Malik if this plan could result in a net loss for Rhode Island.

“Boy, that’s a million dollar question,” Malik said, “but that’s why we decided to wait the six months, or [rather] five months. That’ll bring in an extra $5.6 million. For the year 2014, the state will lose $1 million. But with the five months of sales tax, it’ll pick up most of the difference. There’s three major holidays in there, Fourth of July, Labor Day, and Thanksgiving. They will raise revenue.”

With five months of additional tax, and a million dollar loss, I was forced to ask if dropping the sales tax would be sustainable after 2014.

“That will be seen, you know. I can’t say if it will or won’t. But at least I was happy that the state would try. I’m on the border myself, me and the other liquor store owners, everybody’s down 16 to 20 percent. Especially since Connecticut is open on Sundays now. But this will give us a greater advantage, especially on the Connecticut border.”

Knowing how expensive and difficult the liquor industry can be, I asked Representative Malik about small or struggling stores and bars that were looking at these increases.

“A business owner has to be creative,” said Malik. “Now it’s up to the business owner. Not the state. In the end, it’s the consumers who are gonna win.”

With business already chased over the border by higher prices, I asked if the price increases from the excise tax wouldn’t just drive more consumers over the border.

“Why? Listen, it’s up to me what I want to do with my store. It’s up to the individual how to bring prices down,” he said. “It’s up to the distributors, too. Right now, we’re getting beer higher than Mass. Now it’s going up four cents a case! They’re supposed to be our partners in this.”

In the end, the elimination of the sales tax will be largely beneficial, and give border stores a chance to compete against Massachusetts and Connecticut. Recently, the Rhode Island Blue Law was changed to allow the opening of package stores as early as 10 am on Sunday. Perhaps this, combined with the elimination of the sales tax in December, will prove to be a boon. However, as the program will cost the state money, and may be detrimental to already struggling establishments at the height of tourist season, one has to wonder what other costs the state will be paying in the long run. The program has been termed a ‘study’ to see if eliminating the sales tax is feasible over the long term. In theory, an increase in business at a significant level could offset the losses, and if business did increase for most border stores, it may prove to ultimately be beneficial. However, mid-state stores, bars and restaurants may not see any of that business increase, as they mainly only compete with each other.

For now, it seems we must wait and see, but rest assured, the entire liquor industry is watching this issue very closely.

And at least craft beer drinkers will benefit in the long run. That’s something to drink to.