New Alcohol Tax: Mean-Spirited Timing

by Hugh McQuaid | Jun 20, 2011 12:53pm
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(Updated 4:59 p.m) When liquor stores open their doors on July 1, presumably as they are stocking up for the big Fourth of July weekend, they will be hit with a new tax on their inventory.

The floor tax is expected to bring in $500,000 in revenue this fiscal year and is a one time tax. The increase in the excise tax, the first substantial tax increase on alcohol in 20 years, is what consumers will more than likely notice when they get to the checkout line of their local package store. The excise tax is expected $9.9 million each year over the next two fiscal years.

While tax rates will depend upon what kind of alcohol to which the tax is being applied, it amounts to a 20 percent increase in taxes on alcohol, Department of Revenue Services spokesman Sarah Kaufman said.

Lobbyist Caroll Hughes, who fought against the tax on behalf of liquor store owners, said it will be inconvenient for package store owners both in timing and implementation.

“It’s as difficult as you can get for a retailer,” he said.

Alcohol venders will need to assess everything they have in stock, convert that stock into measurements of liters, then apply the taxes based on the classification of the type of alcohol, he said. So beer, generally measured in ounces, has its own tax rate. Meanwhile wine is separated into different rates depending on its alcohol content. Spirits also are taxed differently, he said.

Hughes speculated that the new tax likely will be as difficult to audit as it is to report. And Kaufman said that members of the DRS enforcement unit will be out in the days following the tax’s implementation to conduct spot checks and to ensure tax filings match actual floor inventories.

Revenue Services also can compare the new inventory reports to the tax filings of previous years, she said. Auditors will note significant variations as a clue that something is amiss, she said.

But folks buying booze for the holiday weekend may not feel too much of the increased price from the two tax increases.

Neal Rounseville, manager of M and R Liquors in South Windsor, said some prices won’t go up since much of the increased cost will be absorbed by retailers. He downplayed the impact of the new tax, noting that people tip more for a bottle of wine in a restaurant than what they pay in taxes at a store.

He said taxes on alcohol have fluctuated less than the price of gasoline in the state.

Rounseville and Hughes agreed increased taxes only serve to make Connecticut liquor stores less competitive than those of the surrounding states. Massachusetts, for instance, recently voted to repeal its sales tax on alcohol.

That decision has been beneficial for liquor store owners in Massachusetts, according to Tom Tesauro, a partner at Yankee Spirits just over the border in Sturbridge. He said it’s impossible to tell whether more people from Connecticut have been hopping the border for their spirits since his state dropped the sales tax in January.

But he said there’s no way Connecticut’s new tax will be good for its package store owners.

“It’s Economics 101. I don’t think an increase in taxes helps to boost sales under any circumstances,” he said.

But a lawmaker from the border town of Enfield says it didn’t have to be this way. Rep. Kathleen Tallarita said that much of the revenue generated from the taxes could have been gained by allowing package stores to open on Sundays.

Connecticut’s legislature has debated lifting the ban on Sunday sales for years but the 2011 session passed without a Sunday sales bill being acted on.

Tallarita cited an a 2009 Program Review and Investigations report on a Sunday sales bill which estimated the measure would bring in between $7 million and $8 million. The Office of Fiscal Analysis estimated on Jan. 14 that if stores were allowed to be open on Sunday alcohol sales would increase 2.8 percent, and the state would see an increase of $2.4 million in sales tax and $1.2 million in excise taxes.

Liquor stores in border towns who compete directly with Massachusetts tend to support changing the law. But some stores in other parts of the state say they would lose money because people won’t necessarily buy more alcohol just because the stores are open.

Hughes, who represents the Connecticut Package Store Association, lobbied against the change, a position Tallarita said was short sighted. She said she heard from a store owner in Enfield Monday morning who worked out the fiscal impact the new taxes will have on his business. He was livid, she said. The legislature’s decision was an unfortunate one, she said, especially for border towns.

“Theirs raises taxes on people while mine just allowed people to buy alcohol on Sundays if the package stores wanted to open,” she said.

The timing of the tax also has some worried there will be a holiday booze shortage as retailers struggle to lower their inventories and revelers flock to package stores for beer and vodka.

But package store owners are quick to dismiss those concerns. More people buy alcohol over that weekend and retailers generally can’t afford to miss out on the extra sales. They plan well in advance of big holidays, Hughes said.

“You know what you sell,” he said.

Tags: Taxes, liquor, alcohol, Hugh McQuaid

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