Alcohol tax expected to hurt beer sales

A proposed drink tax on alcohol is pitting beer lobbiests against restaurateurs in Pennsylvania.

Extending the 6 percent sales tax to drinks likely will matter little to those swilling $8 martinis, according to bar owners, breweries and wholesalers. Beer drinkers, however, are more sensitive

Legislators are considering the proposal which would raise $48 million. The Pennsylvania Restaurant Association is backing it in exchange for a break on the liquor tax that licensees have to pay Currently, the tax is 18 percent for all consumers. But retailers get a 7 percent break on that tax. (See "Liquor laws have a history." on this page). Because beer is not subject to the liquor tax, beer vendors would not benefit from a reduction in that tax.

About six months ago, the restaurant and beer lobbies united and successfully fought off a proposed tax against beer wholesalers. The recent split is confusing to business owners, said Tom Scott, who owns and manages McGrath's Pub, a bar and restaurant in downtown Harrisburg. He said the lobbies should have a united front when they negotiate for breaks from legislators.

"Meanwhile, they say, 'These people don't know what they want,' " Scott said. "We need to come up with the same plan."

The plan that's on the table now means customers will take on the tax burden from businesses. Patrons are not likely to notice the additional tax, because they already pay a sales tax on food, said Patrick Conway, president of the Pennsylvania Restaurant Association.

Conway claims that businesses would pass along their savings with lower drink prices. Many restaurateurs, however, have complained about the low profit margin on liquor sales and have said they would use their savings to reinvest in their restaurants.

Because the liquor tax does not extend to beer, the Pennsylvania Beer Wholesalers Association said taverns and clubs would be left out. They will just lose customers because the new tax would make beer more. expensive, said Jay Goldstein, president of the association. The extra tax would come on top of the passage of the new law lowering the standard for drunken driving to a blood alcohol content level of .08. That already is eating into beer sales, Goldstein said.

The restaurant association calculated that the sales tax on drinks would generate $91 million in state revenue. The Pennsylvania Department of Revenue estimated it actually would be about $48 million and cost $800,000 to enforce in the first year. That includes the salaries of 10 new auditors.

The beer wholesalers association is pointing to the cost of enforcement and declining beer sales as reasons to oppose it.

From January to August of this year, beer sales in Pennsylvania dropped by $1.3 million, or 7.8 percent, according to the state revenue department. Sales are expected to drop by an additional 1.8 percent because of the .08 law. That is based on the decline experienced in 26 states that had the law in 2002, Goldstein said.

In addition, Goldstein said the sales tax would hurt nonprofit fire halls and small clubs, such as the VFW, that count on selling cheap beer to raise money. It also would affect taverns, which sell primarily beer.

For a $2.50 beer, that means an extra 15 cents in tax.

"For a person who goes to a tavern with $10...that's one beer less," Goldstein said. "Now think about that for all retail establishments on a Friday night..."

Rebecca Shaver, state executive director of Mothers Against Drunk Driving, said she does not see that as a problem.

"We're fine that, because of the tax, they will drink one less beer because they're going to be getting back into their car and driving," she said.

The legislation has a number of opponents, including the Pennsylvania Fire and Emergency Services Institute, the Pennsylvania Tavern Association and the Pennsylvania Elks State Association. Appalachian Brewing Co. Inc. of Harrisburg, Latrobe Brewing Co. in Latrobe and the D.G. Yuengling Brewery in Pottsville are among businesses that oppose it.

In general, upping the cost of alcohol in bars and restaurants is a touchy subject. Owners of those establishments say it normally means customers will cut back on drinks.

"Whenever there's an opportunity for pissing off my clientele, I'm not for it," said Mike Van Billiard, general manager of the Harrisburg martini bar NOMA.

Van Billiard said the only reason he would support a tax increase would be to get a break on the 18 percent liquor tax, also known as the Johnstown flood tax. The tax originally was enacted in 1936 to pay for repairs to the town, but the tax never was removed.

Down at McGrath's Pub, Scott said he does not think his customers will care if they have to pay a sales tax, which he thinks is inevitable.

He is more worried about the effect of the .08 law. His customers already have been complaining about it.

"We're getting hit left and right," he said.

Liquor laws have a history

The restaurant and beer wholesalers associations joined forces to protest a proposed tax hike on beer wholesalers earlier this year. They successfully argued that the wholesalers would pass those costs on and force restaurants and bars to raise drink prices.

After pressure from the two groups, the General Assembly dropped the plan from budget negotiations. Later, Republican Rep. Scott Boyd of Lancaster proposed the drink-tax bill. The idea was to find a new source of revenue, while trying to deliver restaurant owners a break.

All alcohol sold in Pennsylvania is taxed at 18 percent. However, retailers get a price break. If consumers buy a $10 bottle of liquor, they pay $11.80, or $1.80 in taxes. A retailer gets a 7 percent discount on that $11.80, which means they pay 97 cents in taxes. That price break has been in place since 1988. (In 1980, retailers had a nearly 17 percent discount.)

Last year, restaurateurs sought to increase the discount. Legislators rejected an increase because they could not justify the loss of revenue in a tight budget year. The state would lose $3.3 million for each additional percentage point, according to the Pennsylvania Liquor Control Board.

The liquor tax was levied to pay for damages caused by the Johnstown flood in 1936. It was supposed to be temporary.

Boyd's proposal would be to eliminate the 18 percent tax. That would cost the state more than $53 million.

The revenue mostly would be replaced by an estimated $48 million brought in from the drink tax.