11 April 2011

Md. Braces For Inevitable Alcohol Tax Increase

If the weekend's media coverage is any indication, by this time tomorrow the citizens of the People's Democratic Republic of Maryland will all but be guaranteed, save for some legislative fumble or a sudden dislike of tax increases by Gov. Martin O'Malley--oh, who in hell are we kidding, folks?--to be hit with a sales tax increase on alcohol in July.

A couple observations:

There is always "salesmanship" going on between pro-tax ("it's only a three per cent tax increase!"  "only a dime a drink!") versus anti-tax ("fifty per cent increase in taxes!"  "1200 per cent increase in the proposed excise tax rate!").  Of course, please ask your math teachers which descriptions are more accurate.  But I noticed that the Baltimore Sun held off on using the description of a "fifty per cent increase" until this weekend, when the deal was all but over with.  Bias?  You decide.  (They had run editorials favoring the tax increases in earlier excise tax proposals.)

Remember that lovely "bait and switch" tactic where the excise tax was proposed with revenues going to specific health programs, and then once everyone got that in their heads and favored a tax increase, it shifted to a sales tax increase to be phased in over three years, with much (not all) of the money targeted to education programs in Baltimore and Prince George's County (cue the damned "won't somebody think of the children?!?" violins and Kabuki dance...)  Well, now the latest proposal is to impose the sales tax increase all at once in July.

GEE?!?!?!  WHO in hell could have seen THAT coming?????????  You mean our honorable legislators tricked us to get our support for a tax increase??????

A lot of commentary has been raised about the potential for larger consumers of alcohol to simply jump across state lines to a state with lower taxes to save on the likes of cases of expensive wines or spirits.  Many folks use the potential of Delaware as a shopping option.
Folks who suggest that haven't tried it.  It has been my experience over twenty years that Delaware's prices, though spared the 6% (soon to be 9%, I'm wagering) sales tax of Maryland, have been marginally higher than Maryland's, due in part to Delaware excise taxes being higher (16 cents per gallon on beer as opposed to Maryland's nine cents; national median is 18.5 cents and national average 27.8 cents; wine is 40 cents versus 97 cents and spirits $1.50 versus $5.46/gallon).  In my personal experience in purchasing beer at Delaware retail, the increased retail price typically negated any sales tax savings--a sixer of $6.99 beer in Maryland would cost $7.99 in Delaware, for example.
Beer excise taxes in Pennsylvania are lower at eight cents a gallon (believe it or not), but the typically horrendous selection brought about in part by the "case law" pretty well negates the prospect of anyone from Maryland shopping for beer anywhere near the Maryland border.  Indeed I have had one Maryland retail outlet with a good selection of craft beers tell me, years ago, that "a full 40% of our annual revenue is from what we call the 'Pennsylvania navy'--boaters from Pennsylvania loading up their boat trailers southbound to the [Chesapeake] Bay Thursday or Friday, then stopping to load up again northbound Sunday or Monday."
Virginia beer excise taxes?  25.65 cents a gallon.  West Virginia: 18 cents a gallon.  An overview of all the states and D.C alcohol excise and sales taxes here.

So, assuming the sales tax is raised, nobody's going to save any substantial amount of money skipping across the borders.  It's like the guy who chances running out of gasoline to save five cents a gallon, or fifty cents to a dollar on a $35-70 of gas.
What will most likely happen, however, is that many now-popular retail venues on the "borderlands" or close to them, places such as State Line Liquors between Newark, Del. and Elkton, Md., or Chevy Chase Liquors just north of the D.C. city line, will lose the price advantage they formerly offered for those (such as well-to-do folks from Delaware's New Castle County) who chose a slight detour over a line for what could be a substantial cost savings, in addition to a typically wider selection offered by Maryland distributors and retailers.  Legal or no, you could see cars with Delaware and Pennsylvania tags (and even DC and Virginia tags) all the time in State Line's parking lot, as people loaded up their cellars with cases of finer wines or procured a wedding's worth of booze.  The superior selection may remain, but not the price advantage.  I therefore forecast a not-insignificant reduction in total sales revenues at these locations, enough to impact the projected revenues raised from the tax increases.

Anyone wanna wager otherwise?


JohnM. said...

As you've pointed out time and time again, the Maryland legislature has never seen a tax they didn't like. So this is no surprise (nor the usual duplicity in selling it to the public).

What I always love about these popular sin taxes is the obvious hypocrisy behind them. Legislators and pundits love to point out no one HAS to pay this tax if they don't want to. It will only hit those folks who are buying "demon rum," and God knows those folks deserve to be taxed to the hilt anyway. Of course if the sinful really did turn away from their sinful ways (stopped buying alcohol), that would be an absolute disaster for the State. It would completely negate the revenue they hope to generate from this tax. The reality is that they want people to buy alcohol, and the more the better.

Far from hoping that the increased cost of booze will encourage people to go forth and sin no more, the actuality is that the State hopes this will have no effect whatsoever on the amount of alcohol people will buy and consume.

Oh well.... so it has always been; so it shall always be...

Alexander D. Mitchell IV said...

It's not predestined that it always will be this way with the Maryland legislature. Maybe someday, enough people will actually vote for senators, delegates, and the like based on actual examination of the candidates and the issues, rather than just voting for the only name they've ever heard (because of news coverage, of course), the letter behind the name, or whoever the union guy or preacher or co-worker or talk-show host told them to vote for............

Dear God. Is there something in my tea that's making me this delusional?

Alexander D. Mitchell IV said...

Comment from Volker Stewart of The Brewer's Art, reposted from facebook with permission:

"I am of two minds of this tax increase. On the one hand, I am an opponent of sin taxes or taxes that single out a specific corner of the population; on the other hand, as a brewery owner, I find it preferable to the excise tax increase as it is passed on to the consumer rather than to the manufacturer, and it is a tax that is levied at time of sale rather than at time of production (as excise taxes are). As a retailer it is going to make my paperwork burden slightly more onerous but not hugely so (as I have a point of sale system) but I can see where it would be a colossal pain to a corner store or a mom and pop restaurant. One thing I can say in its favor - it is based on retail price rather than sheer production volume (like excise taxes are), which I think is way more fair to the low-income consumer (making the tax proportionally higher on the purchaser of a Macallan 30 year old than the sale of a sixer of national boh)."