The spirits industry is coming together to lobby states to lower taxes on canned cocktails (similar to hard seltzer and beer). Since the early founding of the United States, excise taxes have been placed on alcohol but the repeal of Prohibition results in spirits being taxed higher compared to other forms of alcohol by states and the federal government. Lawmakers argue that liquor’s higher alcohol content can separate beer and wine.
Excise taxes are imposed on the entire production chain of alcohol costing producers, wholesalers, importers, and some retailers with the cost typically passed onto consumers leading to higher prices for spirits. The co-founder of Jersey Spirits Distilling Company and president of the New Jersey Craft Distillers Guild, John Granata, has pushed for lowering excise taxes in the garden state for years now.
New Jersey Spirits Distilling decided to start selling canned cocktails during the global pandemic to offset the loss of on-premises sales with most of their ready-to-drink beverages featuring alcohol by a volume rate of 10%. The solution to the problem might have been simple but the distillery already was considering the impact of excise taxes with already set price points for the product which would be problematic.
Jersey Spirits Distilling pays $5.50 per gallon in excise taxes to New Jersey on the drinks as they contain spirits (on top of federal excise taxes) compared to a beer manufacturer that would pay 12 cents for the same amount, even if the beer had higher alcohol by volume (ABV). The state of New Jersey is considering passing a bill through the state legislature that would cost distilleries 15 cents for every gallon of canned cocktails.
The convenience of canned cocktails during a global pandemic increased U.S. consumption by 52.7% compared to the previous year consisting of 6.9% for the total volume of alcoholic ready-to-drink products. This increase in sales has prompted liquor companies to take the offensive, fighting for tax equality among alcoholic products.
The spirits industry believes that canned cocktails can increase further growth if distillers pay lower excise taxes that will allow alcohol companies to offer cheaper prices for customers. Distillers make the argument that canned cocktails have a similar alcohol content as hard seltzer or beer but aren’t treated equally simply because their drinks contain spirits.
New Jersey is considering passing a bill for equality in the spirits industry while Nebraska and Michigan have already lowered excise taxes on canned cocktails. Pennsylvania is also considering passing a new bill this year while other states including West Virginia, Hawaii, Washington, North Carolina, and Vermont are looking into passing similar legislation by 2022.
As states make progress in this rising issue, changes on the federal level seem out of reach for now. It seems, for now, this issue will be garnering more attention on a state level as it isn’t prevalent on the federal level. Spirits companies are experiencing some pushback from beer distributors and brewers in fear of losing their competitive edge.
A spokesperson for the beer industry trade group, Beer Institute, disclosed a statement on the matter to CNBC, “Legislation to lower taxes on canned cocktails is bad for state budgets and bad for good-paying local jobs that depend on our nation’s beer industry. We look forward to working with elected officials at all levels on ways to help bolster local jobs and strengthen public safety that doesn’t involve giving a subsidy to liquor companies.”
The spirits industry is also facing scrutiny from alcohol industry watchdog organizations. The public affairs director for the California-based organization Alcohol Justice, Michael Scippa, disclosed, “There’s no reason why they should be given a reduction in taxes. Our real concern, one of our steadfast goals, is to raise taxes on all alcoholic beverages because they’re just too low and many haven’t been raised in generations, making them moot in terms of generating revenue."
It seems the spirits industry will need to work together to overcome this issue with many competitors trying to stop them with little support from the federal government. The spirits industry will also have state legislation on its side that will hopefully lead to more attention and involvement with the federal government. The research for this article was sourced from CNBC and USA Today.