States Raise Revenue Without Raising Taxes By Repealing Arcane Alcohol Restrictions

Patrick Gleason, Forbes
September 10, 2017

As a new football season commences in America, fans in many cities and towns will find it easier to prepare for tailgate parties and other fall weekend festivities thanks to moves taken by a number of states this year to remove antiquated restrictions on alcohol sales.

In excess of 30 states reported budget shortfalls at the beginning of 2017. To balance budgets, some states have reduced spending and some have raised taxes. The most innovative lawmakers, however, are finding they can increase tax collections without raising taxes by removing unnecessary barriers to the sale of alcohol.

State and local governments from coast to coast impose a host of restrictions on the sale of beer, wine, and spirits . Most are unjustified relics. Too often, the motivation to put and keep many of these restrictions in place has nothing to do with public health or safety concerns. Instead the ultimate purpose is to protect politically well-connected stakeholders from competition. In the process, these protectionist regulations also inhibit industry expansion and economic growth.

Take South Carolina, where earlier this year state lawmakers enacted legislation that will remove restrictions on craft distillers’ ability to sell their product. This reform, which was signed into law in May, allows craft distillers to mix cocktails for customers visiting their tasting rooms and to serve up to three ounces of liquor, which equates to approximately two drinks.

Before passage of this law, craft distillers in South Carolina were only allowed to serve up to 1.5 ounces per customer in their tasting rooms, which is basically a shot. Further inhibiting their ability to sell and market their products, spirits served on-site had to be consumed straight and could not be mixed as cocktail.

“There’s a big difference between sipping a shot of bourbon and having an Old-Fashioned,” Brook Bristow, a beverage lawyer on John’s Island, explained to The State newspaper. “Now you can showcase these types of products in a medium where they are most often consumed.”

Additionally, South Carolina distillers previously were only allowed to sell 750-mililiter bottles for off-site consumption, a quantity commonly referred to as a “fifth.” Under the new law passed this year, craft distillers will now be able to sell smaller sized bottles, such as mini-bottles and pints, for off-site consumption.

By lifting statutory and regulatory shackles that serve no purpose, these new rules for South Carolina distillers will allow them to increase sales and grow their businesses, which will translate into more tax revenue for state and local coffers. Too often politicians look to impose new or higher taxes in order to raise revenue, when instead they could increase state funds by getting government out of the way.

This isn’t the first time Palmetto State lawmakers have recognized the need to end misguided laws that impede commerce and depress economic growth. Back in 2013, then-Gov. Nikki Haley (R) signed the “Pint Law,” which removed regulatory impediments preventing microbreweries from flourishing in-state.

Before then-Gov. Haley’s enactment of the Pint Law, South Carolina’s breweries were only allowed to sell 16 ounces of beer per customer and the product had to be served in four ounce glasses. Thanks to passage of the Pint Law, breweries can now sell 48 ounces of beer right from the tap.

A year after passage of the Pint Law, state legislators and Gov. Haley approved the Stone Law, which permits breweries to sell food on premises. The Pint Law and Stone Law remain quintessential examples of how state lawmakers can promote economic growth by removing statutory and regulatory hurtles to expansion of commerce and industry growth.

Wes Donehue; CEO of Push Digital and co-owner of Charleston, S.C.-based Frothy Beard Brewing Company & Zombie Bob’s Pizza; attributes the rapid expansion in the state’s craft beer industry to the leadership of a new generation of reform-minded lawmakers in the South Carolina statehouse.

“As a deep red Bible belt state, South Carolina has gone from being one of the least craft beer friendly states to one of the most craft beer friendly states because of a new crop of younger legislators. We’ve gone from 5 to 45 breweries in 5 years. The explosion has been insane,” Donehue said.

High Court Strikes Down Cap On Liquor Licenses

It wasn’t just the state legislature that removed restrictions on alcohol sales in South Carolina this year. In April, the South Carolina Supreme Court struck down a state law approved in 1996 that limits any one individual, firm, or business from owning more than three liquor retail stores. The court ruled that the 1996 law was unconstitutional and that the primary purpose it served was to protect existing businesses from competition.

The lawsuit was brought by Total Wine, which sought to open a fourth South Carolina location. Ironically, Total Wine subsequently lobbied the South Carolina legislature to undue the court’s decision in its favor. That is because the original goal for Total Wine was to get the cap on liquor retail outlets lifted from three to seven. When the Supreme Court ruling eliminated the cap altogether, it opened the door for larger retailers like Publix and Wal-Mart to also enter the market, which would reduce prices for consumers but be detrimental to Total Wine’s bottom line.

Total Wine’s aim was to alter, not lift, the state’s arbitrary restriction so as to give the Maryland-based retailer a leg up over smaller competitors, while not allowing truly open competition that would have benefitted all consumers in the form of greater convenience, more selection, and lower prices.

States Across Country Liberalize Alcohol Regulations To Provide Greater Convenience, Lower Costs

South Carolina lawmakers and judges aren’t the only ones who have removed arbitrary and protectionist restrictions on alcohol sales this year. Their counterparts in neighboring North Carolina also passed legislation that expands commerce by getting government out of the way.

In June, the Republican-controlled North Carolina General Assembly and Gov. Roy Cooper (D) enacted the Brunch Bill, which permits restaurants and bars to sell beer, wine, and spirits starting at 10 a.m. on Sundays. The state previously prohibited Sunday alcohol sales before noon.

The decision whether to permit pre-noon Sunday alcohol sales is now up to city, town, and county governments in North Carolina. Many of the state’s largest population centers have already acted to permit the sale of beer, wine, and spirits starting at 10 a.m.

North Carolina’s Brunch Bill is another example of a reform that generates more revenue for government coffers by repealing outdated and misguided restrictions on commerce. For every person who previously tried to order a mimosa with brunch at a restaurant in Raleigh or Charlotte, only to be denied; and every Sunday morning foursome hoping to improves their games on the back nine with help of an order bloodies at the turn, only to be rejected, the state was leaving money on the table in the form of forgone sales and excise tax revenue. Now, thank to the Brunch Bill, the state will reap additional revenue the best way possible – not through higher tax rates but through economic growth and expansion of commerce.

Liberalization of state alcohol regulations this year has not been limited to the Carolinas. Earlier this year, Minnesota lawmakers passed a bill to allow Sunday alcohol sales, which is great news for Vikings fans who forget to procure tailgate supplies prior to game day. In Kansas this year, state legislators changed state law to allow grocery stores to sell full-strength beer and wine, while allowing liquor stores to sell tobacco. With that reform Kansas followed the lead of Tennessee, which repealed its prohibition on the sale of wine in grocery stores last year.

States That Failed To Repeal Misguided Alcohol Regulations This Year Look To Act In 2018

Many visitors to Indiana are surprised when they go into a convenience store and find that only warm beer is for sale . That’s because Indiana law prohibits convenience stores from selling cold beer for carryout purchase. Only package liquor stores are allowed to sell cold beer for carryout purchase, an unjustified protection that their lobbyists have successfully defended for years.

Indiana is also one of only 11 states that do not permit Sunday alcohol sales. However, there is good news for Indiana residents who have tired of these nonsensical restrictions. Hoosier State lawmakers have spent the summer considering the state’s outdated restrictions on alcohol sales, with the goal to come back and make necessary fixes in 2018.

“There was one unexpected thing that was highlighted during this session: it was just how unworkable, unpredictable and, in some cases, unreasonable our archaic alcoholic beverage laws are in Indiana,” Indiana House Speaker Bosma (R) said. “Many of them date back to Prohibition with very little logical change to them, although we’ve tinkered with them over the years.”

The Many Pitfalls of Pennsylvania’s Alcohol Monopoly

When it comes it comes to misguided restrictions on the sale of alcohol, no state holds a candle to Pennsylvania and its ludicrous alcohol regulatory regime. No other state’s alcohol laws and regulatory bureaucracy are in greater need of reform than Pennsylvania’s.

Aside from Utah, Pennsylvania is the only state where the government has total control of wine and spirits retail and wholesale operations. In addition to the fact that selling wine and spirits is not a core function of government, the bureaucracy this monopoly has created is a drain on scarce state resources.

In 2010, the Pennsylvania Liquor Control Board, which has been a breeding ground for corruption, had liabilities that exceeded assets by nearly $10 million dollars. PLCB financial records show that from 2000 to 2010, net operating income declined 248 percent and sales revenue rose by sixty-five percent, while central administrative support costs shot up by more than 150 percent.

Underscoring the need for Pennsylvania lawmakers to reform the state’s arcane alcohol monopoly is the Pennsylvania Liquor Control Board’s (PLCB) recently enacted price hike on over 400 products.

The PLCB attributes the new price hikes to rising pension costs, which the PLCB has taken no meaningful steps to rein in. So in addition to worrying about tax threats from the federal, state, and local governments, Pennsylvania residents who already contend with the nation’s 15th highest tax burden also have to worry about a group of unelected PLCB bureaucrats who have the ability to impose their own de facto tax hikes, which they just did on over 400 products, including some of the most popular brands.

If the imposition of a de facto tax hike by a group of unelected bureaucrats weren’t bad enough for Pennsylvania residents and visitors, the PLCB actually refuses to disclose what products it raised prices on. Consumers have to go stalk the aisles to find out for themselves. The PLCB’s arrogance is unfortunately exceeded by its power, which includes the recently-exercised de facto taxing authority.

There is more bad news for Pennsylvania residents. Gov. Tom Wolf (D) and state lawmakers are not showing any interest in getting the state out of the booze business. Instead they are currently pushing for higher taxes on natural gas, electricity, and phone bills, which were approved by the state Senate in July and await consideration by the House, which will reconvene on September 11.

Rather than pile a new round of state level tax increases on top of the 20 Obama-era federal tax increases that Pennsylvania taxpayers have been hit with over the last eight years, Keystone State lawmakers should instead generate revenue by selling off all state-run liquor stores and getting state government out of the booze business once and for all.

It’s not just Republicans who are calling for an end to the commonwealth’s antiquated alcohol monopoly. Even the Philadelphia Inquirer editorial board, no bastion of free market conservatism, has said it’s time for Pennsylvania to get out of the booze business.

The Pennsylvania House of Representatives is the only thing standing in the way of a massive tax increase. In addition to rejecting Gov. Wolf’s call for another round of job-killing and investment-depressing tax hikes, it’s time for Pennsylvania lawmakers to follow the lead of more innovative states, and seek the needed reforms that will generate additional revenue by getting government out of the way of commerce.

Patrick Gleason is director of state affairs at Americans for Tax Reform, and a senior fellow at the Beacon Center of Tennessee.

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