Budget proposal eyes liquor

Gov. recommends 50-cent hike per bottle

Oregon distillers are concerned that doubling a surcharge on their products next year will hurt an industry already generating a large portion of state revenue.

Gov. Kate Brown’s proposed state budget, yet to be hashed out in Salem, for the next biennium would increase a standing surcharge on distilled spirits from 50 cents to $1 per bottle for two years starting July 1. The Oregon Liquor Control Commission has renewed the surcharge three times since its inception in 2009.

Brown’s budget, which tries to close a $1.7 billion shortfall, recommends a number of increases on “sin taxes,” including an 85-cent hike on cigarette taxes to $2.18 per pack, along with increases on taxes on cigars and snuff. The proposed budget would increase all alcohol licensing fees, along with the liquor surcharge, except the fee for servers’ permits. The higher surcharge would raise an estimated $33.8 million for the state general fund; higher fees would raise another $5.3 million.

If the surcharge is increased, distillers said, they would likely pass the cost onto consumers. Some small distilleries may stumble should their sales decline just as those businesses are finding a foothold, they said.

“Any costs that raise the price of liquor, I don’t like because it raises my costs on the shelf,” said Nick Beasley, owner of Cascade Street Distillery, a small, 2-year-old business in Sisters.

Oregon consumers pay the second-highest taxes on liquor in the nation, an average $22.74 per bottle, according to the Tax Foundation, an independent research group.

The term “tax” when applied to distilled spirits is a misnomer in Oregon, where the state controls all sales of distilled spirits and acts as the sole distributor.

The OLCC generates revenue by marking up the price of a bottle by about 100 percent, a practice that goes back to 1991, according to the commission. In 2009, the OLCC first imposed a temporary, additional 50-cent-per-bottle surcharge, which the commission has renewed three times, the latest in August to expire in June 2019.

On the other hand, the tax on beer remains $2.60 per 31-gallon barrel, the amount set in 1977. The wine tax, also set in 1977 at 65 cents per gallon for wine under 14 percent alcohol by volume and 77 cents for wine above 14 percent, was increased in 1983 by 2 cents on lower strength wine to fund the Oregon Wine Board.

The Legislature sets the tax on beer and wine. Distilled spirits accounted for 96 percent of revenue collected by alcohol sales in the 2014-16 biennium, or $1.1 billion, according to the OLCC. The tax on beer and wine accounted for 3 percent, or $36 million.

Brown may more easily raise the liquor surcharge through the OLCC than seek a tax increase on beer and wine through the Legislature. Bryan Hockaday, a spokesman for Brown, in an email Wednesday wrote: “The governor has stated that this budget is the beginning of the conversation with the Legislature and Oregonians, and she looks forward to working on more sustainable funding solutions to meet the needs of Oregon families, support a thriving, statewide economy, and protect Oregon’s natural resources for future generations.”

Asked if higher beer and wine taxes would be part of that conversation, Hockaday replied: “Broadly speaking, all viable revenue reform proposals are likely to be part of the conversation this legislative session.”

Dan Engler, co-owner of Occidental Brewing Co., in Portland, and president of the Oregon Brewers Guild, said he anticipates a proposal during the 2017 legislative session to increase the tax on beer, which the guild would oppose. Engler said he opposes excise taxes in any form, whether directly or indirectly in the form of a surcharge.

“It’s a regressive tax regime,” he said. “We’ve shifted our revenue-generation scheme to corporate and individual income taxes rather than customs, duties and excise taxes from the old days.”

CEO Alan Dietrich of Bendistillery said he wants to hear the specifics of Brown’s proposed budget before he weighs in, but that the alcohol industry already contributes substantially to the state budget. More so than essentials like food or gas, once the cost of liquor climbs too high, consumers will cut back, which defeats the purpose of a surcharge hike, he said.

Likewise, Brad Irwin, owner and head distiller at Oregon Spirit Distillers, in Bend, said he wouldn’t suggest a tax hike on beer and wine, but distillers have thus far paid their share.

“I think it’s tough to ask us to pay more,” Irwin said, “when we’re already generating as much as we do.”

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