California Governor Proposes Nickel-a-Drink Excise Tax Hike
California Governor Arnold Schwarzenegger on Thursday proposed a large increase in the alcohol excise tax which would raise taxes on wine by $1.28 per gallon, according to Family Winemakers of California. The increase, part of a larger revenue proposal to fill the $11 billion budget gap, would be on top of the current $0.20 per gallon and for consumers that would be the equivalent of an additional 25 cents per bottle, according to Family Winemakers. The excise tax is considered a tax on production rather than on consumption.
The nickel-a-drink proposal was proposed along with a sweeping set of proposals from the Governor as he called for a combination of budget cuts and revenue increases--including a temporary increase in the state sales tax--to meet an $11.2 billion budget shortfall.
The nickel-a-drink tax would apply to beer, wine and distilled spirits.
Similar proposals have been made several times before, though in the past the industry has been able to defeat such proposals by making the case that wineries pay more than their fair share to the general fund and are a huge driver of sales taxes and income taxes.
"Goodbye Two-Buck Chuck if it happens," industry analyst Jon Fredrickson said of the proposal. "It will hurt the low end just when people are seeking values."
Five years ago a director at large with the California Association of Winegrape Growers estimated that a nickel-a-drink fee would equate to a tax on wine grape growers of $217 a ton, more than the average cost per ton for the majority of wine grapes grown in California. That $217 estimate assumed a five-ounce typical glass or 25.6 glasses in a gallon of wine. Assuming 170 gallons are made from a ton of grapes, the fee would equate to $1.28 per gallon or $217.60 a ton.
"Obviously we oppose an increase in excise taxes," Wine Institute communications director Nancy Light told Wine Business Insider.
One anti-alcohol group jumped on the proposal immediately by calling on other states to follow suit. In a press release, the Marin Institute said that at least 38 other states also face serious budget deficits, totaling more than $60 billion dollars, citing data from the Center on Budget and Policy Priorities. "The largest states, such as New York and Florida can avoid cutting essential programs through long-overdue alcohol tax increases," Bruce Lee Livingston, executive director of Marin Institute, said. Livingston said a nickel per drink increase in New York could raise an additional $355 million, while Florida could add $430 million to its budget with a similar increase.
"It's unfortunate that at a time when the hospitality industry is under such stress the Governor would propose an increase on the already burdensome alcohol excise tax," Distilled Spirits Council of the United States vice president Adam Smith said. "As restaurants throughout the state continue to struggle through this economic downturn, now is not the time to hit these businesses with a tax increase."
Since 2003, 173 of 187 major state tax bills that proposed raising taxes on alcohol have been defeated, a 97 percent success rate, according to DISCUS.