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Source: Wine & Spirits Daily
With the boom in ready-to-drink sales, the taxation and availability of RTDs (particularly spirits-based) has been top-of-mind for producers and legislators. Indeed, Michigan and Nebraska recently passed laws lowering taxes on spirits-based RTDs and several other states are considering similar legislation. One of those states is New Jersey. The New Jersey Assembly is considering a bill that would equalize the state excise tax for spirits and beer products with 9.9% abv or lower at 12 cents/gallon. Spirits producers currently pay $5.50/gallon. You may recall, beer industry members formed a coalition against the bill in New Jersey, sending a letter to the state Senate pointing out the disadvantages of equalizing the excise tax on and accessibility of spirits-based RTDs, most notably that tax revenues would decrease [see WSD 06-02-2021]. In response, the Distilled Spirits Council has submitted testimony to the New Jersey Senate Budget & Appropriations Committee ahead of the hearing on the bill later this week. As aforementioned, New Jersey is not the only state taking a closer look at RTDs, nor is it the only state "in which the beer industry has decried this type of consumer-friendly legislation and leveled myth-based criticisms at the spirits industry," per the testimony penned by DISCUS svp of state public policy Jay Hibbard. Jay outlines a few "misrepresentations" made in arguments against treating spirits-based RTDs similar to malt-based. To wit: DISCUS estimates the state would realize more than $34 million in new tax revenue from the category within three years, and that equalizing the tax will increase jobs in the state's spirits industry. "It is a myth that distilled spirits are 'harder' than beer or wine," writes Jay, pointing to the standard drink definition as containing 14 grams of pure alcohol - that's about 12 fl oz. of 5% beer, 5 fl oz. of 12% wine, or 1.5 fl oz. of 40% abv spirits. "Put simply, there is no beverage of moderation, only the practice of moderation." DISCUS also alludes to the recent malt-based hard seltzer launches with higher abv, such as White Claw Surge and Truly Extra, both of which are about 8% abv. As such, "it is a myth to suggest that an 8% or 9.9% abv spirits-based RTD should not be treated as a 'low-percentage alcohol' product." The testimony concludes: "Finally, for all the claims that the sky-will-fall made by the beer industry, should New Jersey adopt a fair and equal state tax rate, the state's action will have no impact on the Federal Excise Tax rate currently imposed on low-alcohol spirits products, which will continue to be taxed at a rate nearly 400% higher than beer products of the same ABV. Beer will continue to enjoy a marketplace price advantage." We'll have more as the legislation progresses. ource: Beer Business Daily
As you may know, the New Jersey Assembly is considering a bill which would equalize the state excise tax for spirit-based canned cocktails at 8% or under ABV. That bill may or may not pass (the president of the Senate introduced it, so..). But something remarkable happened during the debate that I have not seen before in my many moons in the bev-alc industry: A coalition formed against the bill which included everybody on the same side, (except the wine & spirits guys, obviously). Collectively they sent a letter to the New Jersey Senate pointing out the disadvantages of equalizing the excise tax on and accessibility of canned cocktails, most notably that tax revenues would go down. But, also, "The history of alcohol beverage taxation in the United States and in jurisdictions across the world is to favor malt-based beverages for a lower excise tax rate than hard liquor of any kind. We urge the Committee to keep this policy in place," per letter. But here's the interesting thing. Check out the signatories to this letter: -Anheuser-Busch -Beer Institute -Beer Wholesalers' Association of New Jersey -Boston Beer Company -Brewers Association -Brewers Guild of New Jersey -Constellation Brands Beer Division -Heineken USA -Mark Anthony Brands International -Molson Coors Beverage Company -National Beer Wholesalers Association Wow. I've never seen a coalition like that. Even if this bill passes, "this is a powerful template going forward to fight equalization," Beer Institute chief Jim McGreevy told BBD. "We are working closely with Bob [Pease at the BA] and Craig [Purser at the NBWA] to coordinate and distribute our messaging on this important issue." WHY IS IT IMPORTANT TO BEER? About 15 years ago, the former DISCUS chief, Admiral Peter Cressy (ret'd), set about a strategy to change state laws to allow Sunday sales of hard spirits. As an industry, we kinda laughed and said, "good luck." Ten years later we woke up to find that the vast majority of states now sell liquor on Sundays (and in more channels). And it matters because the average state excise tax on liquor canned cocktails is $10 a case, compared to $3-4 for malt-based products. So yes, it's significant. OUR TAKE. DISCUS is in it for the long game, and now that hard seltzers and canned cocktails are hot, equalization of taxes and access for those products are their top priority, and they will go state-by-state, starting with the larger states that have the highest tax differential between malt and spirit-bases, and going from there. If the beer industry doesn't act now, we'll wake up again in another ten years to find that not only are canned cocktails equalized with beer and malt-based seltzers, but hard liquor has somehow slipped into being equalized too. Slippery slopes and all that. For 75 years, beer has ruled the cold box in the off-premise. This has been their domain, and beer distributors are the masters of that crucial real estate - as it is fast-moving and requires lots of merchandising. I've heard beer distributors say, "the wine and spirits guys don't know how to service a cold box or c-store." That may be true today, but how hard is it to create a merchandising division and a c-store division, if the velocity and margins are there with RTDs? W&S distributors aren't stupid, and they aren't poor. They could ramp those capabilities fairly quickly, particularly in metro and chain markets, if the velocity and margins are there for canned cocktails. Beer distributors could lose their competitive advantage in that hallowed section of the store. Now, add onto that if states start to reduce the excise tax and lift restrictions on channels, that just accelerates the spirits companies' motivation to invade the space. Cans are the future. They want in. It's good that our government affairs execs, brewers, and distributors recognize this seminal threat and work together to fight it before it gets out of hand. |
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