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EXCISE TAX CREATES HEADACHES FOR LOCAL BEER AND LIQUOR DEALERS

Selling out their holiday merchandise is the goal of most retailers, but local beer and liquor dealers have a special incentive this year.

Dealers apparently are keeping moderate inventories because they will be hit with a new federal excise tax on their entire stock of beer, wine, distilled spirits and cigarettes as soon as the new year dawns. Some retailers are trying to whip up holiday sales with advertisements warning consumers of the impending tax hike.

On Jan. 1, federal taxes on beer will double, add $1 to a gallon of hard liquor and about 18 cents to the average bottle of wine and boost the price of all tobacco products.

New Year's also is the day all retailers, wholesalers, suppliers and manufacturers will pay new tax rates on all the related items in stock. Additional markups, including expenses associated with installing the new tax, also will be passed on to the consumer, industry insiders said.

"The tax was imposed between the two months when retailers make it or break it," said John B. Burcham, executive director of the National Liquor Stores Association, a trade group based in Bethesda, Md.

"They don't have time to understand what they have to do. They have to record items by size, alcohol content and by brand name. It's just a nightmare."

The tax hikes come at a time when growing social disapproval of drinking and concern about drunk driving also are slowing sales.

The tax increases are set: $1 per proof gallon of distilled spirits; 90 cents per gallon of wine, excluding sparkling wine; $2 per 1,000 cigarettes; $1 per gallon of imported perfume; and $9 per barrel of beer. Each barrel of beer contains 31 gallons.

Because the tax package includes a floor stock tax -- which taxes every bottle of alcohol and pack of cigarettes through every link in the industry's chain -- businesses nationwide will undergo massive inventory, counting every item on their shelves.

James M. Pepe, co-owner of Hodge Wine and Liquor on Elmwood Avenue, estimates the store's eight employees will have to put in a 65-hour work week to count the more than 10,000 items in stock.

Premier Liquor Corp. in the Town of Tonawanda expects to pay up to $5,000 for an outside agent to conduct the inventory of its approximately 700,000 bottles of wine and distilled spirits, said Burt Notarius, Premier's president.

The tax, its related expenses and the higher cost of doing business will drive up prices, Notarius said. But high-volume dealers, such as Premier, may resist markups in order to maintain high sales, he said. Many others may not be able to afford to eat the tax or its related expenses. "There isn't enough profit in this business to cover the tax," Pepe said.

The floor tax has made many of the nation's
approximately 500,000 licensed dealers fight the urge to stock up this season. "What retailers are concerned with is keeping stock levels down so they don't have to pay taxes on large inventories," said Jerry Murphy, executive director of the National Licensed Beverage Association in Alexandria, Va.

"They'll have plenty of stock but I don't see any rush in that area," Murphy said. "I don't see any consumers stocking their basements."

Retailers have little incentive to stock up because tax hikes have played a strong role in the steady sales declines of the past 10 years, said Burcham, of the National Liquor Stores Association.

Taxes make up about 45 percent of the price of distilled spirits, he said.

Consumption of distilled spirits fell by about 3 percent a year during the 1980s to 1.50 gallons per capita in 1989, said Lynne B. Strang, spokeswoman for the Distilled Spirits Council of the United States.

But in 1986 consumption plunged more than 5 percent following a 19 percent federal excise tax hike, Mrs. Strang said.

New York last summer increased its beer tax 10 percent. However, prices in Western New York remain below Canadian prices, said a spokesman for the Brewers of Ontario. Canadians, who have boosted the Western New York economy, will find beer prices about half what they are at government-run outlets in Canada, he said.

Local beer and liquor wholesalers said inventory levels at area establishments equal last year's levels for the holiday period, said Jerry P. McKinny, sales manager at Tondisco Inc., a wholesales beverage distributor with 1,000 clients in Erie and Niagara counties.

The floor tax and beer's relatively short shelf life prevent retailers from keeping too much on hand, said Ken Fremming, general sales manager for Try-It Distributors Co.

"Retailers loading up? That won't happen," Fremming said. The Cheektowaga-based beer wholesaler distributes to about 2,400 Erie County establishments, largely restaurants and taverns. "Everybody is just conducting business as usual," he said.

But a few operations are trying to drive sales by informing customers of the excise tax through their holiday ads.

"Stock up now for additional tax savings. Beat the Jan. 1 federal tax increase," reads a full-page ad from Consumer's Beverages Inc.

Neil Kavanaugh, vice president the chain of 14 area beverage retail stores, said customers are trying to beat the tax hike by stocking up now but that the increase in sales will be short-lived.

Customers are buying an extra one or two cases above normal holiday purchases, Kavanaugh said. But in the long run, he predicts consumption will fall by between 10 percent and 15 percent. Some consumers will "trade down" from high-priced beers to less expensive ones. The price hike also could be used as an incentive to drink less or even to quit, he said.

Pepe, of Hodge Wine and Liquor, used direct mail to notify corporate customers of the tax hike. These corporate purchasers, as well as some walk-ins, are buying extras, he said.

"We have seen some indication that people are stocking up," Pepe said. "It's hard to differentiate that from normal holiday sales, which are strong. The walk-in customers aren't really aware of it. It's been very unpublicized."

Warning of the beer tax surfaced when the Beer Institute and Anheuser Busch Co. of St. Louis lodged anti-beer tax campaigns during the fall federal budget talks. The group garnered about four million signatures and letters from consumers when beer taxes as high as $45 a barrel were being discussed.

Becker said that, judging from the fact that the hike was cut to $9, the campaign had some measure of success. "We're not going to hold a big shindig over it," he said. "But the letters consumers sent had an impact on what (Congress) could get away with."

Kevin Townsell, owner of the Buffalo Brew Pub and the Buffalo Brewing Co., agreed, saying, "Actually, we were relieved because the tax was supposed to be higher."

Townsell said the price of the company's Buffalo Lager beer released in bottles this week will not increase in January.

As small breweries, mainly making beer sold in their own eateries, Townsell's operations will see little changes in their beer taxes. The brew pub makes about 750 barrels a year, while the brewing company makes about 7,000 barrels annually, Townsell said.

Taxes on breweries making less than 60,000 barrels remain at $7 per barrel.

The price of a bottle or glass of beer on tap, however, will go up about 25 cents at the operations' eateries after the new year, Townsell said.

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