FRANKFORT —
They think they’re taxed more than enough already. But it’s not tea they’re selling; they’re producers, distributors and sellers of alcohol.
Spokesmen for wholesalers of wine and spirits, beer and malt beverages Friday told the Interim Legislative Committee on Licensing and Occupations that their products are “taxed upon a tax upon a tax.”
The attendant increases in prices for consumers cost the industry customers and reduces their profit margins while costing Kentucky tax revenues, they said, especially along the state’s borders where it is easy for consumers to purchase alcoholic beverages in neighboring states for less money.
Pat Crowley, a lobbyist with Strategic Advisers which represents some of the alcohol interests, showed the committee a short video featuring wholesalers and retailers who said the taxes are an unfair burden on their industry.
Dr. Paul Coomes, a retired University of Kentucky professor, said taxes on such “vices” as alcohol and gambling are attractive for lawmakers because “they are insensitive to price. Governments like to tax them because people keep doing them.”
But that price insensitivity isn’t unlimited, he said, and when there is a less expensive alternative as exists on the state’s borders, consumers will choose that alternative, costing the state revenues at some point.
Coomes said Kentucky’s alcohol taxes are higher than surrounding states. While leading beer and wine producing states have the lowest taxes in the country on those products, Kentucky which is a major producer of distilled spirits taxes such products as bourbon whiskey more than its neighbors and most of the nation.
“We’re getting close to the point if Kentucky raises (alcohol taxes) more, we’ll get less (tax) revenue, largely because of the border issues,” Coomes said.
Kentucky taxes alcohol three times: at the supplier level, then again at the wholesale level and finally with a 6 percent sales tax at the retail level. That hasn’t always been the case, said Dan Meyer of the Wine and Spirits Wholesalers of Kentucky.
Before 1982, Kentucky didn’t tax wholesalers, but Gov. John Y. Brown sought their help in collecting alcohol taxes which were lost, often because bootleggers already engaged in illegal activity don’t pay sales taxes. The industry agreed to their products being taxed at the wholesale level in exchange for removing the retail sales tax.
But in 2006, lawmakers looking for extra money to balance the state budget increased the wholesale tax from 9 percent to 11 percent. Then in 2009 at the height of the recession they voted to apply the 6 percent retail sales tax to alcohol products.
Meyer said the industry would like the legislature to remove the 6 percent sales tax and reduce the 11 percent wholesale tax to its previous 9 percent level.
Gov. Steve Beshear appointed a tax reform commission which is reviewing its overall tax structure to see how it might be made more efficient, fairer and produce more state revenue.
Rep. Larry Clark, D-Okolona, asked if the industry had made a similar presentation to the tax commission as they provided lawmakers Friday. Crowley said it hasn’t but plans to.
RONNIE ELLIS writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.
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