Beer, Wine and Spirits. Tastings and Travel. News and Events. Classic Flavors from Breweries, Wineries and Distilleries Across the Drinks World.

Thursday, August 16, 2007

Will 29 Cents Stop Underage Drinking? California Thinks So

An odd sort of dance between fact and fiction is playing out in California this week. The State Board of Equalization (SBE), California Controller John Chiang and a number of groups that oppose alcohol or want to fight underage consumption all want us to believe they have discovered the answer to youth in the state getting buzzed on malternatives.

By a 3-2 vote, the SBE took the step to reclassify drinks like Smirnoff Ice as a liquor, rather than a beer. The result is the tax on what some groups call alcopops will jump from 20-cents a gallon to $3.30 a gallon. Never mind the fact that these beverages are malt based and carry an alcohol by volume level that is close to most beer -- not 80 proof vodka.

One analysis of the situation computed that the reclassification will increase the price of a 12-ounce malternative by 29-cents. That's right, California officials want us to believe that 29-cents is the answer to teenage drinking issues in the state. They are supported by propaganda spread by the neo-Prohibitionists at the Marin Institute. That group claims the new tax will cut malternative sales by 35 percent. Presumably, the Marin Institute wants us to believe that more than a third of sales for Mike's Hard Lemonade, Zima and other brands come underage consumers and it will all end overnight.

Just where will these newly sober teens turn? I doubt the answer is green tea. So once the SBE and the Marin Institute tracks them down -- perhaps in the beer section -- expect the "tax them and they won't drink" logic to crop up again. And, if they still long for the flavor of a Seagram Mellon Smash, they will still be able to buy the products in grocery stores because the California Department of Alcoholic Beverage Control is not acting to reclassify the beverage. If they did, consumers would have to go to a liquor store to buy them.

What's really going on here is that some regulators have found an easy target: Malt beverages with brand names usually found on vodkas, rums and whiskeys. The logic is impecably governmental. I bet some of these jokers think the Golden Gate Bridge is made of real gold. In the end it becomes a question of tax revenues for the state. California stands to make $41 million more in taxes from the switch.

The new tax still has to go through several administrative rubber stamp sessions and will likely hit sometime next year.


Anonymous said...

In CA, most large grocery stores and retailers sell beer, wine, malt bevs and hard alcohol side by side. CA laws don't require distilled spirits to be sold in liquor stores only, as some states do. Many smaller establishments in CA sell only beer/FMBs/wine because a license from the Department of Alcohol Beverage Control (ABC) for those products is less expensive and easier to obtain than a liquor license. It is a function of economics, not legal limitation. So even if the proposed change in TAX law for FMBs is approved, those beverages will still be available at every retail establishment with a beer/wine license. Now if ABC changes its regulations and reclassifies FMBs as distilled spirits, then FMBs could only be sold by those who hold a hard liquor license. But, as noted above, most large grocery stores and beverage retailers have both licenses, so nothing will change for them. The change will only come for the proverbial "little guy", e.g. restaurants, corner markets, etc. Unfortunately, the little guy is the one least economically cabable of absorbing a loss of business, even a small loss. Bottom line: this proposed change in tax law will do nothing to reduce access to FMBs, but will have a negative impact on small business. What a way to run a railroad!!

Anonymous said...

It is even worse than you think!

The State Board of Equalization (BOE) has no ability to enforce its plan to tax flavored malt beverages as distilled spirits and they know it. There is simply no way to test whether the alcohol in a beer-like drink has been boiled or not. That's what we are really talking about. Virtually every beer-like product sold in California contains flavorings, colorings, preservatives, and other additives, so the only distinction between "real beer" and flavored malt beverages is whether they contain alcohol that has been distilled (i.e., boiled, then condensed).

Because the Board of Equalization cannot possibly audit or even test beer-like products to find out if they contain distilled alcohol or not, their proposed Regulation 2559 states that "any alcoholic beverage, except wine" is PRESUMED TO BE A DISTILLED SPIRIT (which is subject to the $3.30/gallon tax). To rebut this new legal presumption, the MANUFACTURER would have to file a report, under penalty of perjury, stating that the alcoholic beverage contains less than 0.5 percent distilled alcohol. The Board of Equalization could also require the manufacturer to submit their secret recipes and other confidential information to rebut this new presumption.

Read the proposed regulations for yourself on-line at:
(See page 22 of 24)

Under these crazy rules, every single beer sold in California would be legally presumed to be a distilled spirit, not just flavored malt beverages! To overcome this presumption, the manufacturers (who are out-of-state and outside the Board of Equalization's jurisdiction) would have to submit confusing documentation and confidential trade secrets to the Board. Alcohol beverage taxes are paid by in-state distributors and vendors, not out-of-state manufacturers, so it remains to be seen whether out-of-state manufacturers will cooperate and turn over their confidential information. Under these silly regulations, it is virtually certain that many legitimate beer products (which no one would consider flavored malt beverages) will be taxed as distilled spirits because someone allegedly failed to send the right paperwork to the Board of Equalization. Given California's chronic budget crises, I wonder if some of those rebuttal letters might get "lost in the mail." What is worse, the Board will have no way to know if manufacturers of flavored malt beverages falsely claim that their products contain no distilled alcohol. The "penalty of perjury" requirement means nothing when California has no legal authority over the manufacturers and no way to prove beyond reasonable doubt that the manufacturers knew whether their alcohol had ever been boiled or not!

California's tax policies are often irrational and counter-productive, but this is a new low.

In order to fight under-age drinking, as we must, we need to start enforcing the laws that are already on the books. People who sell or give beer to minors are criminals, no matter how much they pay in taxes. Using bizarre presumptions to increase taxes on certain products will only cause under-age drinkers to switch to other products. That won't solve the problem.

Mike Spence, President
California Taxpayer Protection Committee

Anonymous said...
This comment has been removed by a blog administrator.
Ethan Cox said...

That is some pretty impressive neo-prohibitionist maneuvering alright. Is there any useful way for the average California voter to do anything about it?

Anonymous said...

Boy, just another way for the state to force business out of California. Just think about it,$3.71 tax on 1 six pack (remeber the tax is $3.30 per gal. and there are 72oz in 1 six pack) the average cot of these are now $7.49 add $3.71 to it.
Get the picture small business out of CA again. High workcomp fees high tax. Did raising the cigarette tax help? Not much.
Kids drive fast cars and die whats next?