Close-up of discount cans and boxes of packaged cocktails on the shelves of a Safeway store in Lafayette, California on December 31, 2020.
Smith / Gadot Collection | Archival photos | Getty Images
John Granata, co-founder of Jersey Spirits Distilling and president of the New Jersey Craft Distillers Guild, has been pushing for excise tax cuts in New Jersey for years. For the first time, however, it seems that state legislators are finally listening.
“It was a surprise that lawmakers even had fun with it,” Granata said.
The liquor industry is trying to lobby states for tax cuts on canned cocktails to more closely mimic taxes on beer and hard seltzer.
Alcohol excise taxes have been imposed since the early days of the United States, but after the repeal of Prohibition, alcohol was taxed higher than other forms of alcohol by the federal government and states. The high alcohol content of liquor is a taboo that separates it from beer and wine in the eyes of some legislators and observers. Manufacturers, importers, wholesalers, and even retailers in some states must pay excise taxes on alcohol, although they usually pass the cost on to consumers.
Granata distillery began selling canned cocktails during the pandemic to offset lost sales locally during the health crisis. New Jersey has been slow to legalize take-out cocktails. Most ready-made Granata drinks contain around 10% alcohol.
“As soon as we got into this, we started thinking about taxes,” Granata said. “Government taxes have become a stumbling block in efforts to achieve even greater scale. With the prices already set, it became a daunting task. “
In addition to federal excise taxes, Jersey Spirits Distilling pays New Jersey $ 5.50 a gallon in excise taxes on these drinks because they contain liquor, while a beer maker will only pay 12 cents for the same amount, even if the beer has more high fortress. If New Jersey passes the bill through the state legislature, the distillery will pay 15 cents for every gallon of canned cocktails.
“Alcohol is alcohol – this is alcohol”
Pandemic and consumer demand for convenience increased sales of canned cocktails. Consumption of canned cocktails in the U.S. grew 52.7% in 2020 from the prior year, according to the IWSR, accounting for 6.9% of the total in the finished alcoholic beverage category. The rise in sales has pushed alcoholic beverage companies to advance in the fight for tax parity.
“With all the attention that came organically, we started to show a lot more interest,” said Les Fugate, vice president of state and local communications for Jack Daniels Distiller Brown-Forman. “We’re always looking for ways to get our products to be treated the same, and this is the perfect way to demonstrate that alcohol is alcohol.”
The spirits industry believes that canned cocktails could see even more growth if spirits can pay lower excise taxes, making drinks cheaper for consumers. Six packs of strong seltzer would typically cost consumers about $ 10, which is roughly the starting price for a pack of four lower-end canned cocktails. Distillers claim that canned cocktails have the same alcohol content as beer and hard seltzer and are not treated fairly just because their drinks contain alcohol.
This year, Michigan and Nebraska have already passed laws to reduce excise taxes on canned cocktails. The state legislatures of New Jersey and Pennsylvania have bills, and Hawaii, North Carolina, Vermont, Washington, and West Virginia have bills to be introduced in their 2022 session.
“This excessive tax burden is unfair to consumers and poses a major disincentive for many small craft distillery producers to enter this growing category,” said Lisa Hawkins, senior vice president of public affairs at the US Spirits Council. “States are looking closely at this issue to provide consumers with more convenient and equal access to alcohol-based RTDs, and to ensure fair taxation of these products.”
A DISCUS survey of craft spirits manufacturers earlier this year found that 62% of respondents who do not currently produce canned cocktails cited the higher tax rate as an obstacle to market entry.
Federal changes are far away
Despite some victories at the state level, changes at the federal level are still a long way off.
“You’re starting to hear a little about the conversation at the federal level, but now I think most of the focus is at the state level,” Fugate said.
Even at the state level, there is opposition, especially from brewers and beer distributors who fear the loss of competitive advantage. Beer consumption has been declining in recent years as consumers switch to hard seltzer or spirits, or abandon them altogether.
This spring, Boston Beer founder Jim Koch reportedly sent letters to several beer industry trade groups urging them to work together to counter the growing movement, Beer Business Daily reported. In addition to brewing Sam Adams, Boston Beer also owns Truly Hard Seltzer, whose sales have slowed this summer. A Boston Beer spokesman did not respond to CNBC’s request for comment.
“The legislation to cut taxes on canned cocktails is bad for the state budget and bad for the well-paid local jobs that depend on our nation’s brewing industry,” a spokesman for the Beer Institute, a beer industry trading group, told CNBC in a statement. “We look forward to working with elected officials at all levels on ways to help increase local employment and public safety, which is not related to subsidizing alcohol companies.”
Alcohol industry supervisors are also opposed to cutting excise taxes on canned cocktails.
“There is no reason why they should cut taxes,” said Michael Sippa, director of public affairs for Alcohol Justice, California. “Our real concern, one of our unshakable goals, is to raise taxes on all alcoholic beverages because they are too low, and many have not been grown for generations, making them questionable in terms of income.”