Double Taxation: The Boston “Wine” Party

Posted by Richard Beaudin on Jul 8, 2009 in Wine Issues | 0 comments

Get ready.

Expect this to be the norm.

See how much your money won’t buy anymore.

The tax man cometh.

What am I talking about? As expected, with the shortfall in revenue across the United States it is not surprising that many States are enacting new tax legislation to fill the gaps. And again as expected, beer and alcohol are easy targets. So it should come as no surprise that Massachusetts has enacted (as of August 1) a jump to its sales tax rate from 5% to 6.25%.

Until now, beer and wine was exempted from the sales tax.

Oh… wait, I didn’t mean it wasn’t taxed!

It was already subject to Federal, State and Local taxes and fees to the tune of approximately 1/3 of its value. So  what does this mean moving forward?

For a $9.99 bottle of wine, $3.55 or 35.5% will go to pay taxes.

Will this stop people from having a glass of wine? Likely not. People will still buy wine – Prohibition couldn’t even stop that!

But it will mean that to get a bottle that is worth drinking the price paid will be more, which likely means one of two things:

1. People will drink just as much, but now the quality of the wine they drink will be much less. So.. let’s do the math. If a bottle of wine for $10 will have a tax of approximately $3.55 (counting excise and sales tax), then the value of the contents is really only $6.45 in the sales channel. Assuming you have a grower, producer (winery), a wholesaler, and a retailer in the chain, how much profit do you think a bottle at that price level has to the sales chain? Not much.
2. People will drink less but pay more. This will be a drain on the wine and hospitality industries at large – from the producers, the wholesalers, retailers, restaurants, etc. The likely effect will be less business, which will mean less taxes collected (OK.. anyone see the irony in this?)

What will happen? (Here’s my prognostication:)

• Massachusetts liquor stores will have some big sales between now and August 1! (Well ..  some good news!)
• Consumers of alcohol in northern Massachusetts will head to New Hampshire after August 1
• Massachusetts retailers will see a drop in business and will be trying to find ways to lesson the negative effect of the tax
• The State of Massachusetts will use the proceeds to fund various programs – not just abuse programs, which means the tax will never go away
• I’ll make more wine (I only pay taxes on the grapes or must… not on the finished product

All I can hope for is that the citizens of the great State of Massachusetts  have a Boston Wine Party .. and when they throw it over the side …I’ll be there to collect as much as I can!

The Inevitable: Death and Sin Taxes

Posted by Richard Beaudin on Jun 10, 2009 in Wine Issues | 0 comments

Benjamin Franklin

I am sure everyone is familiar with the following quote from one of the Founding Fathers – Benjamin Franklin:

“In this world nothing can be said to be certain, except death and taxes”

I’d like to modify the word “taxes” and substitute “sin taxes”. Why? As the nation continues to reel from the recession and ponders how to reduce the cost of overhauling the current healthcare system, as one might suspect, taxes or more specifically sin taxes, are being targeted.

Of course sin taxes are not just wine and beer. Sugared drinks and transfatty foods are included – basically anything that the powers to be feel should be discouraged. Unfortunately, that determination is often based on who can lobby the loudest.

Now like most people I am not in favor of new or more taxes. It seems everywhere you turn there are additional taxes on everything. However, the reality is that you cannot offer something for nothing – someone or something has to give somewhere.

In my opinion, the healthcare system cannot continue as it has. The costs continue to escalate, usually much higher than the inflation rate or the rate of wages, and the quality continues to decrease. The increasing costs of Medicare need to be solved as the system will be bankrupt in the not too distant future.

Why sin taxes? I believe the logic as an example,  is that the consumption of alcohol in general has historically led to some degree of abuse, and that abuse has led to social problems and a growth in the cost of care.  The new sin tax would be used to fund the cost of care and alcohol abuse. (By the way, I would like to mention as well that wine has been around and consumed for thousands of years and has brought a great deal of joy, as well as a good livelihood to thousands that have not abused it.)

Of course I do have many concerns for farmers, small and medium wineries, and retailers that would likely have to eat the cost of these new taxes either in reducing their profits or in lost sales (actually this is a subject for another time regarding changing archaic distribution and shipping laws that cling to Prohibition Era laws).

So although I am far from a proponent of any new or increased taxes, assuming that this country could in fact put in place a system that provided universal healthcare at costs that were affordable and that improved overall health services, I would have to at least be open to the idea.

But here’s the rub: how many times has the local, state, or federal government put in place taxes for a specific purpose only to raid those funds at a moments notice? Then the funds are not sufficient and they have to raise them again or put in place new taxes (after perhaps decimating one or two industries with the first tax).

If a tax is necessary, I would only be in favor if the funds could only be used for the purpose intended, and that if the funds were no longer needed for that purpose that this would automatically signal a repeal of said tax (yeah .. right … and cows fly!).

What do you think?