New alcohol tax idea emerges
Lawmakers have been weighing whether to raise the tax on alcoholic beverages since the first day of this year's legislative session. But the idea is getting a fresh look in recent weeks -- with a twist.
Health advocates recently learned that DC imposes a "special sales tax" on alcohol, charging an extra 3-4 percent on top of the regular 6 percent sales tax rate. Maryland, they argue, should follow the District's lead and develop its own special sales tax for alcohol.
The new proposal comes as the General Assembly is getting into the nitty gritty of Gov. Martin O'Malley's $14 billion general fund budget. Revenue increases are considered separately from the budget, but they generally go hand in hand.
Previously, efforts to increase Maryland's alcohol costs have focused on raising the excise tax, which is levied at the wholesale level. For decades, the excise tax on alcohol has been identical in DC and Maryland, and Maryland's liquor lobby said that changing it here could push consumers across the border to purchase in DC.
Liquor industry officials have testified in legislative hearings that wholesalers pass along the excise tax -- and a percentage markup -- to retailers. Then, retailers pass along that charge (and then some) to the consumer.
Until recently, alcohol tax advocates -- and lawmakers -- seemed largely unaware that DC also taxes at the consumer level. A sales tax increase would eliminate the mystery of how much wholesalers and retailers will mark up their products.
"For 20 years, it's been the most powerful argument, that we shouldn't mess up that equilibrium, said Vincent DeMarco, president of the Maryland Citizens' Health Initiative, who has long advocated for increasing the alcohol tax. "But as we now know, all along, DC has actually has a higher alcohol tax, erasing that argument."
Liquor lobbyists said they would prefer no tax increase at all, but said they were reviewing this latest proposal and see it as a sign that lawmakers are cognizant of competition along the borders.
Jack Milani, legislative co-chairman of the Maryland State Licensed Beverage Retailers, said the fact that DC has a special sales tax might reassure Maryland retailers "that they won't be as negatively impacted" if one is imposed here.
DeMarco, who has lobbied for several years about raising the price of alcohol, said he was "humbled and embarrassed" to learn about DC's extra tax at this late date.
Two key lawmakers -- Sen. Edward Kasemeyer and Del. C. William Frick -- said they, too, only found out about DC's alcohol tax approach in recent weeks.
"We could be open to something along those lines," Kasemeyer said Thursday. The Democrat heads the Senate's Budget and Taxation Committee. "It's a new alternative."
Senate Democrats learned about DC's sales tax structure at a March 1 presentation by the Department of Legislative Services, documents show.
Frick, chairman of the revenues subcommittee of the Ways and Means Committee in the House, also said bumping up alcohol taxes at the consumer level "is something new for us to look at."
"Until now," the Democrat said, "we've only looked at the excise tax."
David Jernigan, a Johns Hopkins School of Public Health professor who has researched the alcohol tax, wrote a memo to DeMarco on Monday outlining DC's alcohol tax structure.
For at least 20 years, Jernigan wrote, DC has charged an additional 3-4 percent "special tax" on top of its regular sales tax (now, like Maryland, set at 6 percent). Maryland levies only the 6 percent sales tax on alcohol at the consumer level.
DeMarco proposes Maryland tack on an additional 6.5 percent, which would bring the total tax a consumer directly pays on alcohol to 12.5 percent. DeMarco says this would pump an extra $215 million to state coffers each year.
Kasemeyer dismissed that level, saying lawmakers were more likely to go for a 3 percent special tax. DeMarco estimates that would bring in about $100 million more per year.
DeMarco cheered the developments, saying that talk of increasing the alcohol tax seems to have shifted from "Should we?" to "How much?"