Spirits industry pushes states to cut taxes on canned cocktails

Close-up of discounted cans and cases of packaged cocktails on Safeway store shelves in Lafayette, Calif., December 31, 2020.

Smith / Gado Collection | Archive photos | Getty Images

John Granata, co-founder of Jersey Spirits Distilling and president of the New Jersey Craft Distillers Guild, has been calling for a drop in excise taxes in New Jersey for years. For the first time, however, it looks like state lawmakers are finally listening.

“It was a surprise that lawmakers even entertained him,” Granata said.

The spirits industry is currently working to pressure states to reduce taxes on canned cocktails to more closely mimic those imposed on beer and seltzer water.

Excise taxes have been imposed on alcohol since the early days of the United States, but since the ban was repealed, spirits have been taxed more than other forms of alcohol by the federal government and the States. The high alcohol content of alcohol carries a taboo that separates it from beer and wine in the eyes of some lawmakers and watchdogs. Producers, importers, wholesalers, and even retailers in some states must pay excise taxes on alcohol, although they usually pass the cost on to consumers.

The Granata Distillery began selling canned cocktails during the pandemic to make up for on-site sales lost during the health crisis. New Jersey had been slow to legalize take-out cocktails. Most ready-to-drink Granata drinks have an alcohol volume of around 10%.

“Once we got into this, we started to think about taxes,” said Granata. “State taxes have become a stumbling block in trying to do things on an even larger scale. With the prices already set, this has become difficult.”

In addition to federal excise taxes, Jersey Spirits Distilling pays $ 5.50 per gallon of New Jersey excise tax on these drinks because they contain spirits, while a beer maker would pay only 12 cents for the. same amount, even though the beer had a higher ABV. If New Jersey passes a bill through its state legislature, the distillery will pay 15 cents for each gallon of its canned cocktails.

“Alcohol is alcohol is alcohol”

The pandemic and consumer desire for convenience have driven sales of canned cocktails. In 2020, US consumption of canned cocktails increased by 52.7% from the previous year, accounting for 6.9% of the total volume in the ready-to-drink alcoholic beverage category, according to IWSR data. . The increase in sales has encouraged liquor companies to go on the offensive in a fight for tax parity.

“With all the attention that has come organically, we started to engage a lot more,” said Les Fugate, vice president of state and local public affairs for distiller Jack Daniels Brown-Forman. “We are always looking for the possibility that our products are treated the same, and this is the perfect way to demonstrate that alcohol is alcohol is alcohol.”

The spirits industry believes canned cocktails can experience even greater growth if distillers could pay lower excise taxes, making the drinks cheaper for consumers. A six-pack of hard soda typically costs consumers around $ 10, which is about the starting price of a low-end canned four-pack of cocktails. Distillers claim that canned cocktails are similar in alcohol content to beer and seltzer water and are treated unfairly simply because their drinks contain spirits.

So far this year, Michigan and Nebraska have already passed laws to reduce excise taxes on canned cocktails. New Jersey and Pennsylvania have bills tabled in their state legislatures, while Hawaii, North Carolina, Vermont, Washington, and West Virginia have bills that will come into effect in their sessions. from 2022.

“This excessive tax burden is unfair to consumers and creates a significant barrier for many small artisanal stills who wish to enter this growing category,” said Lisa Hawkins, senior vice president of public affairs for the Distilled Spirits Council of the States. -United. “States are taking a closer look at this issue to provide consumers with more convenient and equal access to spirits-based RTDs, and to ensure that these products are taxed fairly.”

A DISCUS survey of craft distillers earlier this year found that 62% of respondents who do not currently make canned cocktails cited the higher tax rate as a barrier to entering the market.

Federal changes are far away

Despite a few victories at the state level, changes at the federal level seem far away at this point.

“You’re starting to hear a little bit about the conversation at the federal level, but right now I think most of the attention is at the state level,” Fugate said.

Even at the state level, there is opposition, especially from brewers and beer distributors, who fear losing a competitive advantage. Beer consumption has declined in recent years as consumers turn to seltzer water or spirits or refuse to drink altogether.

This spring, Boston Beer founder Jim Koch reportedly sent letters to a handful of beer industry business groups urging them to work together to oppose the growing movement, according to Beer Business Daily. In addition to brewing Sam Adams, Boston Beer also owns Truly Hard Seltzer, which has seen slower sales growth this summer. A representative for Boston Beer did not return CNBC’s request for comment.

“Legislation to reduce taxes on canned cocktails is bad for state budgets and for the well-paying local jobs that depend on our country’s brewing industry,” a spokesperson for the Beer Institute said. , a trade group in the beer industry, in a statement to CNBC. “We look forward to working with elected officials at all levels on ways to help strengthen local jobs and strengthen public safety that does not involve subsidizing alcohol companies.”

Watchdogs in the alcohol industry are also opposed to reducing excise taxes on canned cocktails.

“There is no reason they should get a tax cut,” said Michael Scippa, public affairs director for Alcohol Justice, a California-based organization. “Our real concern, one of our unwavering goals, is to raise taxes on all alcoholic beverages because they are just too low and many have not been raised in generations, making them unnecessary in terms of income generation. “

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