Beer Institute: State Level Tax Equalization Fights Expected in a Dozen States; Beer’s Self-Inflicted Wounds; Spirits’ 1.75L End Game

Government affairs leaders from the largest U.S. beer manufacturers are gearing up for battles with the liquor industry over tax equalization in several states in 2023.

The Beer Institute’s annual meeting in Chicago this week brought together government affairs leaders from Anheuser-Busch InBev, Molson Coors, Heineken USA and Boston Beer Company, as well as the Beer Wholesalers’ Association of New Jersey to discuss the work ahead.

Throughout the discussion, a U.S. map was shown highlighting “priority states” based on recent comments by Distilled Spirits Council of the United States (DISCUS) president and CEO Chris Swonger. Those states included Oregon, Arizona, Texas, Alabama, North Carolina, West Virginia, Ohio, Pennsylvania, Maryland, New Jersey, and Maine. Minnesota and Wisconsin were listed as “potential priority states.”

HUSA senior director of government affairs David Morgenstern, who moderated the panel, noted that the spirits industry has attempted “for decades” to “chip away at differentiation” and push for equalization in the tax rate between beer and spirits and thus widen market access.

Molson Coors senior director of government affairs Darcy DaCosta described spirits-based ready-to-drink canned cocktails as the “shiny new object” that has started the latest debate, with arguments that these offerings are sold in cans, have bubbles and should be defined as beer and placed on the shelves and in cold boxes with beer.

“In states where the route to market is already pretty well established for these ready-to-drink types of beverages, it’s a pure tax fight,” she said. “In control states specifically, it’s a two-pronged front. They want to be where beer is, if they’re not already. And to get there, they want to define the shiny new objects as … beer, and ignore that they are just a small portion … of the much larger spirits category.”

The New Jersey Test Case

Mike Halfacre, executive director of the Beer Wholesalers’ Association of New Jersey, said one of the problems the beer industry is facing is the spirits industry’s “argument — “a drink, is a drink, is a drink” — is “a bumper sticker.” DISCUS revved up this messaging this year, launching StandardDrinks.org, which includes a calculator for consumers to convert an bev-alc volume and ABV into a “standard drink” measurement.

“They’re both 5% ABV, that’s easy to wrap your head around,” he said.

In New Jersey, where the tax equalization effort stalled out this year but is expected to come back, Halfacre said the beer industry struggled as it was difficult to educate lawmakers on the differences between hard seltzers and spirit-based cocktails.

“They didn’t get it,” he said of state legislators.

Halfacre admitted even with a strong coalition of beer industry groups working together to push back against tax equalization, the group was “getting nowhere until we got the Teamsters involved.”

”Once we got the Teamsters Union involved, we started to get a lot of traction,” Halfacre said.

The struggles with differentiation of malt-based offerings with spirit-based products is largely a “self-inflicted” wound, Halfacre said.

“All the commercials look the same; they’re merchandised the same; they’re set up in the store the same’ they’re on the shelf the same,” he said. “So it’s hard to get the nuance of the differences across to a legislator who says, ‘It’s all the same alcohol and you sell it like beer and it’s merchandised like beer, why shouldn’t it be taxed like beer?’”

The argument that did resonate with lawmakers was how expensive the route to market is for beer products that are perishable – costs wholesalers often eat when beer goes out-of-code – and cold-chain distribution. Arguing that spirits-based products are taxed higher because they’re cheaper to take to market and the existing higher tax rates level the playing field for beer “seemed to get more traction” with legislators than historical arguments.

Melissa Ameluxen, A-B InBev VP of state government affairs, said the “most powerful argument” that the beer industry has with state lawmakers is its “connection to the local communities, the impact that we’re having on jobs, on green initiatives that some of our companies are leading for this country.”

Boston Beer government affairs manager Zuzy Zvarova pointed to Ohio, where the craft brewers have formed “an extremely powerful coalition” with the Ohio Craft Brewers Guild.

“When we work together and speak with that collective voice, we’re really able to double down on our collective economic impact,” she said.

“That labor intensity that goes into it [getting beer to market] equates to additional jobs in each congressional district,” she continued. “That’s an extremely powerful impact. And so to tilt the playing field in favor of liquor is an existential threat to beer and the collective jobs that we create.”

Nevertheless, the equalization fight will come back in New Jersey and elsewhere, Halfacre predicted. “We’re in the first quarter of a game that’s going to go into overtime.”

Wins & Losses

In 2022, Ameluxen noted that the beer industry lobby was able to kill nine bills, and she added that the government affairs leads and their lobbyists were able to stop several of these efforts before the beer was even put to paper.

Among the states that the beer lobby succeeded were Alabama, Arizona, Hawaii, Kentucky, Maryland. Minnesota, North Carolina, Washington state and West Virginia, Morgenstern said.

However, in Vermont, which lowered taxes on and granted wider market access to spirits-based canned cocktails, the battle was largely lost before it could be fought. The state wanted to move those products out of their state-run stores, Ameluxen said, and the coalition there wasn’t as strong.

Although Halfacre deemed Vermont a “unicorn,” he said Michigan and Nebraska may prove to be better examples of where lowered taxes on spirit-based canned cocktails didn’t benefit the consumer as prices of those products increased.

“The so-called success stories of the liquor industry are loser stories for the consumer,” he said. “They’re killing it. No one cuts price when you’re killing it in the marketplace.”

“That will continue to be a weight around their neck as they go to argue for these bills in other places this year,” Ameluxen said.

Going on the Offensive

Ameluxen encouraged the leaders in the room to not just play defense against spirits companies but look to expand beer’s privileges.

“Great lobbyists are shields but the best lobbyists have shields and arrows,” she said. “So what we need to start thinking about as an industry is what are really the offensive opportunities for us in this space. How do we expand beer’s privileges, so that we’re not always playing defense.”

The end game for the spirits industry, Halfacre stressed, is converting canned cocktail drinkers to buyers of 1.75L bottles of hard liquor.

“That has significant public health implications,” he said. “The canned cocktail is a gateway drug. It’s the Joe Camel of the liquor industry.

“The 23 year olds and the 22 year olds that are buying canned cocktails today, the goal is they’ll be buying 1.75s in 10 years,” Halfacre continued. “And that’s bad for beer.”