With sales of spirits-based ready-to-drink canned cocktails continuing to boom, battles for turf in the cold box can be tracked to statehouses across the country. And spirit makers are looking for some low-cost ammo: While beer has historically enjoyed favorable excise tax rates, spirit makers are attempting to change those laws, they say, to level the playing field for products of similar ABVs and package sizes.
Backed by large spirit companies and some independent distillers, the Distilled Council Spirits of United States (DISCUS) and brewer-represented organizations including the Beer Institute and the Brewers Association are at odds as each side lobbies for and against legislative changes to reduce excise taxes or relax control-state regulations.
In 2020, lawmakers at the federal level reduced tax rates for a range of alcohol producers through the Craft Beverage Modernization and Tax Reform Act. While that provided some relief for the industry, each state legislates alcohol differently— and spirit distillers have been subject to the stiffest state taxation rates since the repeal of prohibition.
The state-level push comes as RTD sales continue to hold strong after the pandemic ignited demand for more portable, easy-to-drink cocktails. RTD volumes have been growing faster than any other major drinks category since 2018, and are expected to significantly outperform the wider beverage alcohol market over the next five years, according to market research firm IWSR. Those supporting the policy changes argue that it’s unfair to put spirit-based RTDs in a higher tax bracket than malt-based beverages with similar ABVs, and lowering taxes on those products will ultimately benefit consumers, who are increasingly drawn to spirit-based RTDs.
“Right now with the way the economy is, with increased gas prices and inflation, to reduce a tax in a segment of the hospitality industry, that’s good for everyone,” said David Wojnar, senior vice president and head of state public policy for DISCUS.
But beer industry representatives argue that these tax cuts are being pushed by large liquor companies to get an edge on brewers, and could ultimately be irresponsible policy in terms of public health. Differentiated tax rates, which are generally higher for spirits, were implemented to discourage consumption of high proof products and to account for the higher cost of production and distribution of beer, according to Marc Sorini, general counsel of the Brewers Association.
“The idea being that if you’re trying to tax products with an eye towards controlling consumption and public health considerations, you need to put a higher tax on these cheaper-to-produce products,” Sorini said.
During the last two legislative sessions, bills that could affect RTD spirits have been introduced in more than a dozen states. With each state governing alcohol differently, the bills are a patchwork of proposed legislation addressing distribution channels, lowering tax rates, or redefining the ABV threshold for low alcohol.
In addressing distribution, bills would expand or contract available retail outlets; in some states, the idea is to lower tax rates for spirit-based RTDs that don’t exceed specified ABVs; meanwhile, raising the ABV threshold would allow RTD spirit makers with a higher percentage of alcohol to enjoy the same rates and access as beer or wine.
In Michigan, where a bill passed in February, private wholesalers can now sell cocktails up to 13.5% alcohol, up from 10%, and the tax on mixed spirits decreased by 18 cents per liter. Nebraska joined other states that have legalized to-go cocktails recently, and at the same time redefined RTDs as a spirits-based product of 12.5% ABV or less while making the RTD excise tax rate equivalent to the wine excise tax rate.
At Omaha retailer Spirit World, owner Laurie Hellbusch said nothing has changed in terms of pricing or growth since the bill passed in May, 2021. The store’s spirit-based RTDs continue to grow in popularity — from 2019 to 2020 spirits-based RTD sales grew 186%, and 56%, respectively, compared to 2020 to 2021.
“I just think there’s already such a big diversity in pricing on these things that as a specialty retailer, price doesn’t tend to be the thing that people are super hung up on,” she said. “Our customers are way more interested in quality, and they’re willing to pay a little more for it.”
In Arizona the tax rate would have gone from $3 per gallon for spirits over 12% ABV to 84 cents per gallon. But in Arizona, Hawaii, Maryland, Pennsylvania, Washington state and West Virginia bills or proposed studies have either been rejected or are unlikely to move forward, according to Sorini.
In other states— Alabama, Kentucky, North Carolina, and Minnesota— bills are stalled, as is New Jersey’s second attempt after an initial bill was defeated. Sorini is also keeping a close watch on bills being shopped in Oklahoma and Ohio that have yet to materialize.
In Vermont, a bill has passed a committee in the House and is now in front of the Senate. Fueled by a new wave of local distillers in the control-state, the bill defines low-alcohol spirits beverages as up to 16% alcohol (the same ABV as malt and vinous beverages) and aims for those goods to be sold through the same distribution channels as beer and wine.
If the legislation is passed, Alan Newman, owner of ArtsRiot Distillery in Burlington, said he’ll launch his spirit-based RTDs into statewide distribution in July. A veteran of the beer industry, Newman is in favor of the bill, and compared the legislative changes to state laws passed in response to the craft beer movement, which shifted to meet the demands of consumers who wanted more access to beers of higher ABVs.
“All we’re really doing is asking that they now treat this new world of distilled products and allow the independent distilleries the exact same assistance that they provided the brewers— not to take the business from the brewers, but to add to the culture of the small, independent brewers and distillers, which has been a huge boon in the state of Vermont and in many other states,” he said.
As the state-level battles play out, representatives on both sides said the results across the country are promising.
“I think you see it from those states where we’re hearing what the debate is like and in Washington and West Virginia, legislators are not buying what liquor is selling here in terms of policy change and tax rate change,” said Jim McGreevy, president and CEO of the Beer Institute.
But Wojnar said the initial bills were just the first round and served to educate policymakers, who are figuring out how to catch legislation up to the fast moving RTD sector.
“We’re really encouraged again with the receptivity of it by policymakers,” he added. “It’s something that we’re committed to over the long haul, to look for some level of tax reduction and also increase the number of outlets that they can be sold.”