Efforts to equalize the tax rate for ready-to-drink canned cocktails with beer in New Jersey have picked up steam in recent weeks.
Senate bill 3452, sponsored by Senate president Stephen Sweeney, would cut the state excise tax rate on ready-to-drink canned cocktails, which the bill describes as “low-percentage alcohol by volume liquors,” and cider, the legislation would cut the excise tax from $0.15 per gallon to $0.12.
Currently, hard liquor is taxed at $5.50 per gallon. The legislation initially called for a threshold of up to 8% ABV, but the measure was amended to lower the tax rate for hard liquor of less than 9.9% ABV.
The legislation was referred from the Senate Law and Public Safety Committee to the Senate Budget and Appropriations Committee on May 20. Although this portion of New Jersey’s legislative calendar will wrap up on June 30, the bill will remain active through early January 2022.
The move comes as RTD spirits-based cocktails have gained popularity, with Grand View Research projecting the market to grow to $1.63 billion by 2027.
Meanwhile, other states have adopted similar measures. In Nebraska Gov. Pete Ricketts signed into law a measure that will lower the tax rate on ready-to-drink canned cocktails of up to 12.5% ABV to $0.95 per gallon, effective July 1, while also making cocktails to-go permanent. Michigan Gov. Gretchen Whitmer signed into law legislation that lowers the tax rate on ready-to-drink canned cocktails of 10% ABV or less from $0.48 per liter to $0.30 per liter. Expanded privileges are also under consideration in other states, including Pennsylvania, where lawmakers are considering expanding sales beyond state controlled stores.
Efforts in those states come as Boston Beer Company founder Jim Koch has urged the beer industry’s trade organizations to fight spirits groups’ push for tax equivalency. That’s manifested in New Jersey as a coalition of industry trade groups and major beer manufacturers pushing back against the legislation.
That coalition includes top manufacturers Anheuser-Busch InBev, Molson Coors, Heineken USA, Constellation Brands’ Beer Division, Boston Beer Company, and Mark Anthony Brands, as well as industry trade groups the Brewers Association, Beer Institute, National Beer Wholesalers Association, the Brewers Guild of New Jersey, and the Beer Wholesalers’ Association of New Jersey.
The group sent a letter dated May 19 to state Sen. Linda R. Greenstein, chair of the Senate Law and Public Safety Committee, in opposition of the lower tax rate for “ready-to-drink cocktails, in particular.”
“The history of alcohol beverage taxation in the United States and in jurisdictions across the world is to favor malt-based beverages for a lower excise tax rate than hard liquor of any kind,” the group wrote. “We urge the committee to keep this policy in place.”
The group made its case against the proposed measure on the grounds of two public policy considerations that it argued “justify malt-based beverages being subject to a favorable excise tax rate over hard liquor of any kind.” Those arguments include the lower alcohol content of beer compared to nearly all hard liquor, and the high expense of production and distribution of beer, which the group argued the lower excise tax rates for beer “levels the playing field” with hard liquor.
“[A]ll alcohol is not created equal,” they wrote, pointing to beer’s lower ABV in comparison to hard liquor. “In 2020, the aggregate amount of beer sold in the United States had an average ABV of 4.62%, contrasted to the average ABV of liquor, which is likely in the high 20% or 30% range.”
The group also highlighted the expense of bringing alcohol to market, with beer production costing 2.5x that of liquor per liter of pure alcohol. The distribution costs are also higher because “beer is bulky, heavy, perishable and fragile, needing protection from light, heat and oxygen, making it more costly to store and distribute,” they argued.
“An excise tax rate that is lower than products without these unique characteristics, such as ready-to-drink cocktails, is also valid public policy,” they added.
The group also pushed back at the notion that 8% ABV spirits-based products are “low-percentage alcohol.”
“Most people do not consider an 8% ABV beverage, or anything higher, to be ‘low-percentage alcohol,’” they wrote. “The threshold should be significantly lowered to truly incentivize the production of lower ABV beverages.”
The last argument the group made was that a lower tax rate for RTD canned cocktails would hit the state of New Jersey’s coffers now and in future budgets. The coalition urged lawmakers to review the financial impact on the state budget and asked that the legislation, if advanced, go to the Senate Budget and Appropriations Committee for further analysis.
“It’s a 90% tax cut,” Eric Orlando, executive director of the Brewers Guild of New Jersey, told Brewbound. “That’s probably one of the biggest tax cuts that we’ve seen in the state in a very long time.”
Orlando said he’s not aware of any in-state producers making spirits-based RTD canned cocktails, and he believes the measure, if passed, would harm local producers, in particular craft brewers given New Jersey caps the number of licenses for retail distribution points that can sell alcohol by population. That limits the amount of available shelf and tap space, creating market access issues for smaller producers.
“I foresee the first folks who get sacrificed for this shelf space and tap space are going to be the small producers of beer,” he said.
If lawmakers push ahead with efforts to lower the excise tax on RTD canned cocktails, then they should also offer local producers expanded sales privileges or a continuation of temporary privileges offered during the pandemic, such as home delivery, Orlando said.
“Unless there’s something to be done to try to mitigate the impact if this were to go forward and put more of these beverages on the shelves of retailers, it’s really going to hurt the continued success and expansion of the craft beer industry in the state,” he added.
Moving forward, Orlando said efforts will turn to educating lawmakers about spirits-based RTDs, as well as the impact the beer industry has on the state. That was evident in the letter from trade groups and beer suppliers to lawmakers.
As part of the full-court press, the group pointed to in-state beer productions, referencing A-B’s Newark production facility, White Claw maker Mark Anthony’s $150 million Hillside production facility, Molson Coors’ Iselin sales facility, and the state’s 134 craft breweries. Citing Bureau of Labor stats, the group pointed to breweries employing four times the number of workers in New Jersey than distilleries. They also pointed to the $6.3 billion in economic impact from the beer industry in the state and $2.2 billion in wages to New Jersians. Beer also generates nearly $200 million in state and local taxes, as well as $320 million in business and personal taxes to state and local communities.