The Distilled Spirits Council of the United States (DISCUS) has welcomed the introduction of HB 2769 – a proposed tax reform on spirits-based ready-to-drink (RTD) cocktails.
“It is past time for Arizona to do right by small businesses and consumers and provide fairer tax treatment for spirits RTDs,” said Adam Smith, Distilled Spirits Council of the United States Vice President of State Government Relations. “These products often contain the same or lower amounts of alcohol than beer- and wine-based beverages, and there is no reason to treat these products differently. Despite growing consumer demand for spirits RTDs, our research shows that unequal tax rates have posed a significant hurdle for craft distillers looking to enter the market. HB 2769 would lift the burden of unfairly high taxes, allowing a growing local industry to continue to flourish.”
DISCUS’ further comments are included below:
Currently, spirits RTDs in Arizona are taxed 18 times higher than beer RTDs in the state. This state-level tax disparity is on top of a federal-level tax disparity, where spirits RTDs are taxed at more than twice the rate of beer- and wine-based RTDs. Under the proposed bill, the state tax rate on spirits-based RTDs would be reduced from the current rate of $3.00 per gallon to $1.25 per gallon, or from 28.1 cents per 12 ounces to 11.7 cents per 12 ounces.
The distilled spirits industry is a significant driver of economic activity in Arizona, contributing to the vibrancy of the manufacturing, hospitality, tourism and agriculture industries. There are currently 27,300 jobs in the state depending on the spirits industry, generating more than $2.26 billion in state economic activity each year. Providing fair tax treatment for spirits RTDs will allow the industry to contribute even more. It could also generate as much as $25 million in additional excise tax revenue for the state, because lowering the tax rate will result in more sales, generating more tax revenue and more economic activity.
A recent survey found that consumers increasingly prefer spirits RTDs over beer- or wine-based alternatives, citing taste and the variety of available flavors as primary reasons for that preference. If more craft distillers enter the market because the tax rates are lower, that, in turn, provides more innovation and more unique products on the shelf for consumers to choose from.
Arizona is one of many states taking a closer look at this issue to ensure that producers of spirits-based RTDs are being taxed fairly, recognizing that treating beverages differently based on the myth that some alcohol is “softer” than others sends a dangerous message to consumers.