Vermont cuts taxes on ready-to-drink distilled spirits

Vermont Governor Phil Scott (D) has signed legislation reducing taxes on ready-to-drink distilled spirits, the latest front in an ongoing battle within the liquor industry that pits distillers against brewers and winemakers across the country. the country.

The new law, passed by the Democrat-controlled legislature, will amend the state’s liquor code to allow grocery stores and convenience stores to sell canned cocktails made with liquor. Currently, liquor in Vermont can only be sold at the 82 state-run liquor stores.

States typically tax spirits at much higher rates than they tax beer and wine. Vermont law lowers taxes on ready-to-drink hard liquor packaging from $7.68 per gallon, the rate at which liquor is taxed, to $1.10 per gallon.

“This bill takes important steps to modernize our liquor laws and support economic growth,” Scott said in a statement.

Impacted products, including brands such as Cutwater and High Noon, are among the fastest growing segments in the beverage industry. A report earlier this year from BevAlc Insights, the research arm of alcohol delivery service Drizly, found ready-to-drink cocktail sales grew 126% last year, representing more than $1 billion in revenue for the first time. .

Its rise has set off a backstage battle between producers of different spirits, who are constantly vying for market share and shelf space. Beer and wine makers say ready-to-drink cocktails deserve the higher tax rates and limited sales space because of the type of alcohol they deliver.

The bill Scott signed “was a major giveaway to the liquor industry at the expense of taxpayers and Vermont brewers,” said Alex Davidson, director of public affairs for the Beer Institute. “Vermont has a thriving local beer industry that has been hit hard by the pandemic, and as local breweries recover, legislation like this puts the local industry at a disadvantage by granting a tax cut to out-of-state beverage companies. ”.

The liquor side of the liquor business says the disproportionate tax rate imposed on ready-to-drink cocktails — a legacy of Prohibition-era legislation — unfairly burdens spirits makers with an alcohol content comparable to beer or wine.

“There is no reason for products with the same or similar alcohol content to be taxed at such varying rates. Creating a more equitable tax rate for spirits-based beverages [ready-to-drink cocktails] It will support Vermont distillers, reduce costs for consumers and bring in revenue for the state,” said Jay Hibbard, who directs state government relations at the Distilled Beverage Council of the United States, the industry trade group.

The Vermont legislation came about a year after the governors of Michigan and Nebraska signed bills to reduce excise taxes on ready-to-drink cocktails in their own states.

The internal war between alcohol producers has become even more complicated in recent years as beverage companies have diversified. Anheuser-Busch, a founding member of the Beer Institute, bought the brewery that produces Cutwater Spirits in 2019. High Noon, the top-selling ready-to-drink cocktail, was launched the same year by E&J Gallo Winery, the world’s largest producing winery.

Due to different tax rates between types of alcohol, a typical package of ready-to-drink spirits can cost much more than a similar package of beer or hard seltzer, or a bottle of wine, even if they are the same price on the shelf. .

Tax rates differ by state, but in almost all states, spirits are taxed at a higher rate than beer or wine. The difference ranges from just a few dollars a gallon in Texas, Indiana, or Tennessee, to more than $20 a gallon in Washington and Oregon, and nearly that much in Virginia and Alabama.

At the federal level, malt-based beverages and sugar-based beverages — such as a hard seltzer — are taxed at five cents per 12-ounce serving. A wine-based spritzer is taxed at twice that rate, while a spirits-based cocktail has a tax rate of 13 cents.

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