Privatization’s Implementation In Washington Leads To Some Controversial Tinkering

Washington State Representative Ross Hunter, a Democrat, recently proposed a plan to eliminate a 17% tax on retailers selling spirits to on-premise operators and remove restrictions on the amount of spirits customers can purchase daily (currently 24 liters). If those two proposals succeed, retailers could act as wholesalers without paying the market’s hefty entry fee. That would likely spark a fierce battle between wholesalers and big retailers like Costco.

The state’s current privatization system, implemented last June, allows stores larger than 10,000 square feet to sell spirits but also created franchise protection for wholesalers. However, Hunter’s proposal (House Bill 1161), if passed, would essentially level the playing field for the wholesalers and large retailers alike, even after the wholesalers agreed to pay considerable sums to enter the state’s newly privatized spirits market.

Southern Wine & Spirits and Young’s Market were required to pay a one-time $150 million fee to enter the market. In addition to the state’s 20.5% sales tax on spirits and $3.77 per-liter bottle tax, there is also a 10% tax on wholesalers’ gross annual revenues. Funds from this tax go toward the $150 million fee until March 31, 2013 and wholesalers must then pay the difference. The tax drops to 5% in 2014.

Many observers expected the privatization of Washington’s spirits sales to result in lower retail prices, but prices have actually increased by 10%-30% since the new law’s implementation began last June. Blame for the price spike is being placed on the new licensing fees and taxes.

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