Tax plan eyes beer, candy

Legislature: Major-label brewery tax hike becomes possible compromise

April 6, 2010 

It took a while, but Washington lawmakers have turned to beer.

A tripling in the tax on major-label beers emerged Monday as a lubricant that might help the Legislature complete an $800 million tax package and ease out of Olympia by early next week.

The Senate Democrats’ new proposal raises nearly $58 million from a higher beer tax and about $29 million more by adding the sales tax to candy and gum sales. But it raises another $90 million more by imposing a smaller tenth-of-a-penny increase in the sales tax than previously considered, which is a stumbling block for the House and Gov. Chris Gregoire.

Sen. Lisa Brown, the Democratic majority leader from Spokane, unveiled her idea over the weekend with House Speaker Frank Chopp, D-Seattle, and shared it with the Democratic governor Monday morning.

“We agree on $600 million of our revenue package; we need $200 million more to support the budget that we’re negotiating,’’ Brown said in a meeting with reporters.

Brown and Sen. Ed Murray, D-Seattle, briefed members of their 31-member, majority caucus and found they have the 25 votes needed to approve the latest solution. They painted the tax on beer as a tax on a discretionary purchase, something Gregoire also noted.

By late afternoon, Speaker Chopp and House Finance Committee Chairman Ross Hunter, D-Medina, had huddled, and Hunter had called Brown’s new offer a step in the right direction because it shrank the sales tax, which had little support in the House.

Hunter also said the beer tax increase was large and he had a counterproposal on the tax package he was taking back to Brown. Hunter refused to share details – including whether a sales tax is part of it – saying he wanted to let his caucus members know details first in briefings by telephone and e-mail later in the evening.

Minority Republicans in the House and the Senate fought against raising any taxes to close the state’s $2.8 billion budget shortfall during a 60-day regular session that ended March 13. They haven’t changed course during the 30-day session that expires next Tuesday.

MICROBREW EXEMPTION

Beer taxes would nearly triple under the new proposal, adding about 28 cents to the cost of a six-pack of Bud Light or Pabst Blue Ribbon. Washington’s tax on beer now stands at 26 cents a gallon, or about 15 cents on a six-pack of 12-ounce cans, according to the state Department of Revenue.

While the increase would hit major-label beers, Democratic leaders said microbreweries – smaller manufacturers, some based in Washington – would be exempt.

Beer wholesalers are local companies too, and their trade association said the higher taxes could have effects on some of the businesses’ more than 3,000 jobs.

The beer industry is “just being hammered right now in the economy, on sales. Their sales are down dramatically year-over-year,” said John Guadnola, executive director of the Washington Beer & Wine Wholesalers Association.

But Murray said that in looking to replace part of their proposed sales tax increase, senators looked for a alternative source of revenue that – like the sales tax – would not fall entirely on businesses.

“Beer was one where we are somewhat lower – I think we’re No. 18 or 19 in the amount we tax on beers, so we’re certainly not in the highest part of states who tax beer,” Murray said.

Nor is Washington the only state to look to alcohol as a way out of its budget crisis. State taxes on alcoholic beverages increased by $193 million in 2009, according to the National Conference of State Legislatures.

FIRST MIKE’S THOUGHTS?

Gregoire said she is “open” to the beer tax, and she had already proposed the candy tax as a way to help close the House and the Senate’s $200 million tax gap. But she dislikes the sales tax – at any level – arguing that it hits the struggling construction industry twice, on both labor and materials.

Even so, Gregoire refused to say she would veto it. She reported there is progress between the House and the Senate and said, “I’m not going to be the one to put the fly in the ointment.’’

She joked that exempting microbrews might go down well with her husband.

The candy tax drew criticism earlier in the session from in-state manufacturers, including Tacoma-based Brown & Haley. But the Senate’s newest proposal includes a business and occupations tax credit for in-state candy producers, paid on a per-employee basis.

Overall, the 0.1-cent sales tax would cost “$10 a year for the average family” and includes a rebate for low-income families that receive the federal Earned Income Tax Credit rebate, according to Brown. The rebate is 10 percent of the federal EITC refund, or about $170 for a typical qualifying family that earns less than $45,000, a Senate Democratic spokesman said.

POSSIBLE VOTE FRIDAY

The beer, candy and sales taxes are pieces of an overall strategy to raise $816 million over the next 14 months by raising some business taxes and closing tax loopholes. About $600 million in taxes are agreed-upon by the two chambers, including a quarter-percent surcharge on all service businesses that pay 1.5 percent B&O taxes and a sales tax on bottled water.

If lawmakers are able to reach agreement today on a tax plan, Hunter said, a budget agreement could follow shortly. He predicted that both chambers could start voting on tax and budget bills as soon as Friday, while allowing a few days to formally write out the bills and scrutinize them.

At least two pieces of the House tax package are controversial in the Senate and cannot get the minimum 25 votes for passage, Brown said. Those include a sales tax on custom software sales and a new tax on banks’ first-mortgage interest earnings above $120 million a year, which could hit two in-state banks, according to the Washington Bankers Association.

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