Saturday, June 5, 2010

How a state monopoly on liquor can raise prices over 1000%

Star News Online:

The state's ABC Commission sets prices on liquor uniformly throughout the state, as governed by state statute. And on every delivered case of spirituous liquor approved for sale, there is an 80.8 percent markup from the distiller's price, in addition to other charges.

The distiller's base price for a case of 12 bottles of Aristocrat Vodka, for example, is $5.79 – just less than 50 cents a bottle.

Then a federal excise tax, distiller's freight charges and bailment charges for the warehouse storage are added, and that case's price goes up to $32.91.

Then the local ABC board tacks on a 39 percent markup that's used to generate profit, bringing that price to $45.74, and then state taxes, additional markups and another bailment surcharge bring the case to a total of $61.92. With bottle charges added and an 8 percent sales tax added, that's $5.67 per bottle purchased at the ABC store.

Bars and restaurants with mixed beverage licenses pay an additional $3.75 mixed beverage tax per bottle, but they do not pay sales tax since sales taxes are generated when drinks are sold at the establishments.

So, purchase a mixed drink made with Aristocrat Vodka and you might pay $5 per drink – just less than the price of Aristocrat Vodka by the bottle.

All that money generated – more than $30.7 million in the past fiscal year for New Hanover County – has to go somewhere.

On the sale of the bottle of Aristocrat Vodka, 38 percent of what the buyer pays goes to the state in the form of sales and excise taxes, said Agnes Stevens, spokeswoman for the ABC Commission.

Herring said the ABC system does not receive state appropriations because revenues from liquor sales pay for its operation. Local ABC boards use 39 percent of a sale of a bottle of liquor to pay their operating costs, and the remainder of the purchase price, minus the 38 percent given to the state, covers the distiller's price, federal excise tax and administrative costs for the state commission and warehouse.

From sales to businesses with mixed beverage permits, the state gets 30 percent, local boards get 39 percent and the state and local boards split an additional mixed beverage tax. Boards with many mixed beverage permit accounts tend to be more profitable than others, Stevens said.

Funds dispersed in fiscal year 2008-09 to state agencies by the New Hanover County ABC board include $7.9 million in state taxes, $1.6 million to New Hanover County and $808,084 to the city of Wilmington.

[...]But some officials want to take a closer look at the government's liquor operation after the StarNews revealed the New Hanover County ABC father-son administration team of Billy and Bradley Williams earns nearly $350,000 together in annual salaries.

Gov. Beverly Perdue said last week all options were on the table for reforming the ABC system, including privatization. North Carolina is one of 19 states that operate the sale of hard liquor.
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