Wine producers may dodge alcohol tax

The latest from the office of 6th District Assemblyman Jared Huffman is that a potentially crippling state alcohol excise tax will be voted down this week. This new development comes as a welcome surprise to California wine producers, who braced for the worst in light of a proposed tax that would steeply increase fees per gallon of wine. Referred to as the “nickel-a-drink” tax, this measure would raise the state’s wine tax by 640 percent, with fees increasing from $0.20 per gallon of wine to $1.48 per gallon. The increase would reverberate through all segments of the wine industry, including hotels and restaurants.
Of course, the withdrawal of the alcohol tax from the budget deal is not yet a certainty. Huffman has been lobbying hard to exclude wine from the tax.
“We’re hopeful that the governor has seen the bigger picture,” said Huffman. “Wine is a backbone of California industry and generates billions of dollars in revenue and more than 300,000 jobs. Taxing wine is not the way to go.”
Grant Raeside, executive director of the Sonoma Valley Vintners and Growers Alliance, couldn’t agree more. “It is totally inappropriate to tax an industry that is doing so much economically for our state,” said Raeside. “From Santa Barbara to the central coast and everywhere in between, people come to California for the wine – not the beer or vodka. More than two million people alone come to Sonoma to stay overnight, eat in our restaurants and, of course, to buy wine. The excise tax would effectively kill our business if it were approved.”
Research from the California-based Wine Institute indicates that the wine industry currently pays upwards of $3 billion a year in state taxes. Three-fifths of California table wines are priced below $7 and these wines would be the hardest hit by the tax increase. Because many lower-priced wines also come in larger vessels, the proposed tax will increase the retail price enormously as the surcharge is levied on a per gallon basis. For example, the popular 5-liter bag-in-a-box wine could go up by as much as $3.38 per unit at retail, a staggering 56 percent price increase.
The bottle wines under $10 are currently keeping the industry afloat, according to Pete Opatz, a Sonoma County Winegrape Commission board member.” The nickel-a-drink tax would really nail the lower-priced wines,” said Opatz, “because the tax is disproportionately onerous. Basically, these wines will be taxed the same as a $50 bottle.”
There are those who see the tax in a positive light. Public health advocates commended Governor Schwarzenegger for proposing the tax. The new funds, projected at more than $878 million over the next year and a half, would not only help reduce the state’s budget shortfall but could also provide support to programs that reduce alcohol-related problems. Opponents of the tax increase point out that wine has many health benefits. Research from the U.S. Department of Health & Human Services shows that wine, in moderation, can protect against heart disease. Red wine in particular is a rich source of antioxidants, and resveratrol, found in grape skins, helps increase levels of HDL (good cholesterol) while flavonoids can prevent blood clots and plaque formation in the arteries.
Whichever side of the battle, there is no denying the billions of dollars in revenue that wine brings to the state. “I’m confident that cool heads will prevail,” said Raeside. “Wine is part of California history and we have a huge industry built around wine, namely tourism. I’m confident that our politicians will do the right thing.”