Trade groups across beer and spirits continue to fight over whether spirits-based, ready-to-drink canned cocktails (RTDs) should be taxed at the same as malt-based alternatives.
The argument came to a head this month when Public Sector Consultants (PSC), a Lansing, Michigan-based public policy consulting firm, released a study claiming decreased excise tax rates for spirits-based RTDs have cost consumers more on shelf.
The Distilled Spirits Council of the United States (DISCUS), a spirits trade association, has made adjusting excise tax rates for spirits-based RTDs one of its top legislative priorities. In 2022, related bills were defeated or stalled in Alabama, Arizona, Hawaii, Kentucky, Maryland, Washington and West Virginia. However, DISCUS has expressed its commitment to bring new rates to at least 10 states in 2023, including some of the states where efforts were previously stopped.
In June, DISCUS celebrated the passage of related legislation in Vermont, which lowered the excise tax rate for spirits-based RTDs from $7.68/gallon to $1.10/gallon.
PSC’s study analyzed spirits-based RTD prices in Nebraska and Michigan, which passed measures to reduce RTD taxes in 2021. The firm, citing retail sales data from market research firm IRI, reported that the retail price for spirits-based RTDs remained relatively stable from 2017-2020, but “began to increase in the first quarter of 2021” and have “steadily risen through August 2022.”
The study also noted that spirits-based RTD prices off-premise increased +65.9% between February 2017 and August 2022, far outpacing beer (+21.5%), wine (+20.3%) and spirits (+22.3%) in the period, which were closer to the reported inflation level of +22%.
“This new report shows how Michigan and Nebraska legislators and consumers got a raw deal with these massive tax carve outs for big liquor,” Alex Davidson, director of public affairs at the Beer Institute (BI), said in a statement. “Hard liquor company promises of lower prices for consumers never came true. As federal and state officials examine tax and regulatory proposals in the coming year, we urge them to reject any tax carve outs for the liquor industry.”
The BI has prioritized fighting tax equivalency efforts by DISCUS and other groups, arguing all bev-alc is not the same and touting beer’s reputation as the beverage of moderation. In June, the trade group wrote a letter to lawmakers, urging them to reject RTD tax equalization bills that “do nothing for consumers,” “hurt local beer business” and would “increase out-of-state liquor company profits.”
In that same letter, the BI shared similar sentiments to the PSC report about Nebraska and Michigan price increases, noting that the price of spirits-based RTDs in those states increased +2.3% and +2.1%, respectively, in IRI-tracked off-premise retailers during the 12-week period ending February 20, while the price of spirits-based RTDs nationwide declined -1.3% in the period.
“These two states will realize less tax revenue as the citizens in those states pay more,” the BI wrote.
DISCUS has attempted to change this narrative, launching StandardDrinks.org in 2021, calculating “standard drink equivalents” for all alcoholic beverages.
StandardDrinks.org graphic, an image included in DISCUS employees’ email signatures.
DISCUS heavily criticized the PSC report, calling the research “seriously flawed,” “lack[ing] credibility” and “misleading.”
“Comparing the average price of spirits-based RTDs from 2017 to 2022 is unsound, since the majority of the spirits RTD brands available today were not available in the marketplace in 2017,” DISCUS said in a statement. “In order to accurately calculate the price increase, the researchers should compare the prices of the same items over a specified period.”
Out of 110 spirits-based RTD brands, 85 (77%) had no price increase from January 2021 to October 2022, according to DISCUS, citing the Pennsylvania Liquor Control Board (PLCB), “one of the largest spirits retailers in the nation” and the government-mandated retailer of distilled spirits for the commonwealth. Nine brands allegedly reported a price increase larger than +15%, while no brands recorded an increase larger than +34.7%.
“Given Pennsylvania’s size as one of the largest retailers, it is implausible for PSC to claim that the average price of spirits-based RTDs increased 67% nationwide between January 2021 and August 2022 when not even the price for a single brand rose at that level,” DISCUS wrote.
Additionally, DISCUS claimed the price increases reported were “inconsistent with government data” and “three times as high” as figures reported in the Consumer Price Index (CPI) by the U.S. Bureau of Labor Statistics (BLS). The CPI for distilled spirits at-home increased +0.5% in October 2022 compared to October 2021, the lowest year-over-year increase since August 2022 (+0.5%). Similarly, CPI for total alcoholic beverages at-home increased +0.5% YoY.
“A number of glaring discrepancies call into question the validity of the PSC analysis,” Lisa Hawkins, DISCUS SVP of public affairs, said in a statement. “While the PSC researchers would not divulge the funders of the study or share their underlying data, this appears to be yet another beer industry attempt to use misleading information to hold on to the unfair advantage their malt-based RTDs have in the marketplace.
“The bottom line is consumers benefit when spirits-based RTDs are taxed more fairly – it allows more craft distillers to enter the market, spurs innovation and brings consumers more options in the marketplace,” she continued. “There is no justifiable reason why a spirits-based RTD with the same ABV as a malt- or wine-based RTD should be treated differently either from a market access standpoint or tax structure,” Hawkins added. “Alcohol is alcohol.”
DISCUS also shared a statement with Brewbound from Jason Howard, executive VP of sales for Great Lakes Wine and Spirits, a Highland Park, Michigan-based wine wholesaler, spirits broker and spirits-based RTD distributor:
“We were disappointed to see the report claiming that prices for low-proof, spirit-based RTD products in the state of Michigan increased immediately following the tax reduction. This would not be the case for our portfolio of brands as none of the brands that we represented prior to the new legislation took a price increase immediately following the tax reduction.
“There has been a dramatic increase in the number of new products in this category in the state of Michigan since the new legislation has been in place with a high percentage being premium offerings that sell at a higher price point which would have impacted the average price point for the category. The legislation provided for a more competitive tax rate, an expanded number of outlets for the category, and brought with it a large influx of new premium products but did not result in price increases for items that were already selling in the state prior to the start of the legislation.”
PSC declined to share the funders of the study with Brewbound.