Control State

A (Small) Step Forward For Virginia Distilleries

Silverback Distillery CEO Christine Riggleman.

Silverback Distillery CEO Christine Riggleman.

Virginia distillers continue to labor under some of the worst distilling laws in America, but their outlook is set to get (at least slightly) better. Virginia has the the 3rd highest distilled spirits taxes in the country, requires all liquor sales to take place through government-run liquor stores, and restricts the amount of tastings and servings a distillery can provide to on-premise visitors to a mere 3 oz. of spirits.

Even worse, the state’s notorious “NET 30” payment scheme requires distillers who sell their own bottles in their tasting rooms to send 100% of the proceeds of the sale to the Virginia Alcoholic Beverage Control Authority (ABC). Then, only 30-45 days later, ABC sends back the distiller’s portion (which amounts to a mere 46% of the sale price after Virginia’s high mark-ups and taxes are factored in).

Unsurprisingly, this antiquated process creates tremendous cash flow problems for craft distilleries since they are not even able to touch the money they derived from bottles sales until over a month later. To add insult to injury, the state also charges distilleries handling fees even for bottles sold inside the distillery (and thus handled exclusively by the distillery’s own employees).

Despite these burdensome rules, the state legislature has been resistant to even small changes to the law. Finally, this year, a modest step forward was achieved. An effort led by Silverback Distillery CEO and Founder Christine Riggleman resulted in Virginia lawmakers passing legislation that ends the NET 30 payment scheme and eliminates on-site handling fees (although the law doesn’t take effect until 2020). The team reached out to Riggleman, whose distillery is located in Afton, Virginia, to get her reaction to the news.

“[The legislation] allows us to have the working capital on-hand to meet demand,” Riggleman said. “With the flow of tourism and customers, you can’t predict always what the demand for the products will be, so you need the funds on-hand to be able to gear up for busier times.” Riggleman specifically cited the need to have adequate cash flow to invest in bottles and labels in preparation for periods of heightened sales, like around the holidays—something that is hard to do when the Virginia ABC holds their sale proceeds for over a month.

While Riggleman was relieved that her efforts resulted in real change, she was quick to note that more work remained to bring Virginia’s laws on distilled spirits in line with how it treats beer and wine. “This is just a band-aid; I still want full parity [with beer and wine],” Riggleman said. “We’re still hemorrhaging every month in Virginia trying keep up with customer demand as well as all the laws.”

In fact, Silverback Distillery recently opened a new production facility in Pennsylvania rather than expanding in its home state of Virginia. Riggleman noted that, in contrast to Virginia, Pennsylvania has no on-premise tasting limits and even allows distilleries to serve beer and wine.

Ultimately, Virginia will need to continue to grapple with the fact that its many Prohibition era laws are continuing to hamstring a promising growth industry. Hopefully Riggleman’s efforts will lead to more Virginia distillers joining the push for reform.

(R Street’s Jarrett Dieterle has previously profiled Christine Riggleman and her family’s experiences dealing with Virginia alcohol laws).

New Report on North Carolina's Alcohol Control System


North Carolina is one of roughly a dozen states in which government still controls liquor sales at the retail level, and the state has recently endured a series of scandals and episodes of mismanagement involving its ABC system. Stemming from this, the John Locke Foundation has released a new report calling for the system to be privatized moving forward:

North Carolina opened the 20th century as the nation’s leader in legal distilleries. The state ABC system was devised to control liquor sales, and now North Carolina is one of just 17 states with control over wholesale distribution of liquor, one of only 13 states with government control over retail distribution of liquor, and the only one in the country with local government control of retail sales.

Other states let licensed private businesses handle wholesale and retail sales of liquor. That’s also what North Carolina does for beer and wine sales. Local breweries and wineries are flourishing under a relatively freer distribution system.

North Carolina’s budding distilleries could be doing the same if given the chance…

The whole report is well worth a read.

Key N.C. Legislator Signals Openness to Liquor Store Privatization


North Carolina is one of 13 states that still utilizes government-run liquor stores at the retail level. While privatization is often a difficult battle in control states, a key state legislator recently signaled an openness to the idea, although he expressed concern about potential lost revenue. The Citizen Times reports:

Republican N.C. Sen. Chuck Edwards told a conservative business group Friday he was open to privatizing government-controlled liquor sales and that a committee he is chairing has some sway over the issue.

"Lots of folks already are coming to me and talking about changes to North Carolina's antiquated ABC laws to make things streamlined both for folks who administer that and for business," said Edwards, who represents part of Buncombe County including Asheville and all of Henderson and Transylvania counties…

Privatization proponents, such as Edward's fellow Henderson Republican NC Rep. Chuck McGrady, say ABC scandals are a good argument to get government out of liquor sales.

McGrady chairs the House ABC board and last month said he is "intent" on making the change. 

Edwards chairs the Senate's Commerce and Insurance Board that would also review such a shift. But in comments after the speech Edwards said he would only support the change if revenue lost by local governments could be replaced…

Read more here.

Oregon Governor Proposes Stealth Tax Via Liquor Markup


After claiming that she wouldn’t raise taxes on alcohol, Oregon Gov. Kate Brown’s budget proposal includes a call for a 5% increase in the markup for liquor. As reported by Oregon Public Broadcasting:

As she finalized her budget proposal for the next two years, Oregon Gov. Kate Brown made no secret of the fact she’d push for higher tobacco taxes, which she believes should play a larger role in funding health care.

At the same time, Brown said she wouldn’t pursue higher taxes on beer and wine, despite a request by the Oregon Health Authority…

But there was one “sin tax” that Brown didn’t mention — to the media or the industry that would be affected. Brown wants to increase what the state collects from liquor sales.

Tucked toward the back of Brown’s 500-page, $26.3 billion budget proposal released Wednesday is a single mention that the governor hopes to raise the markup on Oregon liquor sales by 5 percent beginning July 2019. The move would bring an extra $21.2 million into the state’s general fund, according to the budget proposal…

Read more here.

Oregon is one of 13 states that controls distilled spirits sales at the retail level—liquor stores are operated by state-appointed liquor agents, but the state sets the prices. As R Street’s Jarrett Dieterle has noted before, control states that increase liquor markups are really instituting a form of stealth tax on their citizens—especially when the money generated from the enhanced markup merely flows to the state’s general fund. (Read Jarrett’s report on control state markups here.)

North Carolina's ABC Limits Product Offerings


The hits just keep on coming for North Carolina alcohol consumers. After an audit found that the state’s Alcoholic Beverage Control Commission wasted millions in taxpayer money through mismanagement, the commission has now announced that it’s reducing its booze offerings, according to Carolina Journal:

An email to suppliers last week from the N.C. Alcoholic Beverage Commission, in addition to announcing that it’s trimming the number of products it lists, cited the state’s alcohol warehouse operator for its good work.

It’s the same operator, LB&B, which was named in an audit released this past summer that found poor contract administration cost North Carolina taxpayers at least $11.3 million over 13 years. Unused warehouse space potentially cost the state $2.1 million over seven years, and a lack of monitoring left the state underpaid by at least $297,537 over two years…

Read the rest here.

Montgomery County liquor control plans to fix itself ... by changing its name


R Street has written before about Maryland's notorious Montgomery County and its liquor control department. Now, according to the Washington Post, the department is trying to change itself ... but mostly just by changing its name:

Montgomery County officials are hoping to change the name of the county’s Department of Liquor Control to something, well, a little less controlling.

The proposed name — Alcohol Beverage Services — reflects an effort to move the department’s image away from its regulatory focus and toward customer service, said director Robert Dorfman, a former Marriott executive appointed by County Executive Isiah Leggett (D) at the end of 2016.

“The old name does not have the right connotation,” Dorfman said. “We’re not about controlling how people do business. Our job is to make sure our customers are well taken care of.”

Montgomery County is the most populous jurisdiction in Maryland, and the only one that directly controls the wholesale distribution of all alcohol in its borders — a vestige dating to the end of Prohibition.

Businesses that purchase alcohol must buy it from the county, not private wholesalers. In addition, while beer and wine can be sold at retail establishments, consumers can buy liquor only from a county-owned retail store.

The system has long been criticized for, among other things, its past poor performance in deliveries, ordering and reliability...

Read the rest here.



Audit uncovers millions wasted by N.C. liquor regulators


Government regulators are often notorious for mismanaging the public fisc, and a recent audit of North Carolina's Alcoholic Beverage Control Commission shows that N.C.'s liquor regulators wasted almost a million dollars a year over the past decade:

The office in charge of North Carolina’s state-run liquor stores has wasted millions of taxpayer dollars through years of mismanagement, according to an audit released Thursday morning.

The audit found that the Alcoholic Beverage Control Commission lost the state nearly a million dollars a year — specifically, $11.3 million over the course of 13 years — due to poor handling of contracts. ABC officials also wasted $2.1 million by renting warehouse space that they then kept empty for seven years, the audit found.

State Auditor Beth Wood said in an interview Thursday that the waste this audit uncovered was some of the most egregious she has seen in her nine years in office.

“There was just no overview, no oversight,” she said. “There was no monitoring of that contract. You just had a contractor come up and say ‘I want more money,’ ... and whatever the contractor asked for, it was what they got.”...

More here.


Pennsylvania might improve its dreadful drinks laws—a little


Pennsylvania's legislature is set to consider a bill that would roll back the state's recently-implemented flexible-pricing scheme for alcohol. R Street's Jarrett Dieterle has written before about how booze markups in control states function analogously to a stealth tax, and now R Street's Kevin Kosar weighs in on Pennsylvania's specific situation in an op-ed for the American Spectator:

If Rep. Jesse Topper has his way, Pennsylvania’s legislature will roll back its infamous stealth tax on drinks. Topper, a Republican representing the south-central Bedford, Franklin, and Mercer counties, has introduced H.R. 2263, which would repeal the “flexible pricing” authority given to the Pennsylvania Liquor Control Board in 2016.

Why is this good news? Well, the cheerfully named provision had the dreadful effect of enabling the state liquor officials to raise prices as they saw fit. The PLCB has a monopoly on the sale of spirits and a near monopoly on wine sales, so it can set prices without fear of price competition. And with the state legislature demanding the PCLB give it big chunks of revenue each year to fund government employees’ pensions and the like, the problem is obvious: flexible pricing is a stealth tax. Bureaucrats raise revenues for general government spending by elevating mark-ups paid by drinks consumers, sans legislative enactment. It is literally taxation without representation...

Read the rest of Kosar's op-ed here.


Don't Expect Private Liquor Stores in Maryland's Montgomery County Anytime Soon


Maryland's Montgomery County's government-run liquor stores are notorious (see R Street VP Kevin Kosar's take on Montgomery County booze sales here). Last year, however, the state legislature granted the county the ability to license privately-owned liquor stores. But according to Bethesda Magazine, county liquor regulators remain noncommittal about when (and even if) such licenses will be granted:

The Montgomery County Department of Liquor Control’s director said this week the department hasn’t set a timeline or established a policy to begin licensing privately owned beer and wine stores in the county to sell liquor.

The DLC has had the ability to license the privately owned stores to sell spirits for more than a year.

If implemented, such a policy could change the county’s long-held monopoly on the retail sale of liquor at its 27 government-run retail stores, which are the only locations where residents and others can buy spirits such as whiskey, vodka and rum in the county.

Hundreds of privately owned beer and wine store owners could potentially apply for spirits licenses if the county created a policy for them to do so. However, Dorfman said any new policy would likely not permit a privately owned store that wants to sell liquor to operate within five miles of a county liquor store...

Read the rest here.


Alabama Lawmakers Consider Reforming State Liquor Mark-ups


In recent years, the Alabama Alcoholic Beverage Control Board has become notorious for trying to sneak through increased mark-ups on booze in the state. As R Street's Cameron Smith exposed last year, Alabama ABC attempted to institute a 5% increase in booze mark-ups to provide more funding for state district attorneys. Using liquor mark-ups in this way essentially turns the mark-ups into a stealth tax on state residents, and R Street has called out this behavior by state liquor regulators in the past (our policy report on the issue can be found here).

Luckily, some lawmakers in Alabama are now trying to fix this system of unaccountable taxation by introducing a bill that would require any increase in the state liquor mark-up to be approved by the state legislature. Cameron Smith recently wrote another column for about this much-needed attempt to inject accountability into the process:

"If Alabama's legislators want to raise taxes, they should cast a vote to do so. They shouldn't be able to cut a deal between public employees and the state's liquor bureaucracy to avoid accountability at the ballot box. Sadly, that's exactly what happened in 2017, and State Sen. Bill Holtzclaw's SB120 aims to stop it...

SB120 simply prevents future ABC markups without a bill enacted by the Alabama Legislature. It's not a complicated bill, but it absolutely restores accountability for revenue policy decisions to the people Alabamians actually elect.

Alabama is in the minority of states retaining a 'control' model for liquor. Apparently the state's 'conservative' legislature would rather preserve a prohibition-era bureaucracy than fund the DAs properly, meet other spending needs or simply let Alabamians keep a little more of their hard-earned money.

But this is an election year. Hope for any real changes to Alabama's liquor control system is little more than wishful thinking. Maybe the Alabama Legislature will at least take responsibility for the taxes we pay on alcohol..."

Read the whole column here.