A proposal to increase liquor taxes in the state has brewers and barkeeps concerned.
There are a handful of bills this legislative session that propose various increases to the state liquor tax. One of those bills, House Bill 1991, appears to be moving forward, with the House Committee on Commerce and Consumer Protection voting Tuesday to give the bill a favorable recommendation, despite concerns by liquor producers.
As written, the bill deletes the current state law definitions of “liquor,” “beer,” “distilled spirits,” “wine” and the like. Instead, alcohol would be taxed based on alcohol-by-volume quantities, setting higher tax rates for beverages with higher alcohol content.
At the same time, the tax rates for various alcohol categories would still increase. Currently, the state liquor tax for non-draft beer is 93 cents per gallon; for draft beer, it is 54 cents per gallon. Under HB 1991, the tax for beverages with 9.9% ABV or lower — which includes many, although not all, beers — would be $1 per gallon, a nearly 50% increase for draft beers.
Other tiers would follow suit. Drinks between 10% and 15% ABV would be taxed at $1.75 per gallon, drinks between 16% and 40% at $6 per gallon and any higher ABV beverages at $6.50 per gallon.
The bill notes that the last time the liquor tax was increased was in 1998, and, thanks to general inflation and cost increases in the intervening decades, the state has lost out on millions in potential tax revenues.
According to Hawai‘i tax data, people bought more than 25 million gallons of non-draft beer in the state between July 2020 and June 2021, collectively spending nearly $260 million. At the current tax rate, that would generate about $23 million in tax revenues; assuming all those gallons were less than 10% ABV, the seven-cent tax hike would generate an additional $2 million in revenue.
With the 46-cent tax increase for draft beers under 10% ABV, the increase is more dramatic. People in Hawai‘i bought nearly 1.6 gallons of non-draft beer between July 2020 and June 2021, spending just over $19 million. Again assuming all those gallons were below 10% ABV, the tax revenues from those sales would nearly double from a little over $860,000 to $1.6 million.
A 2022 paper by the University of Hawai‘i estimated that a hypothetical flat 10-cent liquor tax increase across all categories of alcoholic beverages could increase the state’s annual tax revenues by more than $57 million.
However, that paper also estimated that a 10-cent tax increase would also decrease alcohol consumption in the state by 6.9%. It states that Maryland, which increased its own alcohol sales tax from 6% to 9% in 2011 saw a nearly 4% decrease in alcohol sales within 18 months, as well as reductions in the rates of underage drinking, sexually transmitted diseases, and other behaviors.
On the other hand, several people warned the committee on Tuesday that the tax hike would be devastating to their businesses.
Steve Haumschild, co-founder of Kailua-based Lanikai Brewing, told the committee that the bill could be “an industry killer” for smaller brewers.
“We already pay some of the highest tax rates in the nation already,” Haumschild said. “And I understand that this is an old taxation, but this is stuff that could easily close down and prevent new businesses from opening here.”
Garrett Marrero, CEO of Maui Brewing, said the ABV-based tax hike would be a wild shift away from any other tax structure in the nation, and speculated that local brewers would have to have their products’ ABV tested by a third party, likely based on the Mainland, at additional cost.
Marrero also referenced another paper: a 2017 cost comparability study for the Brewers of Europe trade association, which found that the cost-per-liter to manufacture beer is greater than that for other liquors. With draft beer receiving a nearly doubled tax under the bill, profit margins for local brewers would shrink further, while larger-scale out-of-state producers would be able to more readily absorb the cost.
Marrero and Haumschild both recommended that any liquor tax law include an exemption for small producers. Haumschild suggested that a brewer that manufactures no more than 60,000 barrels a year not be included in the tax increase.
Marrero also recommended the passage of Senate Bill 2912, a measure that would create a “small craft producer pub licensee” tax class that would enjoy lower tax rates than the current liquor taxes — a $1.98 tax per gallon on distilled spirits, far below the current $5.98 per gallon, for example. That tax class would only apply for producers manufacturing liquor below specified quantities.
SB 2912 has been referred to Senate committees, but no hearing has been scheduled on the measure.
The committee on Tuesday, meanwhile, voted unanimously in favor of HB 1991, albeit with some minor amendments. While one of those amendments would include a 60,000-barrel small producer tax class, it would also hike taxes for high-ABV liquors even further — $13 per gallon for liquor above 40% ABV.
With one committee’s favorable recommendation, HB 1991 is still referred to the House Finance Committee, which has yet to schedule any hearings on the matter.
Aloha State Daily reached out to Rep. Scot Matayoshi, co-introducer of the bill and chair of the Commerce and Consumer Protection Committee, for further comment.
