When Gov. Lincoln Chafee was touring storm-ravaged Glocester in the days after Hurricane Sandy slammed into the East Coast, liquor store owner Kevin Kitson had a chance to talk to him about business matters and one of the issues that came up was the state‚Äôs 7 percent sales tax on alcohol.
Kitson, longtime owner of Christy‚Äôs Liquors in Chepachet, told Chafee that not only would eliminating the sales tax on alcohol put more money in his pocket, it would help him and other Rhode Island liquor store owners better compete with tax-free Massachusetts.
‚ÄúI remember telling him that we‚Äôre such a small state and that this was one opportunity where we could really be competitive,‚ÄĚ says Kitson.
On Wednesday, Kitson and other local liquor store owners were applauding House lawmakers, who, during Tuesday night‚Äôs state budget debate, eliminated the sales tax on wine and distilled spirits as an experiment starting on Dec. 1 of this year and extending to April 1, 2015. Unlike Massachusetts, however, there will still be a 7-percent sales tax on beer.
Lawmakers want to see if eliminating the tax on booze will make state liquor retailers more competitive with their counterparts in Massachusetts, which eliminated its sales tax on liquor, including beer, almost three years ago.
After House lawmakers approve the proposed $8.2 billion fiscal 2014 budget, it will be sent to the Senate Finance Committee and then the full Senate. If passed there, it goes on to Chafee's desk for his signature.
Rep. Jan P. Malik, a Warren Democrat and liquor store owner who co-sponsored legislation to eliminate the Rhode Island sales tax, says he is hopeful the partial phase-out of the alcohol sales tax will be intact when the House budget is finally passed.
‚ÄúOur sales tax is killing small businesses, especially those in border communities,‚ÄĚ said Malik, a member of the House Committee on Finance. ‚ÄúI am one of the small business owners getting hammered because, at least in terms of sales tax, I cannot compete with my nearby Massachusetts competitors.‚ÄĚ
‚ÄúI am down 20 percent in business over the past two years, and it doesn‚Äôt matter if we have low prices at my liquor store or not,‚ÄĚ he said. ‚ÄúPeople just don‚Äôt want to pay a sales tax when they can drive a few miles to Massachusetts where there is no sales tax on liquor.‚ÄĚ
Kitson says there‚Äôs no doubt that eliminating the sales tax will help local liquor retailers, especially those close to neighboring Massachusetts where voters repealed a sales tax for alcohol sales in 2010. Liquor retailers in Massachusetts indicated in late July 2009 that they were going to try to qualify the ballot measure for the 2010 ballot after the Massachusetts State Legislature increased the sales tax in the state from 5 percent to 6.25 percent and eliminated an exemption for alcohol.
‚ÄúWhen people ask if the state‚Äôs 7 percent sales tax on alcohol is really driving liquor store customers to cross state lines, I like to use the multi-state jackpot game Powerball as an example,‚ÄĚ says Kitson
‚ÄúWhen Rhode Island had Powerball and Connecticut did not, the week when the jackpot was at $100 million - I did $40,000 in sales,‚ÄĚ says Kitson. ‚ÄúThe next time the jackpot hit $100 million, Connecticut had Powerball, and I did $4,000 in sales that week. That tells me that if you have something that someone else doesn‚Äôt have then people will go out of their way to get it. I really believe that eliminating the sales tax will help me and other liquor store owners compete with neighboring states and keep our customers from going over the line.‚ÄĚ
Kitson says while the partial phase-out of the alcohol sales tax is encouraging, he noted that the fiscal 2014 state budget also includes an excise tax increase effective July 1, which could affect customers if retailers decide to pass along the cost.
The excise tax increase is based on volume, which means the price of a 4 liter bottle of wine, for example, could cost Kitson an extra $1.20.
‚ÄúIt‚Äôs all part of the same ball of wax,‚ÄĚ he says. ‚ÄúIf I buy a case of wine it‚Äôs going to cost me $5 more a case.‚ÄĚ
Kitson said he would like to see the elimination of the state sales tax on beer, saying that - in addition to Rhode Island not having a bottle bill - would give Rhode Island alcohol retailers ‚Äúa real advantage‚ÄĚ over Massachusetts.
‚ÄúThe phase-out of the alcohol sales tax ‚Äď that part is wonderful,‚ÄĚ says Frank Perri, owner of Minuteman Liquors in the Park Avenue Plaza in Woonsocket, which has been doing business in the city for over 27 years. ‚ÄúAs for the excise tax on beer, wine and liquor, well, that‚Äôs just a money grab.‚ÄĚ
The excise tax to be paid by distributors and passed on to retailers will go up on July 1, potentially adding a few pennies to purchases if retailers don‚Äôt eat the difference.
‚ÄúThe state thinks the distributors are going to eat the cost, but that‚Äôs not the case,‚ÄĚ he said.
Still, Perri says he‚Äôs encouraged the state could be on the verge of eliminating the sales tax on alcohol, saying many liquor stores are being hurt by customers going to Massachusetts to avoid paying tax.
‚ÄúI don‚Äôt see too much of that myself because I‚Äôm right in the heart of the city, but stores on the borders are absolutely getting hurt,‚ÄĚ he says. ‚ÄúThere are package stores on Route 6 in Seekonk advertising the fact that there‚Äôs no 7 percent sales tax there.‚ÄĚ
Says Perri: ‚ÄúThis will be a good thing because all we ever asked for is a level playing field and being able to compete with Massachusetts.‚ÄĚ
Follow Joseph Fitzgerald on Twitter @jofitz7