2011 Executive Proposed Budget

Possible impacts of the liquor tax initiatives

Washington is one of 18 states that control liquor sales with a state monopoly on sales of spirits. Spirits manufacturers, distillers and suppliers may sell spirits within the State only to the Washington State Liquor Control Board (WSLCB). The Board purchases the spirits and delivers them to liquor stores and authorized purchasers such as restaurants. The WSLCB sets the price for the spirits based on wholesale costs, a markup and a liquor tax. King County gets a portion of the mark-up and a portion of the liquor tax. In 2009, the County received approximately $1.7 million of board profits and liquor tax receipts.

There are two proposed liquor tax initiatives on the ballot for the November 2, 2010 election. Initiative 1100 (I-1100) would require the State to stop distributing and selling liquor, and would authorize private parties to manufacture, import, distribute, or sell spirits. The State would no longer set spirit prices and State liquor stores would close. Initiative 1105 (I-1105) would also eliminate the State’s monopoly but would establish a three-tier licensing system for the manufacturing, distribution and retailing of spirits. I-1105 would also repeal the existing taxes on retail spirits sales.

The two proposed liquor tax initiatives would have different financial impacts on the County. I-1100 eliminates the WSLCB’s ability to set prices and therefore would eliminate the Board’s mark-up. Part of this mark-up is distributed to local governments and so King County would no longer receive this revenue. In 2009, this amounted to approximately $1.1 million.  The State would have until December 31, 2011 to stop its liquor sale operations and so the impact on County revenues is likely to be small in 2011. The exact effect of this initiative on liquor tax revenues is unclear at this time. The liquor tax would still be in effect, but if private mark-ups on spirits are less than the WSLCB’s, tax receipts would fall. However, if the volume of liquor sold increases due to greater access, tax receipts might be similar to current revenues or even rise. The State forecasts a five percent growth in retail liquor liter sales from increased access to liquor.

I-1105 would also eliminate the Board’s profits, but the State would not be required to eliminate its sales of spirits until April 1, 2012. However, the initiative would repeal the existing tax on retail spirits sales. The Initiative calls for the WSLCB to propose a new tax to be paid by licensed spirits distributors on all spirits they purchase. The recommended tax rate would be a rate projected to generate, in combination with other spirits-related revenues, at least the same annual revenue for state and local governments as the current system, plus at least an additional one hundred million dollars net over the five-year period beginning November 1, 2011.  If this proposed tax were successfully implemented, there would likely be little effect on County liquor tax revenues.

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