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Candy, beer taxes taking effect in Washington

Tue., June 1, 2010, 8:03 a.m.

OLYMPIA — Washingtonians: It’s time to stand up, be counted and develop a few bad habits, if you don’t have them already.

Starting Tuesday, the state will rely even more on its citizens doing things they probably shouldn’t — or perhaps shouldn’t do as much.

Do you buy bottled water? Bad for the environment; good for state coffers.

Have a sweet tooth? Your dentist may tell you to cut back on candy, but your legislator might say please don’t.

Knock back a few beers on a hot summer day? As long as you’re not driving, swill away. Your state needs you.

Taxes on candy, gum, bottled water and beer are expected to bring in a combined $122 million over the next year to help deal with a $2.8 billion state budget gap stemming largely from the recession.

Smokers and soda-sippers also are being tapped: A $1-per-pack boost in the cigarette tax kicked in May 1, and a tax on carbonated beverages starts July 1. Together, those two are expected to bring in $135 million by the end of June 2011.

Those taxes and more — nearly $800 million in all — were included in a budget package that also enacted $755 million in cuts and garnered $1.3 billion from tapping reserves, federal aid and one-time fund shifts.

The taxes consumers will notice most directly, at grocery and convenience stores, make up a small part of the overall budget fix, but other taxes also will work their way into people’s wallets, such as a projected $242 million from a boost in the business-and-occupation (B&O) tax on services such as those of lawyers, accountants and hairdressers.

When it comes to taxing people’s bad habits, one risk is that people might change their behavior, and end up not generating as much in tax revenue.

“When you increase the price, consumption does go down slightly,” said Mike Gowrylow, spokesman for the state Department of Revenue. But Gowrylow said that dip is built into budget projections, based on revenue models guided by past experiences.

The declines sometimes are temporary. If a popular product is taxed, “At first people are mad and they don’t buy it, but after a while they get over it and buy it anyway,” Gowrylow said.

The cigarette tax, unlike some of the other measures, actually is intended to encourage people to quit, or not take up the habit. Tim Church, spokesman for the state Health Department, said calls to the state’s Tobacco Quit Line (800-QUIT-NOW) increased 42 percent in May, indicating the tax, the nation’s second highest, is having that effect.

In the 10 years since the state started its Tobacco Prevention and Control Program, the number of smokers in Washington has dropped more than 30 percent, to an estimated 770,000, Church said.

Although that means there are fewer smokers to pay a cigarette tax, the Health Department says it’s a money-saver in the long run, since smoking’s effects cost the state and its residents roughly $1.5 billion a year in health care.

Smokers and drinkers long have been key contributors to the state budget. In the past fiscal year, smokers coughed up more than $428 million in state taxes, and drinkers paid more than $275 million.

“Whenever they need a new tax, they look at alcohol,” said Barry Adams, owner of The Beer Authority in Lake City, which stocks more than 150 beers and offers a half-dozen on tap.

Domestic microbrews are exempt from the tax increase, but all imports, strong beers and large breweries are subject to the tax, which will add about 28 cents to the cost of a six-pack.

Candy, a more benign vice, is subject to the state sales tax under the new law, and only time will tell if — and how much — people will cut back.

Nicole Miller, owner of Blackbird Candy Shoppe in Ballard, expects customers to continue to allow themselves their sweets. “People have a huge emotional attachment to candy,” she said. “They don’t think about the price.”

Miller opened the candy shop last year in a streetfront nook adjacent to her men’s shop, largely to “keep people coming in and spending money in the recession.” Shelves of old-time glass jars beckon with colorful gummy and hard candies, and a display case offers artisan truffles up to $2 apiece.

Greg Taylor doesn’t share Miller’s confidence. He’s president of Cashmere-based Liberty Orchards, producers of Aplets and Cotlets, among the state’s oldest and best-known candies.

“Even on small purchases, consumers are price sensitive,” Taylor said. “The more something costs, the less people will buy it.”

What confounds Taylor the most is the way candy is being defined — a definition that includes his fruit-and-nut confections but excludes some familiar candy bars, such as Kit Kat and Twix. Under the law, which draws from an agreement among states with sales taxes, candy does not contain flour. So chocolate bars that contain wafers made of flour are not taxed.

Taylor and other candy-makers unsuccessfully opposed the tax but were given a $1,000 tax credit for each worker they employ, to help offset the lost revenue.

“Nutritionally, candy’s no worse for you than a lot of things people buy,” he said. “We’re not loaded with saturated fats like red meat, for example.”

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