Editorial: Legislature trying now to clean up liquor tax issues

The privatization of liquor sales is one of those complex issues that should’ve been handled by the Legislature. If it had, perhaps the problems and unintended consequences that have arisen from the changeover could’ve been headed off at hearings, or addressed with amendments.

But as with license tabs, marijuana, gun control and many other issues, lawmakers failed to act, and initiative sponsors took over.

As a result, a flawed voter-passed initiative largely financed by Costco and large grocers is turning out to be beneficial to large chain retailers and deadly to smaller stores. We supported Initiative 1183, but the troubled transition to privatization could’ve been avoided had lawmakers not shirked their duty.

Now, fittingly, they’ve been relegated to mop-up duty.

Senate Bill 6237 is a bid to keep smaller liquor stores from disappearing altogether. For smaller retailers, the bill would drop the 17 percent surcharge the initiative tacked onto liquor transactions to compensate the state for getting out of the business. Chain outlets can absorb the fee across their vast, multi-state inventories. Local stores cannot, which makes competitive pricing difficult.

To address the concern that small liquor stores would pop up on every corner, the initiative reserved retail liquor licenses for stores that are at least 10,000 square feet. However, there were exceptions for former state-run and contract stores. It’s these outlets that are seeking legislative relief from the 17 percent surcharge, which is added on top of the sales tax.

The Liquor Control Board estimates that one-third of former state stores have closed. Of the 11 state stores in Spokane that were sold at auction, only six remain open. The Good Spirits store on Third Avenue counts itself as one of the victims, closing its doors two weeks ago.

Under SB 6237, which passed the Senate on Tuesday, the surcharge would be waived for retailers with less than $200,000 in monthly sales. Those with monthly sales of up to $350,000 would pay 7 percent. Everyone else would still pay 17 percent.

However, variable tax rates for businesses selling the same product could present even larger problems. Essentially, it’s a subsidy that other small businesses could then demand, using the liquor tax break as Exhibit A.

The bill does not address the fact that the initiative granted a surcharge exemption to distributors. As a result, distributors have replaced many of the smaller stores as suppliers to restaurants and bars. For instance, the Davenport Hotel stopped placing orders with nearby Good Spirits. Last year, the Legislature granted a temporary surcharge reprieve on such liquor transactions, but small businesses are still losing that market.

What the Legislature may need to address is whether all of the taxes affixed to liquor are just too high. Washington outlets are losing sales to border states.

But, ultimately, what this messy transition demonstrates – again – is that our representatives must put complicated issues through the thorough deliberations we expect of them, not punt them to the initiative writers. That has to be better than holding a mop.