August 27, 2014

Small Liquor Stores Hurt by Licensing Tax

liquor store licensing tax

Some rules affect large and small businesses differently, even if they are applied equally to everyone. Take, for example, the state of Washington’s Initiative 1183 approved by the voters back in 2011.

The law effectively ended the state monopoly, still at least partially in place in other states like Pennsylvania, for example, on the wholesale distribution and retail sale of alcohol.

It was good news for large and small businesses alike who might have been previously prevented from selling alcohol to the public — or so it seemed at first.

Not All Taxes Are Created Equal

Retailers must already pay a 10 percent excise tax on liquor sales. But then state officials also imposed a 17 percent licensing fee on retail sales too.

The reason was simple. Washington stood to loose millions in revenue from its state controlled liquor store system in place before the new initiative. And state officials needed some way to make up for that loss in the budget.

For big boxes, it turned out, this added tax was no problem. Yes, it was high, but big retailers knew alcohol sales would bring in customers. They sold enough clothing, food, housewares, office supplies, CDs, books, electronics and other assorted products that they could easily spread that cost out.

In fact, since state law doesn’t require the 17 percent be actually collected from customers, some in the state say bigger stores are simply selling alcohol to customers without collecting it. They then pay the state what is owed as a cost of doing business.

Falling Behind

But for smaller businesses like Colville Liquor & Wine and Deer Park Liquor & Wine in Spokane, who rely much more heavily on alcohol sales for their revenue, things haven’t been so easy, reports the Associated Press.

In fact, 22 small liquor stores in the state are already in danger of losing their licenses after getting behind on taxes and fees, the Spokesman-Review says.

The problem these small businesses face?

They are too small and too specialized. They cannot compete for sales with larger retailers by offering alcohol at lower prices or by absorbing the cost of the tax themselves.

Unfortunately, the new law — though equally applied in theory — is bringing about very different results for small businesses.

Sales Photo via Shutterstock

5 Comments ▼

Shawn Hessinger - Editor


Shawn Hessinger Shawn Hessinger is the Editor for Small Business Trends. He is a journalist and social media networker with more than a decade of experience in the traditional newspaper business before moving to the digital world. He was the former community manager of BizSugar and the former community editor at AllAnalytics, a site dedicated to professionals in the business intelligence and analytics community.

5 Reactions

  1. Here we go again. More taxes affect small businesses huh? Is this more like ‘there’s no hope for small business because of the rising taxes’ type of news? But then again, we cannot deny that it’s part of reality. It’s just depressing that’s all.

  2. It isn’t the taxes that are hurting anyone but the consumer it is how the Washington Liquor Board is applying them. Their interpretation of the language in the referendum (which is being challenged in court) is not what the law actually says. They arbitrarily imposed a limit on the resale of alcohol to restaurants, bars clubs etc etc that is not listed in the language of the law. This causes small business to have to tax those customers while larger ones do not. Anytime you have one group with increased pricing and another without there will be a shift in business. The author needs to do a bit more research before he jumps to his conclusion.

    • Hi Albert,
      Thanks for your comment. Anyone following the issues connected with alcohol sales in the state of Washington and the information coming out of hearings already held on the topic knows there are many opinions about how the rules have been applied. Our only point, and that of most of the media reporting we’ve seen, is that taxes or licensing fees of this kind on a single product or group of products rarely affect every retailer the same way.

      • Mr. Hessinger,

        Thank you for your reply but your point would be better made with a tax or fee that is applied equally. With smaller liquor businesses having to pay the 17% resale fee and the larger ones not having to do so it shows the unequitable applications of the fees and not the fee or tax itself.

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