California's Board of Equalization wants to tax certain malt beverages at the same rate as liquor, which would add about $2 per six-pack to the price of malt-based "alcopops" such as Smirnoff Ice, Bacardi Silver, and Mike's Hard Lemonade. Such products currently are taxed as beer, at a rate of 20 cents per gallon; the rate for distilled spirits is $3.30 per gallon. Although the ostensible aim is to discourage underage alcohol consumption, this 1,550 percent tax increase would fall primarily on adults. Not only that, but according to Bill Leonard, one of two Republicans on the Board of Equalization who voted against the hike, the legal reasoning for recategorizing "alcopops" applies to virtually all beer and wine sold in California:
When the Legislature wrote the first alcohol laws after Prohibition was repealed in 1933, California defined what a beer is and what wine is. The definition was simple—anything added to beer or wine renders it something else. Sometime thereafter beer and wine producers started adding things such as preservatives, flavor enhancers and other things. So narrowly reading the law there is NO such product as either beer or wine sold in California today. Now common sense and alcohol regulators know that is not true and so for years have ignored this narrow interpretation.
Last week [on December 13] a bare majority of the Board of Equalization voted for the narrow interpretation of the law, and have begun the process to tax all alcohols with any additives as distilled spirits. This will increase the taxes charged on beers, wines, flavored malt beverages, and flavored beers to the level on hard liquor.
The dated California law defines beer as having no additives whatsoever. No beer that I know of— except perhaps some home brews—meets this definition.
I think Leonard overstates things a bit. Some microbrewers brag about not using preservatives, so any of their products that contain only water, malt, and hops, with no added flavorings such as spices or fruit, would still count as beer under a narrow reading of the law. Likewise, preservative-free wines presumably would still count as wine. But assuming Leonard's understanding of the law is correct, the vast majority of commercially produced beer and wine would be taxed at the liquor rate if the Board of Equalization consistently applied its new standard.
Even assuming the board somehow manages to raise the tax only on the politically incorrect "alcopops," the results would be nonsensical. "When you're selling a product that is flavored with distilled spirits, that you're marketing as distilled spirits, I think common sense dictates that it should be taxed as distilled spirits," board member Steve Westly (the outgoing controller), tells the Los Angles Times. "I see no public policy rationale why we should provide a lower tax rate to companies that are promoting distilled spirits to young people in California."
First of all, the argument against "alcopops," which Westly seems to have temporarily forgotten, is that they appeal to teenagers (especially girls) because they don't taste like booze. Although some of these products taste a little like whiskey (Jack Daniel's Country Cocktails) or tequila (Sauza Diablo), they typically do not contain any distilled spirits, relying on fermented malt stripped of its natural flavor for their alcohol content. Bacardi Silver, for example, contains no rum, and Smirnoff Ice contains no vodka.
In any case, the rationale for taxing liquor at a higher rate than fermented beverages such as beer and wine is that liquor has a higher alcohol content, usually around 40 percent. The "alcopops," by contrast, generally have an alcohol content of around 5 percent. So if the Board of Equalization's tax hike plan is implemented as advertised (i.e., limited to "alcopops"), California will be taxing drinks with a 5 percent alcohol content at a much higher rate than beer, which can have an alcohol content twice as high, or wine, with an alcohol content up to three times as high. Putting aside the question of whether this is good public policy, it is clearly contrary to the legislature's intent in distinguishing between fermented and distilled alcoholic beverages. If critics of "alcopops" want to tax the hell out of sweet, flavored malt beverages, they should ask the legislature to do so, instead of reinterpreting the law to fit their agenda.