Understanding liquor prices: dispelling the myths
As restaurateurs, we are all painfully aware that Washington has the highest liquor costs in the country, largely due to the fact that we have the highest liquor taxes in the country at about $24/gallon. I-1183 does not change the tax structure, so adding up the total of seven spirit taxes means restaurants will continue to pay 13.7% on the sale price and $2.44/liter, while the general public will pay 20.5% and $3.77/liter.
Under the previous system, the Liquor Control Board set uniform pricing across the board, charged a markup (which was dependent upon direction from the Legislature), added the spirit taxes and gave you a total price.
Under the Initiative, licensees will have the option of purchasing from a distributor, direct from a manufacturer or a retailer.
This represents the most significant change for restaurants, as we now have a choice of where we can purchase our spirits, and for the first time in our state’s history, brings competition to the market.
The WRA has developed the following presentation so that you can understand what the state requires you to pay, through spirit taxes, and what is negotiable.
Understanding Liquor Prices
6 Comments to “Understanding liquor prices: dispelling the myths”
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Using your own numbers:
Costco buys direct from manufacturer$10 bottle
Costco charges a 10% markup on average
http://www.usatoday.com/money/industries/retail/2004-09-23-costco_x.htm$11.00
Value Taxes
82.08.150(1), 15% = $1.65
82.08.150(4), 14% of 15% = $0.231
82.08.150(6), 3.4% = $0.374
20.5% = $2.255$15.63
Volume Taxes
82.08.150(3), $1.72/liter = $1.29
82.08.150(4), 14% of $1.72 = $0.18
82.08.150(5), $0.07/Liter = $0.05
82.08.150(6)(c), $0.41/Liter= $0.31
82.08.150(7), $1.33/Liter = $1.00
$3.77/Liter = $2.83$11
+$2.26 – (20.5% tax)
+$2.83 – ($3.77/Liter tax)
$16.09 Costco Price (vs old WSLCB price of $21.66)Consumers WIN! By simply getting rid of those out of state distributors. Thank you COSTCO!
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Virginia - February 17th, 2012 at 12:15 pm
This “presentation” is terribly confusing and not very informative. What are you trying to tell us? In one screen you say the final cost to restaurant is $16.05. In the next screen, you say it is $16.65, with no explanation of the difference. Does the 13.07% tax represent something we should add onto our retail prices for liquor, or is that simply part of our purchase cost? Your screens seem to mix up “selling price” with “purchase cost” while itemizing numerous hidden taxes without explaining them. Retail sales tax (8.7% in our locale) has historically been backed out of the price charged to the customer (drinker). Do we need to change this practice?
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Charlie Martin - February 17th, 2012 at 1:21 pm
Are we going to be able to use liters over 750 ml. bottles now? Are certain suppliers going to have exclusive rights to certain brands AKA beer presently? How is the Sate going to be able to collect its taxes? from distributors? The rumors has liquor costs increasing rater than decreasing….it is still confusing.
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Julia Clark - February 17th, 2012 at 2:41 pm
Charlie,
Yes, approximately 85% of brands are carried exclusively by 2 distributors: http://www.wrahome.com/wp-content/uploads/2012/02/Brands-by-Supplier-and-Broker-version-1.pdf. Which is why it is important for restaurateurs to have the option to purchase from a distributor, from a retailer, or direct from a distiller – and to know what it is they are paying for. This is where we will see competition, and thus, competitive pricing.
The state will collect taxes from the distributor (who collects taxes from the sale to a restaurant), and from retailers (who collect at point of sale).
If you hear a rumor that prices are going up, it is because someone is charging more. But with the new system, there is nothing requiring you purchase it from them.
March 1, distributors will have to compete with both state liquor stores and distillers. Then, beginning June 1, they will have additional competition from retailers. We fully anticipate it may take a while for the market to sort itself out, but we will indeed have competition for our business.
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Julia Clark - February 17th, 2012 at 2:59 pm
Virginia,
Sorry for the confusion.
The spirit tax structure is unchanged in the initiative, however, we never needed to pay much attention to it, as it was embedded into the total cost we paid to the state.
To answer your questions;
The first simply shows the taxes that are owed under current law. You will see that it states the taxes that a restaurant must pay. We have always paid this tax rate so there is no change.
The screens use the term “selling price” because taxes are calculated against the selling price – once the taxes are added to that base “selling price” it equated to the total price it costs for you to purchase the product. We tried to differentiate between the two numbers by referring to it as “final cost to restaurant”.
Spirits are not subject to standard retail sale tax when purchased in the original packaging (i.e. when a restaurant purchases spirits, or when the general public purchase a bottle at a retail store). When a restaurant mixes a drink and sells it to a customer, then it would be subject to retail sales tax.
The slides are attempting to show what goes into the cost of spirits so you can be informed, and negotiate the best deals for your business.
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Terry Hill - February 24th, 2012 at 10:27 am
Apparently no one heard of KISS. Think about it. The price of spirits will go up.
We will lose our discount and the tax will not go down. There is a one hundred fifty million
dollar nut that has to be paid to the state.
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