Editorial: Reduce taxes on craft liquor

The Detroit News

The Senate recently passed a bill that would significantly lighten the tax burden on Michigan’s craft distilling industry. That’s a good call. Just as lawmakers have reined in regulations on craft brewers in the state and allowed that industry to thrive, they should do the same for the craft liquor distillers.

The Senate bill would cut taxes by about 45 percent — to 20 percent from what is currently about a 65 percent markup by the Michigan Liquor Control Commission — on the first 60,000 proof gallons of liquor spirits manufactured annually. Bottles produced after that would be taxed at the old rate.

Michigan needs to update this tax regime to allow its craft liquor industry to be competitive with those in nearby states. The current excessive markups force Michigan’s liquor prices substantially higher than surrounding states — ninth highest in the country, according to the Tax Foundation. Indiana ranks 42nd and Wisconsin 40th.

The state’s onerous tax structure, combined with federal taxes, unnecessarily stifle investment. Once the state relaxed regulations on breweries several years ago, the beer industry began to thrive. Michigan now ranks fifth in the nation in terms of the number of craft beer facilities, and it’s a noted attraction for tourists.

The current tax structure for liquor also benefits large, international manufacturers over small, hometown companies that don’t have the same economies of scale. International distributors can afford to get their products on the shelf at wholesale prices. Since the state tax applies to the shelf price, that means global companies with little invested in Michigan pay a lower tax rate.

Many Michigan spirits manufacturers make their products from Michigan-based grains. Freeing up their investment capital would benefit other parts of the state’s economy as well.

The tax cut would take away $22 million to $35 million from the general fund, according to an analysis from the Senate Fiscal Agency. But much of the current tax revenue is allocated to the state’s liquor commission to help fund regulatory enforcement and administrative costs. Streamlining those costs could help make up for the leaner tax revenue.

Additionally, the tax cut would free up investment funds and capital for craft distillers, which means their businesses will grow. It would also encourage new distillers to open. Both would broaden the tax base, so business growth would offset at least some of those lost tax dollars.

Michigan’s craft distilling industry has much room to grow. There are about 40 licensed distilleries throughout the state, according the Michigan Craft Distillers Association. Hubs have formed in the northern and western parts of the state, as well as in Detroit.

Unique, locally sourced spirits also attract new visitors and tourists, an important part of Michigan’s diverse economy.

The House should consider speedy passage of the bill to reduce taxes on craft liquor, and let the state’s entrepreneurial atmosphere spur new growth and new businesses.