How will the State Tax Beer up to 6.0% sold by CMB Off-Premise Retailers after April 2019?

When the Kansas Legislature passed the “Beer Law” during the 2017 Session, the question of how to tax the strong beer sales at CMB outlets was left open.  Income Tax Legislation was occupying most of the Legislature’s time in May and June, so the question of how SB 13 would impact taxes on strong beer was left to 2018.   "Beer up to 6.0%" does not include 3.2% CMB.

Currently, the State collects 8% liquor enforcement tax on all strong beer, wine and spirits sold by retail liquor stores to the public or sold by wholesalers to on-premise retailers. Sales tax is paid on all cereal malt beverage products sold by CMB retailers to the public.

This was a topic of discussion at a recent meeting for liquor industry organizations hosted by ABC Director Debbi Beavers.  The meeting covered possible trailer legislation and proposed changes to rules and regulations.   New rules and regulations will be drafted in the next two months for approval.  

The Tax Issue will be part of a trailer bill during the 2018 Legislative Session.  There are two ideas being discussed and they are described below. Hopefully, the description will help members decide how and if KABR should have a position on this question.  KABR members will debate this and other questions at the annual meeting this weekend in Wichita. 

1.      Situs of Taxation – This literally means “place of taxation”.  In other words, where the sale takes place determines the tax that applies. 

Positives:

• Cities and Counties would continue to receive the local portion of sales tax revenue, and could see increased revenues if the sales of strong beer in the convenience and grocery stores exceed the sales of cereal malt beverages.   (Cities and Counties are still primarily responsible for licensing and regulating CMB Retailers.
• The Kansas League of Municipalities supports this option and will ask that legislators allow the funds to continue to go into their general revenue fund, not require that money to be spent for designated purposes. 
• Many see this as the simplest solution – it would avoid requiring CMB Retailers to remit a new tax to the State and the administrative costs to the State and the retailers for setting up the new remittance.  
• Could also apply to CMB sales by Retail Liquor Licensees.
• Retains the separate nature of CMB Retailers v.Retail Liquor Licensees.

Concerns:

• CMB Retailers would pay a different tax rate on the same product.  This would benefit CMB Retailers in areas where the sales tax is less than 8% and benefit Retail Liquor Licensees where the sales tax is higher than 8%.
• State would lose revenue.  Currently, the State retains 6.5% of sales tax revenues but retains the full 8% enforcement tax.
• Need to address the tax to be paid on beer purchases by CMB On-Premise licensees (taverns) for re-sale.  NOTE: CMB On-Premise licensees can currently sell CMB by the package.
• Currently, Kansas does not track sales tax revenue on the sale of cereal malt beverages. If strong beer sales are not reported separately, the Division of Alcoholic Beverage Control will only be able to track strong beer sales in CMB outlets through gallonage reports from wholesalers.  (NOTE: Alternatively, the Department of Revenue could require a separate line item for strong beer sales tax OR audit strong beer sales through CMB outlets over a period of time in order to create an algorithm that would provide this data.)

2.      Licensees Pay 8% Liquor Enforcement Tax – This would require CMB Retailers to begin paying the 8% Liquor Enforcement Tax when selling strong beer.

Positives:

• CMB Retailers and Retail Liquor Licensees would pay the same taxes on the same products.
• The State would retain the revenues from sales of strong beer and possibly see increased revenues, depending whether or not the legislation creates a sharing formula with local cities and counties.
•  The State has an important interest in tracking the sales volumes to know where stronger products are being sold.  (NOTE: Alternatively, the Department of Revenue could require a separate line item for strong beer sales tax OR audit strong beer sales through CMB outlets over a period of time in order to create an algorithm that would provide this data.)

Concerns:

• Cities and Counties would lose revenue.  The Legislature could choose to implement the3% sharing formula that has been a part of previous versions of Uncork bills,but many believe that the new distribution formula could not accurately replacelost sales taxes from the areas who sell the most CMB products.  Winners would be based on population and notactual sales data.  The new state tolocal revenue transfers would be subject to state sweeps.
• Retail Liquor Stores support their cities and countiesand full funding of the important services these local communitiesprovide. 

This is just one of the important issues to be discussedthis weekend at the KABR Annual Conference: Planning for a New Market.   RSVP to Attend Here!

Other issues:

1.   Proposal to pass legislation to allow retailers to charge customers for tastings.

2.  Proposal to pass legislation to allow third party delivery "apps" - such as DRIZLY.

3.  Proposed changes to rules and regulations to assure State regulation of price non-discrimination and trade practice rules.

4.  New rules for inside entrances and vestibules as it relates to liquor stores being allowed to sell other products.

5.  Tobacco sales, taxation and licensing.

And more!