In April 2017, the Kansas Legislature passed House Substitute for SB 13, now known as the Beer Compromise. There were many reasons for the compromise proposal, but the strongest was to retain the clear State priority for the safe and efficient regulation of the sale of alcoholic liquor and the role of the independent liquor store as the retailer of higher alcohol beer and wine and spirits.
HB 2502 – Trailer Bill
At that time, industry members believed that some details of the plan might require follow-up legislation. During the interim, representatives of KABR participated in meetings facilitated by the Division of Alcoholic Beverage Control to develop rules and regulations and possible cleanup language. The product of those conversations includes HB 2502 and new rules and regulations.
Support State Authority and Scope of Ten-Year Report
The Kansas Association of Beverage Retailers (KABR) respectfully supports language to further clarify the authority of the Division of Alcoholic Beverage Control to enforce the legislation and the language defining information to be included in the ten-year impact report to the Legislature.
Neutral on Sales Tax
KABR is neutral on the tax policy established in HB 2502. As many of you will recall, cereal malt beverage is currently subject to sales tax while strong beer is subject to the 8% enforcement tax. How the tax will be levied has a fiscal impact on the State, cities and counties. It also has an impact on the competitive price of the product at retail. Liquor sales were $846.5 million in 2016, generating $67.8 million in revenue.
100% of the enforcement tax is deposited in the State General Fund, while sales taxes are split with local governments. The State collects the base rate of 6.5%, but the amount due to the local authorities varies. Not only do rates differ between cities and counties, but special taxing districts may levy different rates for businesses in the same neighborhood.
As a result, the retailers across the state have differing opinions on the question of how the product should be taxed. Therefore, KABR is neutral on the tax policy established in HB 2502, but reserves the option to change that position if there are amendments. Our small businesses should not be penalized by new tax policies that disadvantage current licensees.
Background: Tax Question
If economic studies are correct, a significant percentage of the beer sold in Kansas after April 2019 will be sold by the CMB retailers – the grocery stores, convenience stores and others.
Former versions of Uncork Legislation had proposed sharing 3% of all enforcement taxes with cities and counties. This concept was problematic because it would redistribute revenue in a manner that may or may not reflect the actual cereal malt beverage sales taxes lost by communities.
As proposed in HB 2502, the CMB retailers will pay sales taxes on strong beer sales in the same way they currently pay sales taxes on cereal malt beverage (CMB) sales. Cities and counties have requested this language because they receive a portion of sales taxes and are concerned the new law will reduce local tax revenues.
The State of Kansas has interpreted the new law to require CMB retailers to pay the 8% liquor enforcement tax on strong beer (Enforcement taxes go to the State General Fund.) We do not know how much revenue the State or the cities may lose or gain under either scenario - the revenue change may be very small since the State sales tax rate is 6.5% and the cities and counties vary in what they charge above the state rate. A review of the sales tax rates by taxing jurisdiction show that many Kansas communities pay a higher sales tax rate than 8%. See rates here https://www.ksrevenue.org/pdf/5digitzip0118.pdf.
Background: Contents of the 2017 Beer Legislation
As the states around us have changed their liquor laws, the wisdom of the 2017 Beer Compromise has come into focus. In Oklahoma, the 2016 public referendum opened the sale of strong beer and wine to the corporate chain retailers without corresponding equalization of the regulatory framework for liquor retailers. Colorado’s 2016 legislation expanded the number of outlets for retail liquor stores and for corporate pharmacy liquor licensees, but less attention was paid to the one-strength beer policy in the legislation. Both of these states will trade cereal malt beverage sales for strong beer, but without the important considerations for regulation and long-term economic viability included in Kansas law.
Beginning April 1, 2019 –
· CMB retailers will sell beer up to 6 percent alcohol by volume,
· Liquor retailers may sell all current beer, wine, and spirits products plus cereal malt beverage,
· Liquor retailers may sell other products up to 20% of gross sales,
· Liquor retailers may sell tobacco products and lottery tickets, except that the sale of tobacco products and lottery shall not be included in the 20% limitation,
· The Division of Alcoholic Beverage Control will enforce the law in both retail environments
· The Division of Alcoholic Beverage Control will issue an impact study ten years after implementation to report the market impact of the law change.
· The Uncork proponents agree that ten years will be a reasonable time to measure the impact on the industry without further legislation to expand the locations where liquor products are sold,
· Statutes and regulations are modified to include application of trade practice, nondiscrimination and price rules to CMB and liquor licensees,
· CMB retailers will continue to be licensed by cities and counties, liquor stores will continue to be licensed by the state,
· Distributors may require minimum orders for delivery, as well as retaining current definitions for CMB and beer for purposes of their franchise agreements,
· Kansas will retain the separate retail licenses for the sale of stronger alcohol products v. limited alcohol beer.
Today and after April 2019, the Kansas independently owned retail liquor stores are the state regulated off premise retailer of higher alcohol beer and all wine and spirits products. It is imperative that Kansas retain this important role for our independently owned Kansas retail liquor stores for the sake of public safety and for our small businesses.
It is unfortunate that so many other states, including Oklahoma and Colorado, are moving away from this efficient and effective regulatory model.
We hope that legislators will fully understand the significance of this proposal and the tenuous agreement it represents.
Respectfully submitted by Amy Campbell, Executive Director