Ann Arbor area businesses say beer tax would make it hard for them to compete
Kit Morgeson is the fifth generation in her family to run O&W Inc. in Ypsilanti.
Opening just after Prohibition ended, the family-owned business has spent the last 76 years serving the area with beer, wine and other specialty beverages.
Morgeson is one of many in the industry worried about the effects of a possible tax increase on beer that the governor proposed during budget negotiations last week.
Gov. Jennifer Granholm proposed doubling the state’s 1.9-cent-a-bottle beer tax and increasing the cigarette tax by 25 cents, pushing it to $2.25 a pack.
Last year, the beer tax raised $42 million and the cigarette tax accounted for more than $1 billion.
“Beer distributors are doing all they can to employ hard-working people with good jobs and good pay while creating a responsible environment for businesses to compete and people to be excited to stay in Michigan,” Morgeson, marketing manager for O&W Inc. in Ypsilanti, wrote in a letter of response to the news about the increase. “An increase in the beer tax will make Michigan businesses uncompetitive and unable to help the local communities that have made our state such an interesting and wonderful place to live.”
Granholm’s office would not release information about possible budget solutions, according to a Grand Rapids Press article.
“There have been many reports on possible solutions to the budget deficit, but we are not reacting to reports,” Megan Brown, Granholm’s deputy press secretary, told the newspaper. “Discussions on how to resolve the deficit continue.”
Michigan has a higher beer tax than Ohio, Indiana, Illinois and Wisconsin, according to the Federation of Tax Administrators. According to Morgeson, 44 percent of the cost of a glass of beer is taxes, including all state and federal taxes.
When suppliers are forced to increase prices, the trickle effect on distributors and retailers results in more cost to the customers, Morgeson said in an interview.
“It’s a disadvantage for us to compete with Ohio and Indiana,” she said. “People can just go to those states to buy beer for less, and all that money the state is losing in tax revenue.”
Duncan Williams, head brewer at the Grizzly Peak Brewing Company, said the business pays $6.30 per barrel of beer to the state and $7 per barrel in federal taxes. It also pays taxes on all of its ingredients.
“Lots of other industries have to pay taxes, I know that,” he said. “But a guy who makes shoes doesn’t get taxed on every shoe. We pay more than our fair share.”
Grizzly Peak of Ann Arbor employs about 70 people, including the three who run the brewery.
“Any money that we can save or don’t have to spend on taxes, we can use to employ another person,” he said.
Morgeson said O&W has seen several of its accounts close due to the lack of jobs in the area. Most places that closed were along the border where customers can easily go across state lines to purchase alcohol.
“When you raise prices, you make it more expensive to go out, have dinner,” she said. “Those kinds of things keep our communities vibrant.”
Matt Greff, owner of the Arbor Brewing Company in Ann Arbor, said the increase would be devastating.
“I am generally not a knee-jerk person, but doubling the beer tax in the state of Michigan would definitely cripple our two breweries,” said Greff, who also owns Corner Brewery in Ypsilanti.
The company pays $25,000 a year to the state, he said. Greff said he would support an increase on the beer tax for large breweries. About 96 percent of the beer produced in the United States is produced by 3 percent of the breweries, he said.
An increase on the tax for the large businesses would not only give the state 96 percent of the taxes they want, but also would foster growth in the small, local businesses that are trying to make it in Michigan, Greff said.
Jessica Kerman is an intern for AnnArbor.com. Reach our news desk at 734-623-2521 or news@annarbor.com.
Comments
frenchfries
Mon, Aug 10, 2009 : 12:59 p.m.
Exempting microbreweries makes this already regressive tax more so since the affluent are probably more likely to buy the microbrews. Also, the proposed added tax is a much smaller fraction of the cost of expensive microbrew beer than the cheap pisswater everyone seems to drink. Fact is we have a deficit and states cannot run deficits. Cutting sounds like a good idea until people realize that stuff they like is actually paid for by the government--go figure. Obviously there are no easy solutions.
brettdegroff
Sat, Aug 8, 2009 : 9:58 p.m.
I agree... you can't exempt Michigan breweries (commerce clause). But, you could exempt micro-breweries... say be exempting the first X gallons sold. Since we don't have any huge breweries located in the state (right?) this would have the same effect. Yes, micro-brew imports would evade the tax. But, previous comments implied the total market share of micro brews is small. So this subset of that subset would be small. Problem solved?
Peregrine
Thu, Aug 6, 2009 : 11:11 a.m.
Oh, I just figured it out, Kit Morgeson = kmannarbor. So since you made the original claim and the follow-up claim, please provide the details of how you get to 44%.
Peregrine
Thu, Aug 6, 2009 : 11:06 a.m.
@kmannarbor: you clearly know a lot about the beverage industry. Do you work within it? But I'm trying to figure out how we get to 44% of the cost of a glass of beer being taxes, as you and Kit Morgeson claim. Let's work through it. Let's say a glass is 12 oz. State excise tax is currently 1.9 cents. Federal excise tax is 2.11 cents (using Duncan Williams' claims on the state and federal excise taxes on a barrel of beer), and state sales tax is 6%. The only way for those three taxes to be 44% of the cost of a glass of beer is if the glass of beer costs 10.55 cents before taxes. The taxes would be 0.633 cents (sales tax) + 1.9 cents (state excise tax) + 2.11 cents (federal excise tax) = 4.643 cents. So the total cost of the glass is 10.55 cents + 4.643 cents, which is a total of 15.193 cents a glass. Just to check my work, 44% of 10.55 cents is 4.642 cents, so we're within 1/1000 of a penny. So either I made a mistake (in which case please show me where) or it's possible to buy beer in Michigan for 15.193 cents a glass (in which case please show me where).
Jim
Thu, Aug 6, 2009 : 7:41 a.m.
Why would anyone agree to more taxes? The State and more importantly Obama waste way to much of my hard earned money already. NO NEW OR ADDITIONAL TAXES!
janejane
Wed, Aug 5, 2009 : 10:14 p.m.
After reading many of the responses, this is mine. Ms. Morgeson should be very proud to be fifth generation in her family business. Not many of us can have that bragging right. And, with the way taxation has been aimed at the beer and beverage businesses along with reclamation and deposit laws, I can see her disappointment that, once again, Granholm has slashed at that industry's profits. Ms. Morgeson's company employs quite a number of people, I'm sure. She provides major benefits for their families, too. After wages, benefits, profit sharing, taxes, fixed costs and maintenance bills, her company's profit must be 10 cents (if she's lucky) on each dollar. So, how do any of us think she will have another generation at the helm if this continues? Is Granholm truly an advocate of privately-owned businesses? Does she offer any rewards or incentives to our local business owners? With our paychecks, jobs and benefits decreasing, why should we or how can we pay even more for beer? How can Ms. Morgeson pay more? I just don't get this reasoning. I voted Granholm in, but she certainly hasn't appreciated it.
John Galt
Wed, Aug 5, 2009 : 9:51 p.m.
How about a tax on Lattes? I mean, if you must target a group of people to raise revenue, why not the folks who (evidently) have four, five or more dollars to waste on a coffee? Also, lets tax sales of iPods and Macs. These folks seem to have plenty of money to get the latest "gadget." Or better yet, let's just have the government live within it's means.
kmannarbor
Wed, Aug 5, 2009 : 9:43 p.m.
What people might not understand is the Beer is subject to 3 separate taxes currently: State Excise Tax, Federal Excise Tax, and Michigan Sales Tax. Those taxes equal 44% of the cost of the beer you currently buy, now add on the $2.40 bottle deposit on a case of beer that you have to pay in Michigan and not in bordering states. That can equate to about a $5.00 discount going across state lines. The pennies that the increase seems to be on the surface go way deeper. Let's say that you realize you can now buy beer for $5.00 less (and possibly even more) a case in Indiana or Ohio, now while you are there, you would buy your gas, cigarettes and anything else that is probably lower in cost due to Michigan's higher taxes. That all adds up. The state looses business with the loss of products sold; tax moneys collected and the small business along the boarder in Michigan just can't compete. Now let's throw into that scenario the people from boarder states do all of their shopping in their home state, and then bring their cans back to Michigan and make $.10 a can - robbing our environmental funds. Again, the pennies add up. Michigan lost about 14 million dollars last year because Beer Distributors, the ones who generate the deposit and later collect it for the state, were over-redeemed (more cans came in than were initiated a deposit for) by about this much. Hopefully the package of bills that passed in the Michigan Legislature last fall will be put into effect to upgrade the reverse vending machines to recognize out-of-state cans. Higher State Excise Tax might seem like pennies - but it is not. That state can not afford to drive business away! Also, to the gentleman above doing math on taxes per beer, there are 1984oz in a 1/2 barrel of beer which equates to 124 16oz beers or 165 12oz beers. A 1/2 barrel is usually considered 7 cases of beer using the 12oz method. So fix the oz. per barrel and then add the 2 other taxes to your math - Federal Excise and State Sales tax - then you will get the math closer the 44%.
Matt Kaz
Wed, Aug 5, 2009 : 3:41 p.m.
The government does this because it is a tax that meets the least resistance, since it is placed mostly on the poor... the people who don't have power. The interesting thing will be to see how the Michigan Beer & Wine Wholesalers respond to this. How about spreading this burden out on everyone, which would be a *tiny* amount for each taxpayer, instead of putting more of a burden on those who already struggle.?
treetowncartel
Wed, Aug 5, 2009 : 11:04 a.m.
Well giving Michigan business owners a break is a nice idea, there is a little tiny thing called the Commerce Clause in the U.S. constiution that would prevent that from happening.
Alan Goldsmith
Wed, Aug 5, 2009 : 10:08 a.m.
The State of Michigan House and Senate reps are, for the most part, bought and paid for by the Alcohol wholesalers lobbying groups. A2.com should check out the amount of donations those groups make each year, to Democrats and Republicans alike, and report on that issue. Having said that, Matt Greff is right--Michigan owned small buisness should be exempt from this increase in taxes. It only makes good financial sense to give Michigan owned brewers a break.
sottovoce
Wed, Aug 5, 2009 : 9:57 a.m.
Posters are in 3 camps: fear, pocketbook, and facts. I'll admit that I like facts about as much as I like beer. Peregrine has it right from the business perspective (also, they won't hire another FTemployee for $25k). From the consumer perspective: if you buy a 12-pack/week, that's 624 bottles/year. @$.019/bottle, that an additional $12/yr If a 12-pack now costs $7, the state will raise the price by.25%. Two points: this tax is regressive. If you buy cheap beer, your rate increase is higher...maybe a beer surcharge tax would be better than flat per bottle tax. Second, posters claim the government doesn't need more money. That's arguable. What I don't see is the outrage when the company raises the price more than.25%. Do these companies need more money? How much does the CEO of Anheuser-Busch Inbev make?
David Bardallis
Wed, Aug 5, 2009 : 9:57 a.m.
I am, of course, a beer lover, so it is perhaps no surprise that -- to understate it -- I oppose higher taxes on beer. Heck, I oppose the taxes that are already on beer. It is sad to see so many people think it's A-OK for the gang of crooks known as government to simply rob some targeted group ("don't tax me, tax him!") of more money anytime the crooks claim they "need" it. Anyone really think there's no waste in an annual budget of some $43 billion? I gotta bridge to sell you, pal. If some people genuinely think the state "needs" more money, they are free to send an extra check to Lansing right now. Leave those of us who are tired of being fleeced out of it. It's not about whether beer drinkers (or whichever class of people is being targeted) can "afford" new taxes -- it's about how much is enough for these parasites?
Patti Smith
Wed, Aug 5, 2009 : 9:48 a.m.
Why beer, specifically? Why not wine, spirits...hell, what about that $2,000 bottle of something or another I saw at Morgan and York (one of the coolest stores ever :))? Dude, if you can afford two grand for a bottle of booze that you might drop in the parking lot, you can pony up some for taxes. Oh. Excuse me. I'm certainly not advocating class war here.
Top Cat
Wed, Aug 5, 2009 : 9:36 a.m.
If this proposal passes, I would not imagine that people would drive to another state specifically to buy beer. However, what they would do for sure, is if they were out of state and returning, they would stop and load up the trunk before crossing into Michigan. People respond to incentives.
treetowncartel
Wed, Aug 5, 2009 : 9:28 a.m.
C3PO, I couldn't agree more, spend less and tax less. You see money wasted left and right. Two quick examples are old State office buildings in Detroit and Flint, they are practically empty but still operated by the state.
cp30
Wed, Aug 5, 2009 : 9:20 a.m.
why keep giving the govenment more money? if you loan a friend some dough and he spends it quickly and doesn't pay you back don't you just not loan him money again, right? perhaps the government should cut back on spending like we all have had to do! beer is good!
hunh
Wed, Aug 5, 2009 : 8:55 a.m.
my thought is the businesses won't hurt. it'll be the waitstaff/bartenders. if i'm going out, i'll still drink as many, the change left for the waitstaff/bartenders shrinks... wonderful idea there jenny.
glimmertwin
Wed, Aug 5, 2009 : 8:40 a.m.
It's not about the cost to me. What it is about is that repeatedly, government cannot get their own house in order is constantly looking for ways to nickle and dime citizens. I understand that there is a cost to live in a free, democratic society. But as an individual I cannot operate my household like government can. I just can't go out and charge my employer more on a whim because my costs go up. I must do without somethings and my family must make sacrifices. Government needs to do more of what we as citizens are forced to do.
Top Cat
Wed, Aug 5, 2009 : 7:51 a.m.
Why would we even consider giving Granholm more of our money to spend when she has stonewalled every effort to reform the gold plated benefits of her favorite constituency, public employee unions? Just say No.
MI-expatriate
Tue, Aug 4, 2009 : 10:46 p.m.
"Beer is living proof that God loves us and wants us to be happy." Benjamin Franklin While I appreciate all the comments on cost analysis, etc., etc., etc. - OK, I really don't.... What does the average working John or Jane in Michigan have to look forward to when they return from work (if they have a job) other than family, dinner, and maybe a cold beer? Or perhaps a room temperature beer if they have enough money to go for the micro-brewery variety that is specific to temperature.... Now, if the state wanted to tax every beer at the 19th hole of every golf course in Michigan, where I have seen golfers doing their thing in the snow with fluorescent golf balls, I would have no problem. They clearly have time and money to spare. Pick another target. 1.9 cents is hardly earth shattering but please - aren't there better ways to raise revenue than this?
Peregrine
Tue, Aug 4, 2009 : 9:27 p.m.
There are enough numbers here that would allow us to do some math. One beer barrel is 3,968 oz. Then there are about 331 bottles (12 oz.) in a barrel. If the tax is $0.019 per bottle, multiplying that by 331 is $6.29, which is close enough to the stated $6.30 per barrel that Duncan Williams claims. So they're paying $25,000 to the state per year in beer tax, which means they're making 3,968 barrels per year (25000 / 6.30), or 1,315,789 bottles per year. That means they're selling 3,600 bottles each day (in pint, 22 oz. or pitcher units)! Grizzly Peak's pints (16 oz) look to average around $4.25. The current beer tax for a pint would be $0.0253 (given that it's slightly larger than a 12 oz. bottle). So they're currently paying about 0.596% (note, that's not near 6%, it's near a half a percent) in beer tax. Doubling it would take it to 1.2%. It looks like their average price for a pitcher is around $14.25. I don't now if their pitchers are 48 oz. or 60 oz. If they're 48 oz. then the beer tax is currently just over a half a percent. If they're 60 oz. then the tax is two-thirds of a percent. Perhaps we can figure out one other thing -- their annual revenue from beer alone (i.e., not counting food). $25,000 is somewhere between a half percent and two-thirds percent of their beer revenue. That puts their annual beer revenue somewhere between $3,750,000 and $4,500,000 per year. And I'm guessing that their beer revenue is less than half their total revenue. But when it comes down to it, we are talking about 1.9 cents per bottle, which is, as they say, a drop in the barrel. BTW, I hope someone will have a chance to check my logic and arithmetic to make sure I didn't make any mistakes.
ross
Tue, Aug 4, 2009 : 9:04 p.m.
I'm really confused as to why the commenters are arguing for more expensive beer. I guess everyone here either isn't a beer drinker or has enough money to throw around on anything they want. Yes, this far north most people won't be making the trip regulary to the border to buy beer, but as a cash strapped student, I know that people will pool together to go to the border to buy fireworks, cigarettes, and hard alcohol because they are cheaper. it's not too much of a stretch that beer would be added to the list if the price goes up significantly. I am a homebrewer and it costs ~$45 for just the ingredients for a 5 gallon batch, which makes ~55 bottles. this amounts to a little over a dollar, and I'm not paying for the license to brew beer, or the fees and taxes associated with distributing it nor the costs of actually brewing. Until you're at the macro brewery stage, owning a brewery is an expensive endeavor and adding any more extra fees, could bankrupt several of the smaller breweries in michigan. Then what? we'll be sending more of our money to other states and canada for beer that can be bought here. the argument that people won't cross the street to save 10 cents on a gallon of gas, simply does not apply. instead of buying a craft beer from a michigan brewery, they can buy cheap crap beer brewed elsewhere in the country (or out of it for that matter) by moving to the next cooler over, which is very likely given how the economy is.
Steve Feinman
Tue, Aug 4, 2009 : 8:20 p.m.
That complaint is such nonsnese. No one is going to stop drinking beer or go out of their way to save the tax. It's a narrow minded business personon's standard retort.
brettdegroff
Tue, Aug 4, 2009 : 7:48 p.m.
I like the idea of exempting small Michigan breweries from the tax hike (or maybe the tax altogether). But, without support, the assertion that doubling this small tax would cripple Michigan breweries is absurd. How about comparing the $25,000 Greff pays in taxes to his company's revenue? Without that figure, it's pretty difficult to say what $25,000 means.
Gina Valo
Tue, Aug 4, 2009 : 7:05 p.m.
When you raise prices, you make it more expensive to go out, have dinner - totally agree, but I might be okay with a tax on beer bought in retail stores.
Jake C
Tue, Aug 4, 2009 : 6:58 p.m.
Oh, and let me add that MANY consumers won't cross the STREET to pay $0.10 less for a gallon of gasoline at a different gas station! What makes people think that consumers will drive all the way to Ohio or Indiana for the promise of fractionally cheaper beer?
Jake C
Tue, Aug 4, 2009 : 6:54 p.m.
The gas I would spend to drive to Toledo from Ann Arbor would more than offset any savings from a $0.019/bottle beer tax. I believe I would have to buy roughly 3 barrels of beer at a time across the border to make it cost-effective. If you live right on the border, then that's a different story. But a state should not set its tax policy based on a "race to the bottom" philosophy.