You may want to think twice before you start a business making whiskey in Washington state. That’s because Washington’s liquor taxes are the highest in the country, according to a new report out today by the nonprofit Tax Foundation.
This year the tax rate on whiskey and other liquor in Washington state is $32.50 per gallon. That's 10 times more than in California, where it's $3.30 per gallon.
As master distiller Matt Hoffman at Seattle’s Westland distillery put it, "the difference is huge.”
Wine is taxed at a much lower rate here than liquor. According to the Tax Foundation, Washington's wine tax rate was the 25th in the nation in 2017.
Hoffman said the gap in tax rates is a big problem for local spirit makers like Westland, which hopes to sell to customers in Washington state the way winemakers do.
Westland’s single-malt whiskey is made in Seattle, where it is first fermented and then moved into giant copper stills. When it’s ready, the whiskey is trucked out to a giant warehouse in Hoquiam on the Washington coast. There, it’s put into barrels and left to age for a number of years.
After that, it’s bottled and trucked across the country to a warehouse in New Jersey.
Why New Jersey? One big reason is taxes.
Back in 2016, Westland sold the business to a big liquor giant, the Rémy Cointreau Group. Their distribution network is based in New Jersey. The sale to Rémy was important to Westland's business strategy because it helps them sell to other states.
Taxes are lower in those states.
Washington has always had high liquor taxes, but when Washington state privatized liquor six years ago, the initiative was designed to make sure the state didn't lose any money.
The state hasn’t lost money. In 2017, the state ended up with $84 million more in its pocket than it did in the year before liquor was privatized. Revenues from liquor sales aren't up: The increase is due to cost savings from no longer operating state-owned liquor stores.
From New Jersey, Westland whiskey then travels back to Washington state to a warehouse down in Kent that's owned by a big distribution company called Young’s.
From Kent, the whiskey is trucked out to restaurants, bars and retailers, where a complicated formula of state fees and taxes are added, and paid by distributors, bars, restaurants, retailers, and ultimately customers.
Some of those fees are embedded in the pre-tax price. At one of the giant liquor retail stores in Seattle, the cheapest bottle of Westland is currently on sale for $55.82 (about $10 off). The after-tax retail price paid by the customer is $66.68.
Outside a big liquor store in Seattle, customers had mixed feelings about privatization. Olivia Allfrey said she likes the convenience and selection of big outlets. Before privatization, Washington had around 330 liquor stores. Now there are more than 1,500 outlets.
But customer Kevin Bourton complained about the taxes and higher prices. On average the price increased more than 15 percent on a number of items tracked by the Alcohol Research Group.
Lead researcher William Kerr said that jump in price has affected sales, which are basically flat when population growth is taken into account.
Kerr said that comes as a surprise: "We had anticipated that having five times as many stores selling liquor would result in more consumption of liquor per capita.”
This story was inspired by a question from listener Jeff Watson who wanted to know: What happened after Washington state privatized liquor around 6 years ago?
Westland Distillery has been a contributor to KUOW.