Proposed excise tax would whack winegrape sector

Issue Date: February 4, 2009

By Kate Campbell
Assistant Editor

Winegrape growers are sounding the alarm that balancing the state budget one drink at a time will ultimately and unfairly harm them and their family businesses.

The California Association of Winegrape Growers said it opposes the so called nickel-a-drink excise tax, because it disproportionately trickles down to the farm level and ultimately increases the cost of wine as it moves through the supply and distribution chain, making California's wine more expensive for consumers and less competitive with wines produced elsewhere.

The grape growers association said the proposed tax unfairly singles out one business sector to shoulder an unfair tax burden.

Paso Robles grape grower John Crossland, the association's chairman, said he is guardedly optimistic about the future of winegrape sales, but considers the proposed special tax on wine, beer and spirits a cloud looming on the horizon.

"The grapes I grow are in the mid-range and tend to go into wines priced between $10 and $20 a bottle," Crossland said. "That segment still seems strong in grocery and chain stores."

But, he said, the propsed nickel-a-drink tax would hurt badly.

"It sounds minor, but it equates to about a $217 a ton tax on winegrapes," he said. "History tells us that costs get passed down to the point of origin, in this case, to the grower. That $217 is just about equal to the full per-ton price paid to growers during the 2007 crop year for 50 percent of the state's crush."

He said that while the tax might sound like a harmless solution to the state's budget problems, "in reality this proposed excise tax is not only unfair, it's abusive to the wine and grape sectors."

Research from the California-based Wine Institute shows the state's wine and grape sector already pays more than $3 billion a year in state taxes and provides more than 300,000 jobs.

Analysis by Gomberg,Fredrikson & Associates, a wine sector consulting firm, shows excise taxes on wine are paid at the producer/wholesale level and then marked up as the product moves through the three-tier system.

If a winery sells a bottle to a distributor for $10, the distributor would then sell it to a retailer or restaurant for about $13. The retailer would generally price it at $20 to the consumer and the restaurant would generally price it at about $40 to a diner.

The $1.28 per gallon surcharge (based on 25.6 drinks per gallon times 5 cents) would increase the current 20 cents a gallon tax to $1.48 per gallon, a 640 percent tax hike.

In the current economic environment—with rising transportation and input costs and scarce, expensive working capital financing—farmers, wineries, distributors and retailers would not be in a position to absorb this additional cost, opponents say.

Since the proposed surcharge is a flat amount leveled equally on all wine produced and sold in the state, it also would have a proportionately higher impact on the lowest priced wines and translate into lower sales. Researchers conclude the full economic impact of the proposed nickel-a-drink tax would reduce revenue and jobs, translating to a $1.1 billion to $2 billion reduction in the wine and grape sector.

In a prepared statement, the Wine Institute said, "Wine is one of California's signature industries that should be supported and promoted by the state, not selectively targeted. Raising the excise tax on wine would cause sales to sharply decline, eliminate thousands of jobs in California, and result in winegrape acreage being pulled out of production, all of which would harm growers, vintners, consumers, state tourism and hospitality."

(Kate Campbell is an assistant editor of Ag Alert. She may be contacted at kcampbell@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item. Top