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Businesses unsure how higher Md. alcohol tax will affect them

July 01, 2011|By KATE S. ALEXANDER | kate.alexander@herald-mail.com
  • Dawn Lowery, sales coordinator at Dimesnsions Dining and Catering in Funkstown, fills a beer glass Thursday, the day before Maryland's 3 percent increase in alcohol sales tax takes effect. Lowery said the business spent money reprinting menus and reprogramming its computers because of the tax increase.
By Colleen McGrath/Staff Photographer

HAGERSTOWN — Local proprietors bracing for Maryland’s 3-percentage-point hike in alcohol sales tax that takes effect Friday said the impact of the legislature’s decision is still months away.

“It’s too early to tell how much this will affect businesses in Washington County,” said Lou Thomas, president of the Washington County Restaurant and Beverage Association and owner of The Yellow House in Boonsboro.

“Sure, it’s going to hurt,” he said. “Let’s face it, this is a 50 percent increase in the tax rate.”

Maryland sales and use tax on alcohol is increasing from 6 percent to 9 percent. On a $3 bottle of beer, for example, that is an additional 9 cents.

This is the first alcohol-specific tax hike in the state in 38 years, according to the Associated Press.

More than half of the projected $85 million of revenue from the increase will go to school construction funding in the state’s more populated counties and Baltimore City.

Of the revenue, $15 million is earmarked to benefit the Developmental Disabilities Administration — much less than what was proposed in the original alcohol-tax bill.

“Where will we benefit?” asked Michael Guessford, owner of Always Ron’s Restaurant and Catering in Hagerstown, about the impact on the local area. “Right, we don’t.”

Only $750,000 of the increase will come to Western Maryland to be shared by Washington, Allegany, Carroll, Garrett and Frederick counties for school construction, under the law.

For a restaurant, bar and/or catering company, the new law could require some upfront investment, Thomas said. It also could put Maryland companies at a competitive disadvantage with neighboring states that have lower alcohol tax rates, he said.

Both Pennsylvania and West Virginia have a 6 percent sales tax that applies to alcohol, according to their state websites.

Dawn Lowery, sales coordinator at Dimensions Dining & Catering in Hagerstown, said her company has invested significantly to comply with the law. It has reprinted every menu and paid to have its point-of-sale system reprogrammed, she said.

“It’s cost us money all the way around,” she said. “I’m sitting here now figuring out how we are going to do this.”

With both West Virginia and Pennsylvania a short drive away, Lowery said businesses could lose customers to out-of-state competitors, especially because of the increased tax.

However, not all purveyors of alcohol are concerned about the change.

John Holmes, owner of Antietam Spirits in Boonsboro, said he does not foresee a significant impact on his store from the tax increase.

“I don’t look for it to affect us too much,” he said. “No one wants an increase in taxes, but it’s luckily not as much as it could have been.”

Under the originally proposed alcohol-tax bill, Holmes said he was looking at increases of as much as $3 per bottle. With the approved 3 percent increase, customers will pay an additional 30 cents on a $10 bottle of liquor, he said.  

The increased tax will appear on customer bills starting Friday.

Accounting nightmare?

For a business that serves alcohol and food or nonalcoholic items, having two different sales tax rates could mean an accounting nightmare, Thomas said.

The 9 percent sales and use tax will not be calculated in the same way as the 6 percent sales tax on other goods, according to the Maryland Comptroller’s Office website.

The 6 percent tax is based on the sale price in relation to a statutory-imposed bracket, while the 9 percent tax will be a flat rate, the website said.

Under the law, if a business offers a fixed-amount meal that includes an alcoholic beverage and does not separately state the charges subject to the different rates, it must charge the higher 9 percent rate on the entire amount billed to the customer, the website said.

However, Christine Feldmann, spokeswoman for the comptroller’s office, said a business cannot choose to make it easier on itself by charging a flat 9 percent on everything.  Such a decision would result in the state taking action against it, she said.  

Businesses that accidentally charge 9 percent tax on something that should have been taxed at 6 percent must either return the excess to the customer or pay it to the state, she said.

‘Time will tell’

For customers, the increase could mean weighing the higher price of alcohol against current economic challenges tugging at their purse strings, Guessford said.

He said it is a shame that the state has not kept its operation fiscally sound and now is imposing tax increases on its hard-working citizens to balance it’s budget.

“They are being penalized because they like to drink,” he said.

Advocates of the tax say the increase will help reduce underage drinking and alcohol abuse.

While the tax increase goes into effect Friday, whether it will hurt sales, hinder business or decrease local consumption of alcohol has yet to be seen.

“Check back in three to six months,” Lowery said. “We will see what happens from here.”

“Only time will tell,” Holmes said.

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(Editor's note: The first paragraph has been edited to correct the size of the tax increase).

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