Municipal finance

Dueling liquor initiatives: I- 1100 & I-1105

Background – Liquor board profits

Revenues from permits, licenses, and liquor store revenues are deposited into the Liquor Revolving Fund. Except for revenues from administrative fees and Class H licenses to businesses that serve hard liquor, the profits are shared according to the following formula. Boarder areas receive 0.3%. From the amount remaining, distribution is as follows:

• State 50%
• Cities 40%
• Counties 10%

Background – Liquor excise tax

The total state tax on liquor is 20.5% on hard liquor and 17.1% on strong beer on consumers. Restaurant licensees pay a 13.7% tax. The tax rates include a basic rate plus surcharges. Revenues from the basic rates of 15% for consumers and 10% for restaurants are shared 35% to cities and counties, and 65% to the state.

• State: 65% of total receipts
• Cities: 28% (80% of 35% local share); distributed based on population
• Counties: 7% (20% of 35% local share), distributed based on unincorporated population

How would the initiatives impact these distributions?

I-1100 would maintain the Liquor Excise Tax but would repeal the Liquor Profits Distribution since the system would be privatized and profits would go to the retailers.

I-1105 would remove both the Liquor Excise Tax and Liquor Profit distributions. I-1105 has intent language in Section 101(1) that the privatization of liquor sales and distribution "not result in revenue losses to state or local governments" and then more prescriptive language in Section 101(3) directing the Liquor Control Board to recommend to the Legislature "a rate of taxation that, along with other spirits-related revenue sources, would project to generate at least the same annual revenue for the state and local jurisdictions as under the current state control system…"

It should be noted that if I-1053 were to pass (see Initiatives article in this Bulletin), it would make it far more challenging to enact new or replacement tax rates on liquor sales.

What are the impacts on local government?

According to estimates in MRSC’s Budget Suggestions For 2010, the following are city distributions:

Are there other impacts on local government from these Initiatives?

I-1100 removes the funding source for enforcement and I-1105 does not provide an assured funding source for this. Coupled with the fact the approximate 300 liquor sales outlets under the current system are estimated to multiply to 5,000 or so outlets – there could be an impact on local law enforcement. AWC staff will be working with cities to better ascertain these impacts.

Is a more specific fiscal impact note being prepared?

Yes, under state law, the Office of Financial Management is required to develop a fiscal impact note detailing the way an Initiative impacts state and local governments. The fiscal note must be prepared by Aug. 10, 2010.

We will continue to provide more information to you on these initiatives as information becomes available.

B.C. and Ontario non-resident sales tax exemption – Update

As reported in our last Bulletin, beginning July 1, residents of British Columbia and Ontario became eligible for a non-resident sales tax exemption on purchases of goods in Washington for use outside the state. However, the City of Bellingham and Whatcom County filed a suit on June 30 against the Department of Revenue challenging the department’s interpretation. A Skagit County Superior Court judge issued a temporary restraining order barring the Department of Revenue from advising Washington retailers whether British Columbia residents may buy goods in Washington without paying sales tax beginning July 1. Retailers that do grant the exemption may become liable for unpaid taxes if the city and county prevail in the lawsuit.

We will continue to provide updates on this pending litigation.

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