Alberta Increases Wine Markup/Tax

Effective April 8, 2009, the Alberta Government (through the AGLC - the Alberta liquor board) has increased the markup rates that apply to all alcohol flowing through their system. While Alberta has a privatized retail system, all product still technically flows through the government distributor which applies government markup (tax) to everything. The rate changes will increase the markup by $0.75 to $3.34 on a 750 ml bottle ($4.45 per litre). These increases are projected to add $180 million to general government revenue in the next fiscal year. The rate increases are very hefty percentage wise. Because the markup is per bottle, the impact is greatest on lower priced product and diminishes percentage wise as the bottle price increases. In addition, because the system is privatized, it remains to be seen how much of the increases will be passed on to consumers and how much will be absorbed by the retailers/distributors. See the AGLC website for details and a full markup schedule (PDF). The increases will not apply to stock currently in the system so Albertans may be wise to visit their nearest wine store quickly, particularly if they like drinking lower priced wine.

Good News, Bad News on Taxes

As is often the case, first the good news. For wineries, good news arrived as the federal government removed a 3% tarriff on barrels. This will reduce the cost to wineries for new barrels by about $30 each, a small amount but every little bit helps given the escalating cost of barrels. Read the story here: Canada Drops Wine Barrel Tariff.

Bad news for agents and wineries exporting wine to British Columbia. The BC LDB and the CRA have been reviewing the reporting process for GST which the LDB has been using for many years. Previously, the LDB reported the GST credits as the notional importer of all wine entering British Columbia. As a result, agents and wineries outside Canada did not have to register for GST. The CRA's position is that this procedure is incorrect and that from a date to be determined (perhaps October 1st) either the foreign winery will have to report the credits and register for GST or the agent will have to take possession of the wine before it arrives in Canada and do the reporting. This is obviously a huge change and will impose monumental administrative and reporting requirements on a business that runs on slim margins to begin with.

Free the Wine in the Vancouver Sun

Our companion site, Free the Wine, was featured in an op/ed piece by Mark Hicken, of and the Executive Director of the Free the Wine Coalition, "It's time to get B.C. wine regulations out of the dark ages" in the Vancouver Sun today (Thursday, March 12). If you support the objectives of wine law reform and lower taxation rates on wine, please join Free the Wine. Most importantly, do not forget to contact your MLA. Thanks for your help!

Wine Tax Hikes Make News in the USA

Proposed new or increased taxes on wine by various states are making news south of the border, and particularly in California, home of the vast bulk of the U.S. wine industry. The state of California, which is experiencing serious financial problems, is proposing hefty tax hikes on all alcohol including wine. See these stories for details: Sonoma Valley Sun and the Wine Spectator.

In previous years, similar proposed tax hikes have been defeated but the wine industry in California is concerned that the current initiative may sneak through this time due to the deteriorating financial situation of the state government. Not to diminish the seriousness of the situation for California wineries, but if you compare the proposed taxes to B.C.'s existing taxes on wine, the charges look like small potatoes. The proposed increase in California is from $0.20 a gallon to $1.48 a gallon. While that would no doubt have a serious effect on "Two Buck Chuck", it pales in comparison to B.C. tax rates which often reach $8 to 10 per gallon on a moderately priced bottle of imported wine.

In certain channels, the tax on B.C. wine is a lot less but even there, the minimum tax is 15% plus assorted fees such as the recycling fee which would still exceed the proposed California taxes. Maybe we should consider making our wine industry more competitive by reducing this disproportionate tax burden?

It's also interesting to note that the same rationale for higher alcohol taxes that is being used in California is often used here: that being that taxes on wine are "sin taxes" and thus they are permissible at a higher rate than normal. That argument doesn't wash for me. The vast majority of British Columbians moderate their wine consumption to low to moderate levels. There is, in fact, a great deal of evidence that such low to moderate consumption has overall health benefits not detriments. As a result, it is not appropriate to tax wine consumption as a sin - as in the Mediterranean countries, it should be viewed as a normal part of a healthy lifestyle. Consequently, the taxation rate on wine should be a normal rate, not an oppressively high one, as is currently the case in B.C.

U.S. Wine Shipping Restrictions Struck Down (Again)

Wine shipping restrictions contained in Massachusetts state law have been struck down by a U.S. court as being discriminatory and unconstitutional in the case of Family Winemakers of California v. Jenkins. The restrictions at issue were complex but effectively prevented 95% of wineries from shipping direct to consumers in Massachusetts. The restrictions prevented wineries from shipping if they produced more than a set annual case volume or if they had wholesaler representation in Massachusetts. The court applied the reasoning in the earlier U.S. Supreme Court decision in Granholm v. Heald. Similar challenges are pending in other U.S. states that have enacted shipping restrictions.

The U.S. courts' reasoning is interesting because similar arguments could be used in Canada, particularly against the imposition of liquor board markups as between shipments of wine between wine producing provinces such as Ontario and B.C. The basis of the legal arguments in Canada would be slightly different due to the fact that the U.S. and Canadian constitutions are different but the nature of the discrimination is similar.