WineLaw.ca

When you buy a bottle of wine in a store or restaurant in BC, your receipt will usually indicate that you paid 10% provincial sales tax and 5% GST on your purchase. Have you really paid 15% tax on your bottle of wine? Absolutely not.

It may surprise you to hear that the real tax rate on imported wine in BC is much, much higher. It varies with the price of the bottle but, for example, if you go into a BC liquor store and buy a bottle of $14 California wine, the real cost of selling that bottle to you is about $6.45 (including LDB operating costs). The remaining $7.55 goes to both levels of goverment with the vast bulk going to the BC government. If you express the part that goes to BC as a percentage of the actual cost of selling the wine, then the "real" BC sales tax rate is about 111%.

You can calculate things another way which is a bit more favourable to BC by adding in a normal profit margin to the wholesale cost of the wine: in most other North American jurisdictions, a fair retail price for that same wine should be about $7.20. At a price of $14, the real combined tax rate is about 94% with the BC sales tax approaching 90%.

But whichever way you calculate it, the taxes are extremely high: the BC government has simply hidden the taxes from you within the bottle price.

Here is the more detailed analysis on BC's wine taxes.

If you go into a BC liquor store and buy a $14 bottle of California wine, the breakdown of the retail price is as follows: wholesale cost to the LDB is about $4.80, LDB fees are 0.60, LDB markup is 6.29, federal taxes (GST, customs, excise) is 1.10 and provincial sales tax is 1.22. You can find out price breakdowns for any bottle of wine in a BC liquor store by using my BC Liquor Store wine markup calculators . 

The huge hidden taxes occur in the LDB fees and markup. Some markup is normal in any retail operation as everyone has to make a profit. However, the normal retail wine markup in North America is about 50% on top of the wholesale cost. In BC, the LDB marks up the wine way more than that (the markup on low to moderately priced imported wine is 117% plus additional fees - see the wine markup calculator for details). Some of that huge markup goes to pay the operating costs of the liquor stores (where profit would normally go) but most of it is really a tax because the LDB sends all of their extra profit directly into general revenue in Victoria.

For most wines, these fixed markups will result in wine prices that are much higher than those in other western jurisdictions. The effect is particularly noticeable at the low end of the wine market where the maximum markups are imposed. For example, at the lower end, prices in BC tend to be about double what they are in our neighbour, Washington state. As bottle price gets higher, the markups and hidden taxes actually go down. As a result, and to be fair, wine prices in BC can be competitive with those south of the border but normally only at the extreme upper end of the market ... for example, for high end French or Italian wines, those costing around $100/bottle or more!  

Theoretically, the LDB sets its own prices - there is a vague provision in the Liquor Distribution Act which refers to this. However, it seems apparent that the mark up is based directly upon how much money Victoria wants to make from the LDB. As a result, if Victoria is short of general tax revenue, it can simply direct or "persuade" the LDB to increase their markups thus increasing the profits that go into general revenue. While we have a monopoly system under the LDB, it is not solely the LDB's fault that the profit margins are excessively high - Victoria obviously expects them to make this much profit.

If the province was being honest, they should price the wine with reasonable retail prices on the shelves and then hit you with the full sales tax at the cash register. As 2010 approaches, these tax rates are embarassing to all British Columbians. Do we really want to invite the world to BC and then watch them grimace at the inflated prices of wine when they walk into a restaurant or wine store?