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Vermont Capitol building in Montpelier
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It’s not often the Vermont statehouse, a legislative body run by progressive Democrats, passes a tax bill seen as a model to be adopted by lawmakers in other states, both red and blue. Yet that is the case after the Vermont Legislature’s May 12 passage of House Bill 730, legislation cutting the state excise tax rate for spirits-based canned cocktails, often referred to as ready-to-drink (RTD) beverages.
HB 730, which is now on Governor Phil Scott’s (R) desk awaiting his consideration, would end a tax disparity in the adult beverage market that is an issue in most states and at the federal level. Currently the federal government and most state governments assess a higher excise tax rate on spirits-based RTD beverages than on competing drinks like adult seltzers. Despite having an alcohol content similar to spirits-based RTD beverages, adult seltzers like Truly and White Claw are assessed a much lower excise tax rate simply because they are made with fermented sugar.
HB 730 reduces the state excise tax on spirits-based RTD products from $7.68/gallon to $1.10/gallon, which will provide relief to Vermonters amid the highest inflation in four decades. HB 730 would also increase consumer convenience, expanding access to spirits-based RTD products by allowing 1,030 private beer and wine retailers to sell them, something that is currently prohibited by state law.
If Governor Scott signs HB 730 into law, many Vermonters would see tax savings on their Fourth of July festivities. That’s because HB 730, if enacted, takes effect on July 1, 2022, the first day of the new fiscal year.
“Not only are Vermont spirits consumers inconvenienced by having to go to a separate store to purchase spirits-based ready-to-drink cocktails, but they also incur higher prices due to the excessive tax burden placed on these products,” said Jay Hibbard, Distilled Spirits Council of the United States Senior Vice President of State Government Relations. “There is no reason products with the same or similar alcohol content should be taxed at such wildly varying rates. Creating a more equal tax rate for spirits-based RTDs will support Vermont’s distillers, lower costs for consumers and bring in revenue for the state. We thank the Legislature for moving this measure forward and encourage Governor Scott to sign the bill.”
The introduction and passage of similar bills in other states, with support from both Democrats and Republicans, demonstrates the bipartisan appeal of the tax relief and equalization found in HB 730. After the enactment of legislation in 2021 to reduce the excise tax rate on RTD products in Nebraska and Michigan, a dozen states have considered such legislation in 2022. Arizona is poised to be the next state where lawmakers cut taxes on RTD beverages so they’re taxed at a similar rate as competing products with roughly the same alcohol content. House Bill 2627, which would accomplish this goal, is now pending in the Arizona House of Representatives, which is expected to adjourn in the next few weeks.
“These two things right next to each other are essentially the same thing but one is charged 16 cents a gallon and the other is charged $3 a gallon,” said Arizona Representative Jeff Weninger (R) of the disparity in alcohol excise taxation that he and his colleagues are trying to rectify with HB 2627.
Not everyone is on board with the goal of increasing equity in alcohol excise taxation by reducing the tax rate on spirits-based RTD products. The main opposition to such proposals comes from the makers of hard seltzers that enjoy a tax advantage simply because they’re made with fermented sugars, despite having similar alcohol content as spirits-based RTD beverages.
Tax Relief Is A More Bipartisan Affair In 2022
Vermont isn’t the only state where Democrats have passed tax cuts this year. In Kansas, for example, Governor Laura Kelly (R) recently signed legislation phasing out the sales tax on groceries over multiple years. The sales tax applied to groceries in Kansas will drop from 6.5% to 4% in 2023, fall again to 2% in 2024, and then go to zero in 2025.
Meanwhile Kelly’s Democratic counterpart in Colorado, Governor Jared Polis, recently signed into law a property tax relief package that will save Colorado families and employers $700 million over the next two years.
“Every Colorado homeowner will have their property tax rate go down,” Governor Polis said of the reform package he signed on May 16. “In addition to that, there is an even bigger property tax cut for commercial properties because commercial properties in Colorado wind up paying, somewhat unfairly, a much higher rate. That’s because of a formula that Colorado used to use that voters finally revoked, but its legacy is still there.”
The property tax relief bill enacted by Governor Polis was approved by a Democrat-led legislature, but passed with bipartisan support.
“The worst kind of taxes are property taxes where you are literally paying the government rent on something you bought that they didn’t help you pay for,” said Colorado Representative Patrick Neville (R). “So this is the worst kind of taxes and anything we can do to provide relief for these taxes, I’m on board.”
Even in California — home to the nation’s highest state income tax rate, the highest state sales tax rate, and among the highest overall tax burdens in the U.S. — leading Democrats are proposing tax relief. Governor Gavin Newsom (D), who signed a multi-billion dollar tax hike on employers in the middle the pandemic, is now proposing a tax cut.
In his revised 2022-23 budget plan released on May 13, Governor Newsom proposed a total elimination of the cultivation tax California assesses on cannabis. This proposal has won plaudits from across the ideological spectrum.
“This particular tax is unique among agricultural products in California, and due to the legislation passed in 2017 to establish tax authorities, it’s regularly adjusted for inflation,” writes Reason Magazine’s Scott Shackford. “As a result, cultivation tax rates actually increased at the start of 2022 despite this big black market problem.”
Aside from those blue state tax cuts, Democrats also supported significant income tax cuts passed in red states this year. Every Democrat in the South Carolina House and Senate voted for income tax cutting legislation this spring. Most Democrats in the Georgia legislature, meanwhile, voted for a bill signed by Governor Brian Kemp (R) in April that will reduce and flatten Georgia’s personal income tax. In Mississippi, every Democrat in the House voted to completely phase out the state income tax.
14 states enacted income tax relief in 2021. Many more have followed suit this year and there is still time left for more tax cuts to pass in 2022. Colorado residents, for example, may get a chance to complement the aforementioned property tax relief with a state income tax cut that will appear on the November ballot. The developments in state capitals in 2022, even progressive dominated ones like Montpelier and Sacramento, provide more support for the assertion that we’re in a golden age for state tax relief, a phenomenon that has recently become a more bipartisan affair.
