Representative Jon Riki Karamatsu
House Bill 1162
Relating to Liquor Tax
Tuesday, March 8, 2005
Mr. Speaker, I rise in support.
House Bill 1162 is a fairness issue for business. It will amend our liquor tax laws to make it fairer for the spirit cooler industry. Hawaii laws define each category of alcohol and tax each category accordingly.
I have noticed that a number of my colleagues have mentioned that this bill would encourage under-age drinking. First of all, underage drinking is illegal. Second, beverage companies do not promote underage drinking. Third, the spirit cooler industry only represents 0.5 percent of the beverage industry, thus the demand for consumption for spirit coolers is tiny. Fourth, even when underage drinking occurs, beer is the drink of choice. According to a study done in 2000, published in “Reducing Underage Drinking: A Collective Responsibility,” more than one-half of males and more than one-third of females drank beer.
Fifth, I disagree that a lower tax on spirit coolers would result in more underage drinkers drinking hard liquor. If I was to base my debate on purely assumptions, than I would say spirit cooler drinkers are diverse because spirit coolers such as margaritas and pina coladas tend to be drinks of choice for professionals and older adults over a nice dinner. Furthermore, there is a big difference between drinking hard liquor such as rum and tequila versus watered down pina coladas and margaritas. Again if I were to base my debate on purely assumptions, I would say many spirit cooler drinkers drink pina coladas and margaritas because they do not like the harsh taste of hard liquor but enjoy the sweet flavorings of the spirit coolers instead.
So lets stick to the real issue of whether Hawaii's liquor tax laws are fair for all liquor industries? In 1986, the Legislature enacted Act 344, which included the definition of “cooler beverage,” as (1) a wine cooler containing wine and more than fifteen percent of added natural or artificial blending material, such as fruit juices, flavors, flavorings, or adjuncts, water (plain, carbonated, or sparkling), colorings, or preservatives, and which contains less than seven percent of alcohol by volume.
Also included in the “cooler beverage” category is malt beverage cooler, which contains beer and added natural or artificial blending material such as fruit juices, flavors, flavorings, colorings, or preservatives which contains less than seven percent alcohol. Cooler beverages, which contains less than seven percent alcohol are taxed at $0.85 per wine gallon, a little more than draft beer, which contains a little less alcohol than cooler beverages and are taxed at $0.54 per wine gallon.
Currently, spirit coolers are categorized with distilled spirits, where most of the hard liquor in that category contains twenty-four percent alcohol and above and are taxed at $5.98 per wine gallon. Spirit coolers are the only alcohol in that category that contains less than seven percent alcohol.
In 1986, the Legislature did not intend to tax wine coolers in the higher wine tax rates. Likewise, this Legislative body should not tax spirit coolers at the distilled spirits tax rate.
Rather, spirit coolers are like wine coolers and malt beverage coolers because they are all watered down with juices, flavoring, or water and contain less than seven percent alcohol. Therefore, like wine coolers and malt beverage coolers, spirit coolers should be included in the cooler beverage category and be taxed at $0.84 per wine gallon.
At times, it is interesting to see how we treat some of our businesses. They get criticized for using tax credits to leverage more investors to spend in Hawaii compared to what they would have spent without the tax credits. In this case, all the spirit cooler businesses ask is for a fair tax rate.
I want to thank my colleagues on both sides of the aisle who appreciate the amount of taxes businesses bring to our state coffers and understand the challenges of running a business. Many of us believe in treating people fairly. Well, we should also treat businesses fairly. After all, they pay for a lot of our government services.
Thank you Mr. Speaker.