Editorial: Lighten Prohibition-era taxes on craft liquor – The Detroit News

Craft liquor distilleries are becoming an increasingly important part of Michigan’s economy, inviting tourism and helping spur development in places it otherwise might not occur.

But local craft liquor businesses face an absurdly high federal tax on liquor, along with myriad state taxes and regulations, which discourage investments in startups, limit their growth and make it difficult to profitably operate.

State lawmakers should reform the Michigan Liquor Control Commission and its tax regime, replacing it with a simple and substantially lower rate. Michigan lawmakers in Congress should also press to lower the federal tax to stimulate the nascent industry in Michigan, and to offer an economic boost statewide.

The state has recently relaxed some regulations on breweries, and Michigan now ranks fifth in the nation in terms of the number of craft beer facilities. It should do the same for the craft distillery industry.

There are about 40 licensed distilleries throughout the state, according the newly formed Michigan Craft Distillers Association. Hubs have formed in the northern and western parts of the state, as well as in Detroit.

Many of these distillers are focused on creating uniquely Michigan products. Buying local products stimulates the state’s economy, but raises the cost of their production, especially compared to large international distillers.

“We are buying our grains from Michigan farmers, buying packaging and supplies from Detroit companies, and hiring Michigan people,” said Rifino Valentine, who owns Valentine Distilling Co. in Ferndale.

All liquor in Michigan is routed through the state in a Prohibition-era policy under which it acts as the sole wholesale buyer.

The state immediately marks up the price set by the distiller 65 percent. That revenue covers licenses and distributors, but the state’s Liquor Control Commission keeps a hefty portion, totaling $379.6 million in 2014, which is transferred to the state’s general fund.

On top of this, the state levies four additional taxes totaling another almost 14 percent, which route to various state funds.

Finally, consumers pay a 6 percent sales tax on top of these other levies.

These excessive markups force Michigan’s liquor prices substantially higher than surrounding states — ninth highest in the country, according to the Tax Foundation. Indiana ranks 42nd and Wisconsin 40th.

These high taxes result in consumers smuggling cheaper liquor across state lines, something the commission readily admits. In 2007, it estimated conservatively that the state loses $14 million a year in tax revenue from consumer importation — not counting sales tax revenue loss.

Add to state taxes the federal excise tax on liquor, which equates to a little over $2 in taxes on the average $10 bottle.

U.S. Sen. Gary Peters introduced legislation to reduce the federal tax from $13.50 per proof gallon to $2.70 per proof gallon for the first 100,000 gallons. That change would be a huge help to small local distillers.

If Michigan wants cities that draw residents and visitors, it should scrap its high and complex tax regime on local craft distilleries. Those relics of Prohibition have no place in the state’s booming and diverse industry.