We have some good news and bad news for Maryland’s businesses that sell alcoholic beverages.
First, the bad: The General Assembly meeting now in Annapolis is considering increasing the already exorbitant sales tax on alcoholic beverages.
The good news? It looks as though the bill is dead in the water, at least for now.
Our question: Why is this even being considered, when the state’s restaurants, bars, craft distillers and other businesses in the hospitality industry have already been knocked down to their knees or even completely out of the ring by the coronavirus pandemic?
Fred Rosenthal, who owns Madrones restaurant on the north end of Frederick, recently told a legislative committee that the hospitality industry has been battered by the pandemic in a way Rosenthal said he has not seen in his 40 years in the business. He pleaded with them to not increase the taxes at a time like this. We totally agree.
The tax increase is included in legislation with a laudable purpose, seeking to establish “Health Equity Resource Communities” to try to address health inequities related to race or ethnicity, religion, socioeconomic status, gender and identity, age, mental health status and other factors. So far, so good.
To fund the communities, the bill would raise the alcohol sales tax from the current 9 percent to 10 percent over the next three years. Restauranteurs and economists have pointed out that the sales tax is already 50 percent higher than the sales tax on other retail items, and is higher than surrounding jurisdictions.
When the legislature is looking for more revenue, it often turns to so-called “sin taxes” on alcoholic beverages, cigarettes and other perceived bad habits. The theory is that smokers and drinkers will keep buying no matter the price.
A tax increase of just one percentage point might seem small, but Rosenthal said it can quickly add up and become noticeable for a large family going out to eat. A 10 percent tax would especially be painful for restaurants on the state’s border, where customers have the choice to dine with much lower taxes in Pennsylvania, Virginia and Delaware.
A bigger bill for dinner and drinks at a restaurant will subtly influence some customers to delay or defer their next visit.
“The burden of the tax falls on the consumers and the restaurants and bars. The consumers pay higher prices, which naturally leads them to cut back on their purchases,” wrote Michael Mandel, chief economic strategist at the Progressive Policy Institute, in an email to News-Post reporter Erika Riley. “The restaurants and bars face the double whammy of lower profit margins and less demand.”
Thankfully, the bill has already drawn opposition from several lawmakers including the powerful chair of the Senate’s Budget and Taxation committee, Sen. Guy Guzzone (D-Howard).
Guzzone told the same legislative hearing that he supported the bill’s goals, but not the alcohol tax increase.
“There will be an ongoing means of securing stable funding as we move forward,” Guzzone said of the bill. “This one senator doesn’t necessarily believe we’re going to do it through the alcohol tax, but that doesn’t mean it’s not going to happen, because it is going to happen.”
Sen. Michael Hough (R-Frederick and Carroll), the Senate’s Minority Whip, told our reporter that bills rarely pass out of committee without the chair’s support. So that’s reassuring.
But this alcohol tax hike is an idea that should be buried deep, in an unmarked grave. The hospitality industry is particularly important to our community, and it needs help and support, not another blow to an already battered business.