Privatizing liquor stores will turn into tax hike

Published 9:34 am Saturday, November 6, 2010

by Robbie Pecht III

We appreciate Gov. Bob McDonnell’s efforts to generate much-needed funding for transportation, however, we are concerned that the current proposal to privatize Virginia’s ABC system will inadvertently result in a significant and negative impact on consumers, particularly those with lower incomes.

A highly respected and well-known university economist was recently commissioned by the Virginia Beer and Wine Wholesalers Association to conduct a serious analysis of the governor’s plan and budget assumptions. The analysis was done without changing or questioning any of the plan’s assumptions.

The analysis shows that the proposed excise tax amounts to a tax hike of 42 percent over current levels, resulting in a retail price increase of 16 percent for consumers.

Further, the plan changes the way the excise tax is collected. Currently, Virginia’s tax on liquor is based on the value of the product.

The new plan imposes a $17.50 tax on each gallon sold, which would be applied to cheaper brands as well as more expensive ones. People who buy less expensive brands, who tend to be lower income, would pay proportionally higher taxes than people who purchase more expensive distilled spirits.

The average household income in the City of Franklin in 2008 was $37,839. During the state budget fiscal year 2010, a little more than 30,000 gallons of distilled spirits were purchased at the ABC store on Armory Drive.

According to the Virginia ABC Department, $297,375 was paid from that store in state excise taxes. Under the proposed tax plan, customers at the Franklin store would have paid $525,248 in taxes, an increase of almost 77 percent.

The same calculations based on ABC purchases in Southampton County would have resulted in a 94 percent excise tax increase.

In comparison, ABC customers in Loudoun County, the wealthiest locality in Virginia with an average household income of $110,895, would have seen a tax increase of 34 percent. The second wealthiest locality, Fairfax County ($106,416 household income), would have incurred slightly less than a 33 percent excise tax hike.

Even with this significant excise tax increase, the proposed privatization plan still leaves a $47 million budget gap when compared to the present ABC system. This money currently helps pay for important state services including public education, law enforcement and mental health programs.

We believe that Gov. Bob McDonnell strives to act in the best interests of the citizens of Virginia in a fair and equitable way. Unfortunately, the proposed ABC privatization plan has the unintended consequence of another regressive tax hike.

ROBBIE PECHT III is president of Pecht Distributors, a four-generation, family-owned and operated beer distributorship in Lawrenceville, serving southern Virginia, including Franklin and Southampton County. His e-mail address is