State hopes to cash in by closing beer tax loophole
BY WAYNE GREENE World Senior Writer
Thursday, October 13, 2011
10/13/11 at 7:11 AM
The state can bring in $5 million a year more in low-point beer taxes - without raising the tax rate - just by changing when the levy is paid, an Oklahoma Tax Commission official says.
The state has a problem with some retailers - typically on cash transactions at small convenience stores - collecting sales taxes, but not paying them to the state, said commission administrator Tony Mastin.
While the problem is true of many things sold at convenience stores, the state can actually do something about the missing beer tax money because the state alcohol regulation system effectively limits the number of low-point beer distributors in the state.
Twenty-eight licensed distributors control all the low-point beer distributed in the state. So, if state law were changed so that the tax was collected when the distributors sell to the retailers, the retailers wouldn't be able to cheat the state and the state would only have to audit a handful of companies to keep track of the situation.
Under such a plan the sales tax would be figured into the retail sticker price of beer, which would be sales tax exempt at the checkout stand.
Such a change would also mean more tax revenue for cities and counties - roughly $3.5 million a year, Mastin said.
Rep. Harold Wright, R-Weatherford, held hearings on the issue last week and says he is considering legislation that would either have beer distributors collect the sales taxes from retailers or simply combine the sales tax with the excise tax that distributors are already paying. Either way, the tax burden on beer buyers would stay the same, but there wouldn't be an opportunity for retailers to pocket the money.
"One way to maintain low tax rates is to ensure that taxes are broad-based and that everyone actually pays their share," said Wright. "Right now, the state is having trouble keeping up with the thousands of low-point beer retailers in Oklahoma; therefore, not every retailer is paying their share, leaving law-abiding retailers at a competitive disadvantage."
But the beer distributors aren't foaming with enthusiasm for the idea.
"On paper that sounds really easy, get it collected by the beer distributor. There's fewer than 30 of us, and it's an easy collection agency," said Matt Jett, chairman of the Beer Distributors of Oklahoma and owner of the franchise beer distributor for Miller and Coors products in eight central and western Oklahoma counties.
But the proposed fix could create a false perception that beer prices are going up, resulting in less revenue for the beer distributors and the state, he said.
Based on tax commission figures, Jett said moving the tax to wholesale level would mean the shelf price of low-point beer would go up about $2 a case.
While beer buyers would pay $2 less in sales taxes at the checkout stand, Jett said he is concerned beer buyers will see the higher price on the shelf and react by buying less beer or buying cheaper beer. In either case, state tax revenue actually goes down.
Another possibility is that buyers will think that the relative price of strong beer at liquor stores has gone down, when it hasn't because there is still a sales tax charged on strong beer at the cash register.
Beer distributors - who paid more than $25 million in excise taxes on low point beer in fiscal year 2011 - understand the state's problem and think everyone should pay their fair share of taxes, Jett said.
He suggests a possible alternative: an agreement by the beer distributors to cut off any retailers who aren't current on their tax payments to the state.
"If they're not paying taxes, at least you're not giving them any more product that they're not paying taxes on," he said.
Mike Thornbrugh, spokesman for QuikTrip, the largest Oklahoma-based convenience store chain, said the company wouldn't have issues with moving the tax upstream.
The company collects and remits all the taxes required by law and the state regularly audits its efforts to make sure they are accurate, he said.
"We don't want anybody - big, small or otherwise - to have a tax advantage over us," Thornbrugh said. "If they think they can raise additional money without raising taxes, and go after people who are cheating - sure, why not?"
If state tax officials think some convenience stores are cheating the state on taxes, they should audit those stores, he said.
Mastin said the state does audit cash retailers - about 130 in the past year and a half - but with some 6,000 beer retailers in the state, it's a problem that's bigger than the state's ability to deal with it.
"It's just a constant battle," Mastin said. "We have to expend a lot of resources on that. In any kind of tax system, the fewer tax remitters you have the easier it is."
Thornbrugh said the problem emphasizes the need for the state to change laws that provide for two different kinds of beer - low-point beer in retail stores and strong beer in liquor stores - with potentially two different tax streams. If the state only had one strength of beer available to adults in all retail outlets, it could have the same tax system apply to both, he said.
Original Print Headline: State might try to close beer tax gap
Wayne Greene 918-581-8308