Costco brand Whiskey?

You’re all probably aware that big changes with liquor have taken place in this state in the last year. Chances are you were approached to sign an initiative petition at Costco or at a chain grocery store. With the passage of Initiative 1183 (I-1183), in November of 2011, Washington State was “kicked out of the liquor business.” Not unusual for corporate-backed initiatives, I-1183 racked in millions from corporate businesses that wanted the ability to sell liquor in this state. While the state will no longer have a monopoly on the sale of liquor, they will still generate monies since the liquor tax will remain.

Here’s how the whole thing came about...

Initiative 1183 was filed in May of 2011 and easily received enough signatures to be include on the November ballot. The initiative found, “that the state government monopoly on liquor distribution and liquor stores in Washington and the state government regulations that arbitrarily restrict the wholesale distribution and pricing of wine are outdated, inefficient, and costly to local taxpayers, consumers, distributors, and retailers.” The way the initiative sought to solve this was by opening up the market to businesses. By doing this, the initiative claimed that the state would generate more money and incur less costs relating to running state-managed liquor stores.

Costco was at the forefront on Initiative 1183. Its headquarters is located in Issaquah, WA, but has warehouses around the world. Its employees helped collect signatures inside their warehouses and the company donated over $22 million in favor of its passage. Costco’s donation was record setting. Obviously, Costco would generate a substantial amount of money in sales if they were granted the ablility to sell liquor in their warehouses. The PDC reports that pro-Initiative 1183 monies totaled over $20 million, while the opposition raised over $12 million.

There has been a growing trend in Washington over the last few years regarding liquor distribution reform. Washington was 1 of 18 states that still had state controlled liquor systems. In 2010, two other liquor initiatives made it to the ballot. Initiative 1100 and Initiative 1105 both abolished the state-run liquor stores, and Initiative 1105 also attempted to change the taxing structure of liquor. Costco played a large part in raising money for I-1100 as well; however, both I-1100 and I-1105 were voted down.

The Office of Financial Management (OFM) released an initiative cost breakdown (as they always do for initiatives).  OFM claimed that it would be hard to calculate the fiscal impact of the initiative because private retailers would set their own prices and be able to charge whatever they wanted. There is expected to be a one-time jump in revenue from the auctioning off of several state-owned liquor stores and distribution centers. Both local and state revenues are expected to increase every year, projecting the trend out until 2017.

Some of this extra revenue is generated through a new fee that would be imposed on liquor distributor licenses. The fee is 10%, “of total liquor revenues from March 1, 2012, to March 1, 2014; the fee decreases to 5 percent thereafter. The initiative imposes a new liquor retailer license fee of 17 percent of total liquor revenues beginning June 1, 2012.”

On November 8, 2011, the voters in Washington State passed Initiative 1183. Beginning June 01, 2012, grocery stores can begin selling liquor. By May 31, 2012, all state liquor stores must close. The state liquor board has an Initiative-1183 transition plan in place, click here to check it out.

WA tribal fuel tax agreements creates a 75/25 split in taxes.

Washington has 29 federally recognized tribes in the state and an additional 7 non-federally recognized tribes. As sovereign nations, it has always been difficult reaching an agreement on how 
the state and the tribes interact when it comes to public service and taxing. Washington State has tried to mitigate some of this confusion over fuel taxes by working with the tribes so that both the needs of Washington’s roadways and the rights of the tribes can be met.

State law allows the Governor to:

 “Enter into an agreement with any federally recognized Indian tribe located on a reservation within this state regarding motor vehicle fuel taxes included in the price of fuel delivered to a retail station wholly owned and operated by a tribe, tribal enterprise, or tribal member licensed by the tribe to operate a retail station located on reservation or trust property. The agreement may provide mutually agreeable means to address any tribal immunities or any preemption of the state motor vehicle fuel tax”

This agreement which started in 2006, credits 75% of the state fuel tax back to the tribes. The agreement makes it easier for the tribes to charge less for fuel than most non-tribal fuel stations. The tribes are required to pay 100% of the state fuel tax upfront, but afterward they are given a reimbursement for 75% of the fuel tax. The state keeps 25% of the revenue. You might remember our previous post on state fuel tax, if not; check it out to see how the taxes collected from your fuel are spent in the state.

As part of the law, the tribes must abide by laws regulating the quality of gasoline and only purchase gasoline from lawful distributors. The tribes are required to spend the proceeds they received from the fuel tax on highway purposes which includes construction, maintenance, transit, planning, and policing of the roadways. This agreement also stipulates that the fuel tax transactions can be audited and therefore must be auditable. The pricing of fuel at tribal gas stations is supposed to be comparable with the rest of the state. The Department of Licensing (DOL) oversees this agreement and is required to publish an annual report to the legislature on updates to the fuel tax agreement between the state and the tribes. DOL publishes a listing of which tribes and distributors are participating in the agreement.

The fuel tax agreement is controversial to some people. Of course the state has agreed to opt out of a large percentage of revenue.  In 2010, almost $32 million was refunded to the 22 tribes that opted into the agreement. While this may sound like a lot of money, the 25% of the tax that’s collected from the gasoline sold by the tribes, generated $7.7 million that went back into the state’s roadways.

As I mentioned earlier, the taxes refunded to the tribes must still be spent on highway purposes. Many transportation projects have benefitted from this agreement such as:  

The state is currently involved in a lawsuit with the Automotive United Trades Organization (AUTO), which is claiming that the fuel tax agreement violates the state constitution, because, the 18th Amendment of the state constitution requires that:

 All fees collected by the State of Washington as license fees for motor vehicles and all excise taxes collected by the State of Washington on the sale, distribution or use of motor vehicle fuel and all other state revenue intended to be used for highway purposes, shall be paid into the state treasury and placed in a special fund to be used exclusively for highway purposes

The claim is that because the audited information is not available to the public and is only provided to DOL, no one really knows if all the money is being spent on highway purposes. The Seattle Times reported on this issue during the 2012 legislative session, and the article touches on some legislation that was introduced regarding this issue.

Tobacco excise tax now applies to roll-your-own cigarettes

If you don’t smoke, you might not be aware of the taxes placed on cigarettes sold in this state. And if you don’t smoke, you’ve probably been out of the loop on recent discussions pertaining to taxing loose/pipe tobacco. Pipe tobacco is sold by tobacco shops for tobacco pipe users, but it is also sold in shops that offer roll-you-own packs and cartons of cigarettes. The roll-your-own cigarettes are taxed at an extremely discounted rate, thus gaining appeal with the consumer that wants to spend less on their tobacco.

A pack of 20 cigarettes is taxed $3.025 in Washington State. The tax rate previously was $2.025 but went up a dollar in 2010. We rank 5^th in the country for the amount we tax cigarettes. In addition to the state tax, cigarettes are taxed an additional $1/pack by the federal government. New York taxes the most at $4.35/pack while the least taxed cigarettes can be found in Missouri at only 17¢/pack.

This tax is paid as soon as the cigarettes are brought into Washington State. The cigarette tax is not paid directly by the consumer; rather the seller of the cigarettes has to pay the tax on each pack of cigarettes before they are sold to the consumer. That being said, the increase in cigarette taxes certainly increases the price the consumer pays for cigarettes. 

The monies collected from the state’s cigarette tax go into the state’s general fund, except for 14% that is deposited into the Education Legacy Trust Account. This account is created in the State Treasury and goes towards expanding access to higher education.

Cigarettes aren’t just subject to the state cigarette tax; they also charged sales tax (for more information check out the Department of Revenue). Depending on where you are located, the sales tax differs. If you make a purchase in Olympia, you’re going to be paying .087¢ for every dollar. See how your county compares with others.

In 2009, Congress raised taxes on roll-you-own tobacco, but some companies were able to skirt this tax by changing the way they labeled their tobacco calling it pipe tobacco instead of roll-you-own tobacco. This loophole made it so that the roll-you-own stores could continue to sell the cheaper cigarettes without having to pay the new tax. Even in 1933, state legislators contemplated a large increase in tobacco tax as a way to raise revenue. Just like present day, store owners in 1933 didn’t think this was the best way to go about raising revenue.

During the 2012 Legislative Session, Representative Kirby from Lakewood sponsored House Bill 2565, Concerning persons who operate roll-your-own cigarette machines at retail establishments. The bill would make roll-you-own cigarettes taxable at the cigarette tax rate. Those testifying to legislative committees in opposition to the bill stated it would cost the state jobs and small businesses operating roll-you-own machines would have to shut down. Proponents on the other hand felt that competition should be fair and both manufactured cigarettes and roll-your-own cigarettes should be taxed the same.

House Bill 2565 passed the legislature, and Governor Gregoire is scheduled to sign the bill into law on May 2, 2012. We’ll just have to stay tuned to see if any part of it gets vetoed!   

Regressive Taxes

A regressive tax is a tax that takes more from the lower and middle income brackets than it does from the highest income earners. Washington State’s tax structure is considered regressive for a plethora of reasons. One of the main reasons is that Washington does not have a personal income tax (which would take into consideration the amount that each individual makes), instead, Washington relies on other forms of taxation that do not take income disparities into account.

Forty-one states have an income tax structure which accounts for a majority of state funding. Washington, Nevada, Alaska, Wyoming, South Dakota, Texas, and Florida do not have a personal income tax. Not surprisingly, five of the seven states are ranked as having the most regressive taxing structures in the United States.

Personal income taxes are less regressive since the taxes are based on how much each individual makes, rather than a flat, across-the-board tax. These states derive between half and two-thirds of their tax revenue from these taxes, compared to the national average of 35%. Unfortunately, Washington comes in #1 (or last place, however you want to look at it) for having the most regressive of taxes. Washington citizens that fall within the lower and middle economic bracket pay 17.3% of their income in taxes, while the highest income earners pay merely 2.6%.

Another extremely regressive tax is the excise tax (or sales tax) because the same rate is imposed on everyone, regardless of discrepancies in income.  Washington State also relies heavily on excise tax revenue for state funding. For more information, check out these past posts on excise taxes in Washington.

Most states tend to receive the bulk of their funding support from the lower and middle income groups, leaving the highest-income earners to pay for a considerably smaller proportion.

The higher the income your household has, the less of their overall income goes towards taxes, whereas the lower income households have to pay a significantly higher proportion of their annual income in taxes. The Gates Commission report shows that a family that makes $150,000 a year pays 4.4% of that in taxes. A family that makes under $20,000 pays 15.7% of it in taxes. Not only is the lower income family clearly paying a higher percentage than the middle and upper-income bracket, but paying the taxes is so much more of a struggle for the lower income family without them being disproportionally taxed.

Continuing to tax our citizens in this manner is not sustainable. What kind of solution(s) do we need to fix this problem? What can we do as citizens to engage and initiate this kind of conversation so that we can begin to work towards a solution?

Why Washington doesn’t tax the food you buy at the grocery store.

Food for thought—Ever wonder why you do not have to pay taxes on most food you buy at the grocery store? Most food purchased for your family to eat is not taxed. This exemption comes from a 1977 initiative to the people which passed with a vote of 54%. The thought behind a tax exemption on unprepared food, like the majority of food you find at the grocery store, is that it eases the financial burden for families. It is an attempt to make Washington’s tax structure less regressive and make it easier for families to buy food for meals. The only time the tax exemption on food was lifted since 1977 was for a little over a year in 1982.

While the intent is to lessen the burden on grocery costs for families, food taxes make up a large portion of the tax base for states. By offering food tax exemptions, states take in less money, suffer large losses, and are less stable during any fluctuating economic cycles.

Washington, along with 27 other states, offers tax exemptions on groceries. Washington’s exemption does not cover every item you could potential buy at the grocery store, a general rule to follow is that it applies to unprepared foods. The exemption does not include carbonated beverages, dietary supplements, and food that is prepared by vendors (think delis, pizza, subs sandwiches etc.).
During the 2010 Legislative Session, state lawmakers passed 2ESSB 6143, sponsored by Senator Prentice who represents the 11^th District which includes parts of Renton and Tukwila. 2ESSB 6143 included multiple tax modifications, a few of which related to food and beverages. As a part of the bill, candy and gum would now be charged the state’s sales tax rate. Carbonated beverages would be temporarily taxed an additional 2 cents for every 12 ounces. This temporary tax would be in place for three years—starting in June of 2010 and going until July of 2013. A condition of this bill allowed the first $10 million in sales of carbonated beverages to be exempt from the tax. Currently, soda is charged the state’s sales tax rate.

On May 19, 2010, an initiative was filed with the Secretary of State’s Office that would repeal the candy, gum, and soda tax that became law with 2ESSB 6143. Initiative 1107 became one of the most funded initiatives in Washington State history.

According to the Public Disclosure Commission, Stop the Food & Beverage Tax Hike, the group supporting the initiative, raised and spent $16,042,628.67. This money was put towards television commercials, flyers, radio ads, etc. to urge citizens to vote for the initiative and repeal the candy, gum, and soda taxes. Out of the over $16 million that was raised, over $15 million of it was donated from the American Beverage Association. The group against the initiative, Citizens to Protect our Economic Future, raised and spent $426,828.81 which went into urging citizens to vote down the initiative. Initiative 1107 was adopted on November 2, 2010, and took effect on December 2, 2010.
Something to keep in mind is that food stamps are not charged sales tax in any state.

Have you ever thought about how your grocery shopping would change if you were charged taxes on certain items?

---

How much of your gas prices are going to Washington State in taxes?

As gas prices continue to climb, Washington’s commuters may be surprised to find out how much of each gallon they drive goes back into maintaining the roads and highways they use every day. Fuel tax information is not broken down on any type of payment receipt when you fill up your tank. Let’s take a look at how the taxes are distributed for each gallon of gas in Washington State.

The gas tax that is collected is split amongst counties, cities, and state accounts. About half of the fuel tax goes to support the Washington State Department of Transportation’s ferry system and highway programs. Any highway repairs or construction projects come from this money.



Source: WSDOT



The other half of the state fuel tax is given to cities and counties within the state. This money is put towards maintenance and construction of roadways that are not highways in the state. Either way, the fuel tax money collected from the state gets distributed directly back into Washington’s roadways.

During the second half of 2011, Washington state ranked 7^th in the nation (and the District of Columbia) for amount of state and federal fuel tax charged per gallon of gas. Washington’s current tax rate is 37.6¢/gallon. While this is higher than the national average of 27.6¢, some states like New York and Illinois charge upwards of 50¢/gallon in fuel tax. Alaska charges the least in state fuel tax at just 8¢/gallon.





Source: Citizen's Guide to the Senate Transportation Budget

 

 

All states are charged a federal fuel tax in addition to their individual state’s fuel tax. The federal rate is set at 18.4¢, which has not increased since 1993. When you add the federal fuel tax to the state’s fuel tax, Washingtonians pay 56¢ on every gallon of fuel.

The fuel tax is a regressive tax since all income levels pay the exact same in taxes. Poorer families that still have to commute to work, often traveling long distances, have to pay the same amount in taxes as the most well-off commuters who have more flexibility to move closer to their workplace. As a percentage, the less economically stable you are, the more of your income is paid in taxes when you fill up the tank. For the middle and higher classes, a smaller percentage of their overall income is paid in fuel taxes.

While prices at the pump fluctuate based on crude oil prices per barrel, the state and federal taxes you pay do not account for the bump.