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and the state government regulations that arbitrarily restrict the wholesale distribution and pricing of wine are outdated, inefficient, and costly to local taxpayers, consumers, distributors, and retailers.”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.

Initiative 1098 take II

Click here for part I of Initiative 1098.

A hot issue in 1932, state income tax remains a volatile topic today. Initiative 1098 was the most recent major push towards implementing a graduated income tax in Washington State. The initiative was put to a vote of the people in November of 2010 and failed, but once again it sparked contentious debate about whether or not Washington State needs an income tax.

The intent behind the initiative was, “to create a new trust fund dedicated to improving education and health services and providing middle class tax relief.” Initiative 1098 proposed to:

• ·      Reduce state property tax by 20%
• ·      Do away with the B&O tax for small businesses
• ·      Tax joint income over $400,000
• ·      Tax individual income over $200,000

By increasing taxes on the wealthiest 1.2% of the state’s population, this initiative also aimed to make Washington’s taxing mechanisms less regressive (read more about WA’s regressive taxes).

William H. Gates, Sr. was the Chair of the Washington State Tax Structure Study Committee that released a report to the Legislature in November of 2002 on taxing alternatives. He was also a staunch advocate of Initiative 1098.  The Gates Commission Report, found that a graduated income tax would lessen Washington’s regressive taxes by taking some of the burden off of other regressive taxes, and the overall fairness of the tax system would improve; however, the proposals put forward in the Gates Commission Report from 2002, look vastly different than what was being presented to the voters in Initiative 1098.

The Gates Report advocated for a flat income tax plan that would replace a large portion of the state’s reliance on a sales tax. The flat income tax would also do-away with some of the property tax (Initiative 1098 did include a 20% reduction of state property tax). This type of tax plan would also make Washington’s taxes more progressive and less regressive. Bill Gates, Sr. responded to critics that suggested we should try to implement one of the tax structures put forward in the Gates Commission Report by saying:

The fact of the matter is, this is something designed to happen. Those were just models set up in a report from a committee as a way to look at how taxes could be changed in this state. It doesn't represent something that I'm wed to. I'm wed to doing something that works, and this works.

William Gates Sr.

The Office of Financial Management estimated that Initiative 1098 would bring in $11.6 billion over the next five years. Out of the monies collected, 70% would be dedicated to education purposes and placed in the Education Legacy Trust Account while the other 30% would be used solely for health services.

State Revenue Increase
Calendar Year	2012	2013	2014	2015	2016
Income Tax	$2,213,000,000	$2937,000,000	$3,025,000,000	$3,116,000,000	$3,209,000,000
Business & Occupation Tax Credit	($250,000,000)	($259,000,000)	($261,000,000)	($271,000,000)	($281,000,000)
Property Tax Relief	($383,000,000)	($393,000,000)	($403,000,000)	($414,000,000)	($425,000,000)
Total Net Revenue to Trust Fund	$1,580,000,000	$2,285,000,000	$2,361,000,000	$2,431,000,000	$2,503,000,000

Source: OFM

Not surprisingly, the initiative had supporters and strong opposition. Groups supporting Initiative 1098 donated $6,423,302 while those against contributed $6,370,002 to use towards opposing the initiative. Most of the opposition’s money came from large contributions from the Microsoft and Amazon Corporations.

Several television ads aired on both sides of the issue. You can view a couple of them below:

On November 2, 2010, the state voted on whether or not to establish a state income tax. The results were 64.15% (1,616,273 votes) against to 35.85% (903,319) votes for. San Juan County was the only county in the state where Initiative 1098 was passed by the majority of voters. Given the vote count was overwhelmingly opposed to a graduated income tax, and considering Washington’s view on income tax from a century ago, it seems as though we still are not ready to restructure our taxes.

Scott Stanzel was President George W. Bush’s media affairs spokesman and led the opposition to Initiative 1098. Less than a week after the election, Scott said:

Clearly, [Washington’s] middle-class residents understand an economic reality that eludes Mr. Gates and many other already-rich advocates of higher taxes: The absence of an income tax has been Washington’s greatest comparative advantage over its high-income tax neighbors in California and Oregon.

Perhaps Washington will see another initiative in the next few years. What do you think? Did you vote for Initiative 1098, and if you didn’t, what other ways can the state fix our taxing structure?


Curious to see if you would have been impacted by Initiative 1098? Use this handy calculator to see if you would have paid more.

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?

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