Too Steep to Sustain

Substance abuse tax would cripple industry

As you read this, Oregon House Bill 3296 is likely making its way through the procedural steps that would bring it up for a vote in the state legislature within the next few months. With its apt title, “The Addiction Crisis Recovery Act” admittedly carries gravitas. Addiction is very serious stuff. Crisis calls for action. And recovery bespeaks a cure. A light at the end of a long tunnel. On its face, these are all positive qualities. Things we want for our state. But the hidden costs are not taken into account.

Someone has to pay for all this good work that, if it does work as well as planned, will measurably benefit the state of Oregon. In this case, that “someone” is a specific segment of private business: the state’s alcoholic beverage industries, whose commendable efforts have attracted admiration, accolades and tourists over the course of several decades. Both the wine and beer industries have been a real plus for their state. Now they are asking Oregon to give them a fair shake in return.

House Bill 3296 would levy a tax increase, not double, triple or even quadruple, but 16 to 28 times that which is now in place, on wine, beer and (hard) cider produced or imported into Oregon. In other words, it would not be a tax increase, but a tax tsunami. The purpose of this flood of new money would be to fund a very ambitious and costly statewide program designed to provide treatment for alcohol and drug addiction.

The tax is projected to raise $335 million per year for prevention, treatment and recovery programs. Currently, of the $260 million OLCC revenues that contribute to the general fund, about $18 million goes to mental health, alcohol and drug treatment programs around the state. As proposed, the new tax would increase that amount by more than $300 million, all on the backs of the state’s beer, wine and cider industries.

By comparison, the Oregon wine industry’s 2019 gross revenue was $674 million. That’s before deducting production, operational and overhead costs or federal taxes. How the total tax projected to be raised can equal half the annual revenue of its single largest contributor is not explained.

Distilled spirits, the single largest segment of the alcoholic beverage market and most egregious contributor to alcoholism, are controlled by the State of Oregon. Within the nine-page bill, a page is devoted to a complex formula, drawing from the Consumer Price Index and retail markups articulating how the OLCC will determine an annual amount to be paid to the Recovery Act. It will be based on 2021 OLCC sales, but there’s no indication as to how much the total contribution might be.

Also, comparing what the producer would pay as opposed to what the consumer would pay if this new tax were to take effect is a false equivalency. The tax is based on volume at the front end as opposed to a percentage on the back end. In states that have a sales tax, an additional percentage could be added per bottle or case at retail, and the same or even higher percentage by the drink. The business collecting the tax would break it out (computer pre-calculated) as a part of their quarterly excise tax payments to the state, and the consumer would be paying in direct relation to individual consumption.

In Oregon, which has no sales tax, the only practical way to impose such a levy is on the licensed alcoholic beverage producer. But the winery percentage is far greater proportionately. Wholesalers, retailers, restaurants, bars, taverns and, ultimately, the consumer, all pay decreasing percentages of their gross revenue or purchase price to help offset the winery tax. In real terms, the lowest cost lies with the final user; while the greatest financial burden, by far, is placed up front on the producer.

Although a decision by the Oregon State Assembly to abandon this bill would serve the best interests of all three industries, only the wine industry’s perspective is presented here. But the thoughts of the one are implicit in considering the needs of the other. The hard cider industry, though small compared to the others, is perhaps even more vulnerable and would benefit in kind from the bill’s withdrawal.

Alcohol and drug addiction is a tragic, vexing problem for society. The Oregon wine industry is keenly aware of and concerned about the negative effects of alcohol abuse. Supporting public efforts to provide prompt, professional treatment for those in need is in all our best interests. Winery owners want to continue their assistance in that effort, but not at the risk of losing or causing considerable detriment to the viability of their own livelihoods.

Alex Sokol Blosser, president of the Oregon Winegrowers Association, said, “Almost half of the current privilege tax on wine goes toward alcohol and drug recovery programs in the state. In 2020, COVID-19 and smoke taint set the industry back to the point where it will take another year or two just to recover. The proposed increase of 1,600% ($60 per gallon) would have disastrous consequences for all our operations.”

More than producers of any other alcoholic beverage, wineries go to great lengths to stress moderation. Restrained consumption for positive social interaction and enjoyment is the objective. Intoxication is not. Having transportation or a designated driver when visiting tasting rooms and wineries, or events where wine will be served or featured, is always stressed and encouraged.

Wine’s greatest asset is being the ideal companion for food. Over the centuries, it has become universally known and appreciated as the perfect beverage to complement any dining occasion, evoking interest and enhancing pleasure in the process. The industry emphasizes these attributes at every opportunity, creating a positive public image transforming wine from simply another social libation into a fascinating and congenial topic of conversation.

This side of wine should be understood, if not appreciated, even by non-drinkers who view food as more than mere sustenance. If they’re fair-minded, it will be evident to them that the socializing cement of alcoholic beverages, wine, in particular, is not about to disappear.

The reality of the tax legislation at hand must be addressed in more depth to fully appreciate the negative implications it portends for industries that have brought constructive stimulus and prestige to the state for nearly half a century.

For all these reasons and more, Oregon Wine Press asks the Oregon State Assembly to take this bill off the table and, in consultation with the industries involved, work toward a more balanced solution. Such a gesture would be welcomed and the merits given thoughtful consideration by all concerned, almost certainly resulting in statewide support, agreement and cooperation.

KARL KLOOSTER is the retired associate editor of Oregon Wine Press. He began working in the industry and writing about wine in the early 1970s. He is currently writing “GRAPE OREGON: Six Decades of Distinction,” a comprehensive history of the Oregon wine industry; the book is scheduled to be released this November. Connect with Karl at ktklooster@comcast.net.