Alcohol Suppliers Warn Higher Prices Possible With Liquor Control Board Reforms

A new pricing policy implemented by the Pennsylvania Liquor Control Board might force you to pay a little extra for your next bottle of Pinot Noir or Cabernet Sauvignon. 

Restaurants and wine producers are criticizing the PLCB’s new policy, which changes the way the state assesses the so-called “bottle handling fee.” It's one of four different taxes applied by the state to alcohol. The new plan will do away with the old system, in which the fee was assessed at a fixed rate depending on the size of the bottle of wine or alcohol, and will use a percentage-based system instead.

As a result, the cost of the handling fee will increase or decrease as the price of the bottle increases or decreases, instead of remaining flat. So if a producer or supplier starts charging more for a bottle of wine, the consumer will get hit by a double increase. For instance, if the handling fee of a $10 bottle of liquor is $1, the fee would be 10 percent, or $1. If the cost of the liquor increases to $11, the 20 percent fee would be $1.10. 

The PLCB approved the changes at its board meeting March 29, and the new policies will take effect in August. 

David Wojnar, vice president of the Distilled Spirits Council of the United States, an industry group, said the need for the increase was not made clear and the PLCB did not consult suppliers before implementing the new policy. He said the rate now also is disproportionate to what other states with private liquor stores require. 

“The fact remains that for a typical 750 (milliliter) bottle of distilled spirits, the $1.20 fee currently assessed is at least double the comparable handling costs incurred by private sector wholesalers,” Wojnar told the Senate Law and Justice Committee May 4. 

Increased costs for producers and suppliers will ultimately result in higher costs for consumers, said Terri Cofer Beirne, eastern counsel for the Wine Institute, a political advocacy group representing California wine producers. 

“When we’re faced with increased local taxes and fees, we have to respond and pass the cost onto consumers, unfortunately,” Beirne said. 

Joe Conti, chief executive officer of the PLCB, told the committee he was “somewhat mystified” by the concerns of the organizations because the board did not view their actions as a direct price increase. 

“(The prices) are the same. Our board did not raise prices. We converted from the dollar fee that has been in place for 19 years and we replaced it with a percentage,” said Conti. 

He said the plan was part of an overall movement to a more simplified markup strategy in the coming years. 

Depending on how suppliers raise their prices, the PLCB might pick up as much as $2 million in new annual revenues as a result of the new policy, Conti said. 

State Sen. Edwin Erickson, R-Delaware, said policy changes that create higher costs will exacerbate a problem the state is already dealing with. 

“Being from the southeast and watching people go across the Pennsylvania border into Delaware to buy liquor, that makes no sense to me,” said Erickson. 

On top of the bottle handling fee, the state assesses a 30 percent markup, the 18 percent Johnstown Flood Tax and a 6 percent sales tax on all wine and spirits. As a result, Pennsylvania’s state revenue per gallon of alcohol dwarfs that of its neighboring states. 

According to a recent report from state Treasurer Rob McCord comparing Pennsylvania with its neighbors, the Keystone State generates $99 per gallon of wine sold, which is $47 more than West Virginia, the neighboring state with the second highest total. In terms of revenue per gallon of spirits sold, Pennsylvania ($58 per gallon) is second only to Ohio ($69 per gallon), but remains well ahead of third place New York ($46 per gallon). 

The policy change is part of an overall effort by the PLCB to “modernize” its operation. The board is requesting lawmakers take action to allow flexible pricing and longer hours at the state-owned and operated stores so the PLCB can operate more like a private business. 

House Majority Leader Mike Turzai, R-Allegheny, is pushing a plan to privatize the state liquor stores by auctioning off licenses. Gov. Tom Corbett has endorsed the plan and created a commission to study the issue. 

Legislation to privatize the state system has yet to be introduced this session. 

State Sen. John Pippy, R-Allegheny, said the modernization effort being pushed by the PLCB has to continue on a parallel track to the discussions about full privatization. 

“I think we’re going to do both things in parallel,” said Pippy. “Frankly, we really can’t wait to see where (the privatization bill) is going. We need to move ahead on all the issues.” 

State Sen. Jim Ferlo, D-Allegheny, said the privatization effort lacks broad enough support in the General Assembly to succeed. 

“But that doesn’t mean that we shouldn’t seek to continue to modernize and professionalize the LCB system,” said Ferlo. 

Pippy said the committee would be setting up a working group to gather input from other stakeholders on the PLCB’s new pricing plans and their requests for other changes. One of the reforms suggested by the PLCB is a change in the 30 percent markup on all alcohol to allow the board to set markups differently for different brands, which would increase the cost of some bottles and decrease the cost of others. 

Those proposals require legislation before the PLCB could enact them.