Turzai Unveils Plan to Privatize State Liquor Stores

Legislation to privatize state liquor stores in Pennsylvania promises millions in state revenue, but whether the tax reform in the measure will benefit residents is up for debate. 

The proposal, HB 11, sponsored and introduced July 13 by House Majority Leader Mike Turzai, R-Allegheny, details a two-tiered licensing system and tax reform for the state’s 644 liquor stores, operated by the Pennsylvania Liquor Control Board, or PLCB.

Turzai said the tax reform would be revenue neutral, meaning the state would not lose revenue or impose a higher tax burden on Pennsylvanians. 

“That upfront revenue has to be used in a responsible manner and has to be part of the discussion, although it is not in the proposal of HB 11,” Turzai said. “(HB 11) is about reasonable prices, better selection and more convenience … It is about moving from a public sector dinosaur into the modern 21st century.” 

The auctioning of licenses could generate as much as $2 billion in revenue, Turzai said, but Democratic Treasurer Rob McCord has estimated $1.7 billion. Class A licenses would be issued to grocery stores and “big box” retail outlets, such as Target or Walmart. Class B licenses would be available to independent operators. 

The tax reform aspect of the measure is the gallonage tax, intended to streamline the taxes imposed on wine and spirits. Wholesale liquor suppliers would pay the tax, which is based on the amount and type of liquor, indexed to inflation after five years.

The gallonage tax would start at $8.25, with a $12 cap that would disappear after five years. In turn, the 18 percent Johnstown Flood Tax and the 30 percent price mark-up the PLCB imposes on all wine and spirits would be eliminated.

Bill Patton, spokesman for House Minority Leader Frank Dermody, D-Allegheny, called the gallonage tax one of the “highest excise taxes in the nation.” Twenty-six states impose a gallonage tax on spirits, and 35 other states impose a gallonage tax on wine.

“Most (state gallonage taxes) average about $4.50 to $5.50 per gallon,” said Patton, citing the Distilled Spirits Council of the United States. “(Turzai’s) is a very high rate. One of the selling points of the whole privatization scheme was savings for consumers--when you’re keeping the effective tax rate, there will be no savings for consumers.” 

Wendell Young, chairman of the United Food and Commercial Workers PA Wine and Spirits Council, which represents about 24,000 workers including most of the state store employees, said the state liquor stores should be strengthened, not abolished.

“Our current system works well for all Pennsylvanians,” Young said. “It should be strengthened--not ripped apart to benefit chain store retailers and the big alcohol industry looking to cash in for a quick buck. We look forward to a thorough and honest debate on this bill, and we will participate actively in the hearings that we expect will be held around the state.”

But Matthew Brouillette, president and chief executive officer of the Commonwealth Foundation, a Harrisburg-based free market think tank that is pushing for the privatization of the state stores, cheered the introduction of the legislation.

“When it comes to economic and personal freedom, the government in the booze business has been a lose business,” said Brouillette. “Citizens wouldn’t tolerate the government choosing what types of jeans or groceries they purchase and they certainly shouldn’t stand for government telling them what kind of liquor to buy.”