NCPA - National Center for Policy Analysis

TAX-FREE LIQUOR LURES BUYERS, STIRRING CROSSBORDER TENSIONS

September 9, 2009

On Interstate 95, just past the Massachusetts border, a big red barn full of tax-free liquor has helped New Hampshire turn itself into a booze-sales machine, says the Wall Street Journal.

The barn is the highest-grossing store in a state-owned network of 78 liquor outlets that together raked in $122 million in profit for the year ended June 30.  The figure represents the biggest haul in New Hampshire since the end of Prohibition in 1933, according to the state liquor monopoly.

Amid the economic downturn, sales of hard liquor have been sluggish in most places, prompting the Distilled Spirits Council, an industry trade group, to warn that the industry is "not recession proof."  But New Hampshire outperformed the rest of the country, cashing in on its proximity to Northeastern states that tax alcohol sales, says the Journal.

Throughout American history, alcohol taxes have stirred passions, says the Journal:

  • In 1791, the fledging government imposed a liquor tax to help pay down debt from the Revolutionary War.
  • The popular discontent over the tax blossomed into a full-blown "whiskey rebellion," requiring military intervention.
  • In more recent times, liquor taxes have been employed as part of a "sin tax" assault on harmful habits. But the overriding rationale has usually been to raise state revenue.

New Hampshire has taken a different tack, betting that higher sales of alcohol would offset the absence of tax receipts:

  • Nearly half of New Hampshire's booze is sold to out-of-state customers, according to state figures.
  • Last year, New Hampshire, which derives more revenue from wine and liquor sales than any other non-tax source, had the highest per-capita sales of hard liquor in the country, a distinction the Granite State has held for years.

In a tough economy, out-of-state drinkers are even more drawn to New Hampshire's lower prices, says David Ozgo, a senior vice president at the Distilled Spirits Council.  Price differences can be steep:

  • The Hampton store recently offered one-liter bottles of Ketel One Vodka for $20.99.
  • A private liquor store in downtown Boston, meanwhile, was selling a three-quarter liter bottle of the same vodka for $27.39.

Source: Philip Shishkin, "Tax-Free Liquor Lures Buyers, Stirring Crossborder Tensions," Wall Street Journal, September 8, 2009.

 

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