A bill currently working its way through the Virginia House of Delegates seeks to change the state-mandated markup on distilled spirits sold on site at distilleries.
SB 803, introduced by Sen. Bryce Reeves, R-Spotsylvania, passed the state Senate on Feb. 9 and is now before a House committee for its consideration.
Virginia is a control state for distilled spirits, which requires the state’s distilleries to operate as government ABC stores. This means the distilleries have to sell their products using the state-imposed markup structure while also taking on all of the operational costs for a distillery store.
If passed, SB 803 will allow Virginia distilleries to keep the markup for products sold on their sites that never move through the state fulfillment system.
“In addition to the state-imposed markup which averages 69 percent but can be as high as 93 percent, Virginia adds on a 20 percent excise tax to all distilled spirits sales,” said Amy Ciarametaro of the Virginia Distillers Association. “Because ABC doesn’t have to pay the overhead at a distillery store, they receive a higher rate of return and the distilleries receive less.”
If the bill passes, the VDA said distillers will be able to use the extra money to help grow the distillery industry within the commonwealth.
The Virginia Department of Alcoholic Beverage Control opposes SB 803 on the basis of the fiscal impact it would have on tax revenue, but has said the decision is up to the General Assembly.
Travis Hill, CEO of the Virginia ABC, said the bill would make distilleries private retailers and decrease profit transfers, which are separate from taxes, by $4 million over the next two years.
“Virginia ABC supports the continued growth of Virginia distilleries, but believes continuing to implement policies that benefit the entire industry is the better approach than putting a $4 million hole in the state budget, especially as the General Assembly seeks to find money to fund important state programs,” Hill said.
The VDA and Silverback Distillery co-owner Denver Riggleman both disagree with the ABC’s fiscal impact statement, which they said was limited to the short term to inflate the issue.
“It’s short-term thinking, plain and simple,” said Riggleman, whose Nelson County distillery is one of several in Central Virginia. “States all around Virginia are passing legislation that help distilleries expand and we’re not looking at the bigger picture.”
Riggleman, (who sought the Republican nomination for governor in 2017 before dropping out of the race), wrote SB 803. He said he thinks one of the main reasons the bill hasn’t passed in previous sessions has a lot to do with the beer and wine lobbyists.
“It’s a pay-to-play system, and beer wholesalers have a lot more money to spend,” he said. “We don’t have as much to spend, and so they’re using government to pick winners and losers.”
If SB 803 or a parity bill isn’t passed soon, Riggleman predicts more distilleries will opt to expand their operations outside of Virginia. Silverback already is expanding into Pennsylvania, which Riggleman said is because of that state’s pro-business legislation.
Silverback alone has paid about $750,000 in profit transfers “in just the three and a half years we’ve been fighting this battle,” he said. “They don’t even call it a tax; spirits are the only consumer good where the government is an active participant.”
A parity bill, HB 536 from Del. Nick Freitas, R-Culpeper, failed in the House Appropriations Committee. SB 803 currently sits in the same committee.