Turzai Introduces Bill to Privatize Liquor Stores

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Rep. Mike Turzai
28th District
Pennsylvania House of Representatives
(412) 369-2230
Contact: Tricia Graham
(717) 260-6296
April 21, 2010

Turzai Introduces Legislation to Privatize Sale of Wine and Spirits
Says legislation will bring better selection, lower prices and convenience to PA residents

HARRISBURG – House Republican Whip Mike Turzai (R-Allegheny) today unveiled legislation to privatize the wholesale and retail operations of the Pennsylvania Liquor Control Board (PLCB). This plan transitions Pennsylvania from a "control state," with the Commonwealth controlling both the wholesale and retail operations of the sale of wine and spirits, to a "franchise and license state," where the Commonwealth licenses persons to operate the wholesale and retail wine and spirits businesses.

"Government should not be in the business of selling alcohol," Turzai said. "Pennsylvania has an antiquated system that results in higher prices and less selection for consumers. It is time to update the way wine and spirits are sold in this state. My legislation privatizes the wholesale and retail operations to bring greater competition which will lead to lower prices and better selection."

Pennsylvania is currently the largest purchaser of wine and spirits in the United States and is the second largest worldwide, falling behind the Liquor Control Board of Ontario. The PLCB owns and operates 621 state stores throughout the Commonwealth and is responsible for the purchase and distribution of all wine and spirits within the state.

The sale and distribution of beer will not be affected by this legislation.

Turzai’s legislation privatizes wholesale operations by auctioning off 100 wholesale distribution licenses to the highest responsible bidder. On the retail side, the proposal would auction off 750 retail store licenses and would also auction off the inventories of the current state stores. The PLCB would be required to divest itself from the retail sale of wine and spirits over a two-year period. A biennial license renewal fee and a transfer of license fee, similar to other license application and transfer fees currently in place, will be assessed by the PLCB.

It is estimated that the sale of the wholesale and retail licenses will bring in $2 billion.

Safeguards have been put into the legislation to ensure that a state monopoly isn’t replaced with a private one. On the wholesale side, no person or business may own more than 10 percent of the wholesale distribution licenses statewide. On the retail side, no person or business can own more than 10 percent of state stores statewide.

This legislation would also revise the current tax structure for wine and spirits. Currently, consumers pay a variety of taxes on the purchase of wine and spirits. Consumers pay a 30 percent markup assessed by the PLCB from the wholesale price, an 18 percent "Emergency Tax" (commonly known as the Johnstown Flood Tax) and a 6 percent sales tax on all wine and spirits. This collection of taxes makes the wine and spirits purchased in Pennsylvania one of the most tax-laden items in the nation.

Under Turzai’s legislation, the state would move to a gallonage tax, which is currently assessed on wine in 35 states and on spirits in 26 states. The gallonage tax rate would range between $2 and $6 per gallon for wine and spirits. Most wine would be assessed at the $2 per gallon rate and most spirits would be assessed at the $5 per gallon rate. Currently, restaurants, taverns and clubs pay the 6 percent sales tax when they purchase wine and spirits from the PLCB. The 6 percent sales tax will be assessed at the point of sale at those establishments.

This proposal ensures that privatizing the PLCB will not lead to a drop in annual revenues for the Commonwealth. The state will receive annual revenues from the new "gallonage tax" and the shift in the sales tax to the final point of sale on wine and spirits. The state will see new revenues from taxes that new businesses would be required to pay and will recoup revenues that are currently being lost due to Pennsylvania consumers leaving the state to purchase their wine and spirits, commonly referred to as "border bleed."

The PLCB will retain its enforcement, licensing, inspections and alcohol education authority. Additionally, the PLCB will be required to develop a training program, similar to the current Responsible Alcohol Management Program (R.A.M.P.), for all wine and spirits retail store operators and their employees. All licensed retail stores will be maintained in a separate, self-contained area dedicated solely to the sale of wine and spirits and all store employees must be 21 years of age. The stores will be required to use age identification scanners to prevent the sale of alcohol to minors. Also, as an additional safety measure, state and local police will have concurrent jurisdiction to enforce state liquor laws.

This legislation ensures a number of opportunities for PLCB employees affected by this shift in policy. PLCB employees who wish to continue being employed by the Commonwealth will be given preference in applying for other state jobs which might be vacant by receiving three extra points on their civil service test score. For PLCB employees who choose to enter the private sector, tax credits would be available to private industry for up to three years after the employee leaves the PLCB. For employees who choose to attend college or technical school, tuition assistance would be provided to help them gain new marketable skills.

The argument is often made that privatizing alcohol sales would have a negative social impact. Economics professor Dr. Antony Davies and student John Pulito at Duquesne University recently completed a study titled "Government-Run Liquor Stores: The Social Impact of Privatization." The study showed that privatization does not lead to increased DUI fatalities. In fact, the study indicates that license states actually have a lower DUI fatality rate than control states. The study also found "no statistically significant difference" in underage drinking or underage binge drinking between license and control states.

This proposal would get the Commonwealth out of the business of selling wine and spirits and would allow the PLCB to focus on enforcement, licensing, inspections and alcohol education.

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