Among the absurdities associated with this law, is the official legislative fiscal analysis, where it was anticipated that Nebraska would sell about 500 of these licenses, netting the state $250,000. It should come as no surprise to anyone, except maybe some Nebraska state Senators, that very few if any businesses will purchase such a license. I have already received one letter from Turley Vineyards stating that because of this law, they will no longer ship to Nebraska. It should be pointed out that this wine is not available anywhere in Nebraska, and the only possible way to obtain it is directly from the winery. I have now been prohibited from purchasing a perfectly legal product. I predict that the state will not make back the $10,000 it will cost to implement this new law, in other words it will sell less than 20 new licenses.
According to the statement
of intent, LB671 is about raising taxes on direct shipments of wine.
I find this highly specious. There are two taxes here, one is the
excise tax, and the other is sales tax. How much money are we talking
about? Less
than 5% of the total wine production is likely to be shipped to consumers,
because 95% of the wine is produced by 60 of the largest wineries, and
these wines are generally available. There have been estimates that
about 1% of all goods sold are shipped directly to consumers and are not
taxed, so let's assume about 2% of the total wine in Nebraska is shipped
direct to consumers. According the the Nebraska
Liquor Control Commission in 2000, there were about 1.8 million gallons
of wine sold. So if 2% were shipped directly to consumers, that would
be about 36,000 gallons of wine. The excise tax on wine is 75 cents
per gallon or about $27,000 in lost excise taxes. With a budget of
$2.5 Billion, it doesn't seem the $27,000 amounts to much to worry about.
Assuming an average price of $15 per bottle, lost sales tax is about $135,000.
Again, a trivial number when you consider that total sales
tax revenues are about $1 Billion dollars. Estimating 1% of sales
tax is lost revenue due to direct sales of products to consumers, the state
is "loosing" about $10 million dollars, which they do nothing about, but
they pass a law to attempt to collect a measly $135,000. What a waste
of time. Furthermore, as the letter from Turley vineyards pointed
out, Turley will ship to other states, including Iowa and Colorado, so
consumers will just have their wine shipped to one of those states, and
this law will have no affect in raising more revenue. It will only
make it more difficult for consumers to obtain a legal product. One
would think that the Senators could find something better to do with their
taxpayer paid time, than waste it on such trivial matters.
It has been suggested to me that the reason has to do with the small population of Nebraska, higher volume means lower prices. Why than can I buy a New York Times best seller at a number of bookstores here in Nebraska for the same price as I can in New York. With so many other products available at competitive prices we can dismiss lower volume as a reason for higher prices.
Another suggestion is that the product has to be shipped from Napa Valley to Nebraska, and that is the cause of higher prices. I can find wines in Chicago, which is farther from Napa Valley than Omaha, for prices comparable to California and significantly lower than Nebraska. So it can't be shipping costs.
The only possible answer is that the wholesalers and/or the retailers are gouging the consumers. There is significant competition for retail wine, as it is sold in grocery stores and wine shops. However, there is very little competition on the wholesale level. There are only 12 wine/liquor wholesalers for the entire state of Nebraska. With wine consumption growing, the number of wholesalers is falling, and they have a state sanctioned monopoly. It is therefore most likely that the wholesalers in Nebraska are the cause of higher prices. I have seen wines available at discounters like Sams, and these prices are lower than the retail price of the wine, but they are still significantly more expensive than can be found in other states. Again, it would seem that this is a problem with the wholesalers.
But let's take a step back and look at the problem a little differently. Why not bypass the wholesalers? Because after the passage of the 21st amendment to the US Constitution repealing prohibition, most states enacted laws requiring what is known as the 3-tier system of alcohol distribution. Wine entering the state must go to a licensed wholesaler. Retail license holders must purchase alcohol products only from a licensed wholesaler (see chapter 53 of the Nebraska liquor statutes). In this day and age of just-in-time manufacturing, our archaic alcohol laws require multiple stops along the way to the consumer, increasing cost to consumer and at what benefit?.
"The 3-tier system was established after prohibition to insure that the three levels of the alcoholic beverage industry -- manufacturer, wholesaler, and retailer, were strictly separated, with little or no cross-ownership or control among the three tiers. Its original reason for existence was the assumption that vertical integration of the industry would lead to aggressive promotion of alcohol, and thus to excessive consumption. This assumption was based on the pre-Prohibition experience of "tied houses" or taverns owned directly by breweries selling their own products to the exclusion of others, and the efforts these breweries made to maximize sales at the expense of all other considerations."It has been almost 70 years since the repeal of prohibition and things have changed. We now have legal brew-pubs, which are essentially "tied houses", and they have been around for some time now without problem. We also have mass marketing and instant communication. Who would argue that the 3-tier system prevents very large wineries, like Gallo and Mondavi, from "aggressive promotion" of their products, and increasing sales and market share?"Laws that establish and maintain a three-tier system obviously have a major effect within the industry itself, specifically having an impact on the industry's balance of power. Large manufacturers who would like to use their market power to increase market share are significantly limited in their ability to accomplish this by inducing or coercing retailers to give favorable treatment to their products. Small manufacturers, particularly of wine, also feel the limitations imposed by three-tier laws since they are shut out of a market if they are unable to find a wholesaler in it who is willing to carry their products. For the latter the existence of a wholesaling tier can work in two ways, making market access technically possible while at the same time limiting it."
While courts have upheld that states may pass liquor laws to "promote temperance", do higher prices promote temperance? If that six-pack of beer was $4 instead of $5 would you drink an extra can every night? I believe that the 3-tier system, while maybe useful 70 years ago at its creation, has outlived its usefulness and currently only serves as a huge economic drag on the consumer and does nothing to promote temperance.
I believe the problem of high prices for alcoholic beverages in Nebraska are caused by both greedy monopolistic wholesalers and state enforced inefficient 3-tier distribution. What is the solution? Change the laws. If anybody from out of the state could ship alcohol to anybody in the state without either party needing a license, I believe that would allow a free market economy to form around alcohol sales. It would also drop prices by about 30%, as that is the affect of getting rid of the middle man, the liquor wholesalers. Is it possible to get such a law passed by state senators? Dubious, as the liquor lobby is one of the strongest in the country. However, Nebraska is one of the states that has an initiative process, allowing citizens to write and enact laws when their representatives won't. This is the avenue I think could succeed, and I have written up a proposed law.
What would such a law mean to consumers? According the the Nebraska Liquor Control Commission in 2000, there were about 44 million gallons of beer, 1.8 million gallons of wine and 2 million gallons of liquor sold. Using an average of $5 a six pack for beer and $10 a bottle for wine and liquor as an estimate of average prices, total alcohol sales in 2000 amounted to about $580 million. Without the required wholesalers, prices would drop by about 30%, saving Nebraska consumers about $174 million dollars a year! With an adult population of about 1.1 million people, that is a savings of about $160 per adult per year. Imagine what that would do for the economy of Nebraska!
In summary, in alcoholic beverage control, the current and foreseeable need is to strengthen not weaken three-tier laws including:
The WSWA asserts that the 3-tier system is necessary to insure product integrity and accountability. How is it that every other product we purchase seems to have integrity and accountability without state imposed 3-tier laws? Seems to be a 70 year old issue that has no bearing in today's society.
The assertion that the 3-tier system ensures payment of state excise
taxes, through revenue protection laws and at rest laws, while true, is
of no import. Excise taxes are miniscule when compared to sales tax.
In Nebraska excise
tax revenues in 2000 were $17,492,809 and Sales tax revenues were about
$1,000,000,000 (One billion dollars). If retailers can be trusted
to collect a billion dollars in sales tax, I think they could also be trusted
to collect an additional paltry seventeen and a half million dollars in
excise tax.
