Legislation designed to put Michigan’s distillers on a more even footing with cider, beer and wine producers died on Gov. Gretchen Whitmer’s desk this week.
The bill package — which addressed issues ranging from limited self-distribution of spirits to lower excise taxes for canned cocktails — made it through the House and Senate with almost no resistance and was sent to Whitmer on Dec. 23.
Whitmer had until the end of the day Tuesday to sign the bills into law. Her failure to do so, known as a pocket veto, means that legislators will need to reintroduce the bills either together or separately in the new legislative session.
“You never get that much bipartisan support, it feels like, on any package of bills,” said Jon O’Connor, co-founder of Long Road Distillers LLC in Grand Rapids and president of the Michigan Craft Distillers Association. “We got that close — we were extremely excited and hopeful given the broad bipartisan support. It was really frustrating.”
The package of bills focused on three primary components designed to create a more favorable market for craft distillers, including:
• giving licensed retailers the ability to ship spirits to customers after acquiring them through the existing wholesale system;
• allowing spirit makers to produce canned cocktails under a winemaker's license while lowering the excise tax on canned cocktails, which is currently double that of wine; and
• self-distributing canned cocktails and limited self distribution for distilled spirits.
O’Connor said he suspects the budget hit incurred from lowering the excise tax on canned cocktails was likely what doomed the tie-barred bill package.
“The budget hit is the thing that gave the most pause to the package and we think it is the reason that it was ultimately pocket vetoed by the governor,” he said. “If Michigan is going to invest in letting the (canned cocktail) category be successful, we have to find a way to bring some parity to the excise tax rate.”
The Michigan Liquor Control Commission (MLCC) estimated the bills would have resulted in a $22.5 million revenue loss to the state based on 2018-19 fiscal year figures for sales of spirits between 10 and 21 percent ABV. Profits transferred to the state’s general fund would have been reduced by about $14.6 million.
O’Connor acknowledged a short-term budget hit but pointed to the fact that the higher taxes are a deterrent for in-state distilleries that want to enter the canned cocktail market, which is growing but also dominated by out-of-state producers.
“Given the growth trend in the category, the longer we wait to bring parity to alcohol tax, the more exacerbated the problem becomes and the less likely Michigan develops a competitive industry,” he said.
When asked about the specific package of bills, the Governor’s office issued the following statement:
“The governor let several lame duck bills expire without her signature. The reasons vary, including a failure to negotiate the bills, disagreement on the underlying policy, or the complexity of the subject matter and the need for further discussion.”
DISTILLERS STRIKE OUT IN 2020
The failed package of bills joins another piece of legislation for the industry that failed to get a hearing in front of the House Ways and Means Committee in 2020. The bill would have provided a tax reduction if distillers used Michigan agriculture to make their products.
“We were disappointed that it didn’t get through,” O’Connor said. “We had some promises from the chairman of the Ways and Means Committee — we were disappointed he didn’t follow through on that.”
Frustrations continue to percolate as the COVID-19 pandemic has rocked local distillers, whose tasting rooms remain closed because of state orders aimed at curbing the spread of COVID-19.
“After being passed by both the House and the Senate, Governor Whitmer chose to turn the bill down because it would further hurt the MLCC and only help the great beer state,” said Tom Borisch, co-owner of Kentwood-based Wise Men Distillery. “Michigan is one of the toughest and most expensive states to distribute alcohol, the government has a stranglehold on the distribution channel. Passing this bill would mean they would start to lose control.”
The winter season will also prove to be a pivotal time in the survival of the distillery small businesses.
“We’re entering the doldrums of winter — for a lot of our smaller members that aren’t in distribution who operate especially in seasonal tourist towns,” O’Connor said. “For a lot of them, if they can’t do tastings in their tasting room with current constraints, their opportunity for revenue generation is really limited.
“These bills would have been a lifeline to help bridge the gap and get to the next phase of this.”
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