Spirits-based products hit by excessive federal levies
SPIRITS SALES
Walk into any store that sells beer in New Hampshire, and you’ll see a wide variety of ready-to-drink (RTD) alcohol products. From hard seltzers to wine spritzers to canned cocktails, these products have become hugely popular among adult consumers due to the wide range of flavors and ease of portability.
As a producer of canned cocktails made with distilled spirits, I often get asked why spirits-based RTDs generally cost more than other types of RTDs, like seltzers and spritzers. The answer is frustratingly simple. Spirits-based RTDs are taxed at a much higher rate than their malt and wine counterparts, even if they have the same amount of alcohol.
This excessive taxation unfairly burdens consumers and businesses like mine due to archaic laws that didn’t take into account that one day a spirit would be sold in a format (enter canned cocktails) at the same proof as a beer. The fact is, this booming and rather new RTD category is blurring the lines between traditional beer, wine and spirits products, and the federal tax laws simply have not kept pace.
At the state level in New Hampshire, our Fabrizia canned cocktails are rightfully taxed like beer and sit on shelves alongside other malt-based RTDs, which has helped us gain access to new consumers and grow our business. However, the same is not true at the federal level, where the federal excise tax on spirits-based RTD products is more than two times the tax rate on malt-based RTD products at 5 percent alcohol-by-volume (ABV), regardless of similar alcohol contents.
For our business, the result is that a four pack of Fabrizia canned cocktails cost about the same as a six pack of hard seltzer. This price hike is not lost on the consumer.
In fact, this discriminatory taxation on spirits-based products has made it harder for Fabrizia and other spirits producers to compete against beer producers in the ready-to-drink space, and it’s time for our representatives in Washington to take a closer look at this issue.
The ability to turn a passion into a successful business is what makes this country special. But to remain successful, you need to stay connected to your consumer and be able to adapt to their changing tastes and preferences.
Take our small business, for example.
What began with the seed of an idea and peeling lemons in my parents’ garage more than 13 years ago, has turned into Fabrizia Spirits, the leading producer of limoncello in the United States.
In 2018, we launched our first canned cocktail and the decision to enter into the popular RTD space has transformed our business. Based on the success of these products, we have been able to increase our staff from four employees to 22.
Over time, we grew our canned cocktail business, from as far south as Miami all the way to Michigan. Our hope is to continue to expand our RTD products into every state in the nation, but our growth has been stunted compared to what it could be, due to the excessive federal tax burden.
Our Fabrizia canned Italian Margarita made with real spirits contains less alcohol than the popular margarita-flavored maltbased versions, yet the federal excise tax rate is higher. Not only does this unfair tax structure make no sense, it is creating an uneven playing field for RTD producers. And that’s not right.
It’s time for Congress to take action and right this wrong by making a more equitable tax structure for spirits-based RTD products. During these uncertain times, fair taxation is something we can all toast to.
Phil Mastroianni is co-owner and founder of Salembased Fabrizia Spirits.
