News Story

Michigan Restaurants Fear Tax Hike on Drinks

In Royal Oak, some restaurant owners are concerned that an alcohol tax under consideration could end up sending patrons outside the city limits for their night out on the town.

House Bill 5059 allows municipalities the option of putting on the ballot a 50 cent tax on alcoholic drinks sold by the glass.

Royal Oak City Commissioner Jim Rasor spoke in favor of the tax at a House tax committee hearing on Wednesday.

It has some restaurant owners worried Royal Oak officials could push for the tax and put their own restaurants and bars at a competitive disadvantage.

"People make a decision where to go if there is a drink tax in Royal Oak but not in Ferndale," said John Dempster, managing partner of Mr. B's Restaurant in Royal Oak and a board member of that city's restaurant association. "It's just not time to mess with people's businesses."

Dempster said the tax would take $1.2 million just from Royal Oak.

At a time when restaurants are still uncertain what the economic impact will be from the smoking ban, they fear the alcohol tax is yet another burden from a high-tax state.

According to the Tax Foundation, Michigan has the 10th highest tax rate on spirits in the country. Michigan is taxed $10.91 per gallon, which puts it ahead of border states Indiana ($2.68) and Ohio ($9.04).

The Distilled Spirits Council of the United States estimates that if the tax were to be approved state wide, it would reduce restaurant sales in the state by $200 million and cause 4,300 people to lose their jobs.

Andy Deloney of the Michigan Restaurant Association said the industry's sales tax revenues are down 3.3 percent in 2009 from 2008.

"That is something that doesn't happen," Deloney said. "Even in just a bad year, total statewide restaurant sales go up."

Supporters of the bill say the tax could only be approved by the voters, meaning residents would have a say in it.

"It's the will of the people in that community to decide," Andy Schor,  assistant director of state affairs for the Michigan Municipal League, told legislators.

Schor said that patrons pay a sales tax on alcoholic beverages that goes to the state. He said that the state withholds much of the revenue sharing that municipalities were hoping to get.

He said the tax would help cover the cost of police and fire coverage of restaurants.

But Jack McHugh, senior legislative analyst for the Mackinac Center for Public Policy, said municipalities need revenue to keep up with employee pay and benefits.

"Locals have given away unsustainable compensation and benefits to employees, and are desperate for new revenue to prop them up, rather than anger politically powerful public employee unions by trimming," McHugh wrote in an e-mail. "That's what this is really about, and all the talk about duties and responsibilities under one law or another is simply to distract lawmakers and taxpayers from this essential reality."

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.