OLYMPIA — State lawmakers extended a lifeline this year to small liquor stores who had struggled under the new privatization rules, but that change has also opened the door for large retailers to ask for the same break next year.
In one of the final votes taken by the Legislature before adjournment last month, lawmakers agreed to limit the fees paid by the smaller stores that used to handle liquor sales when the state controlled the market. Those outlets will no longer have to pay a 17 percent fee for sales to bars and restaurants.
Voters approved an initiative in 2011 to privatize liquor sales and dismantle Washington’s state-run liquor system, which was formed in the 1930s in the aftermath of Prohibition.
Trent House, a lobbyist working for a company that operates two of the former state-contracted liquor stores, said the initiative caused many of the small operations to lose much of their restaurant and bar business. Those clients instead have the option of buying directly from distributors and get a lower price by avoiding the markup that comes from the 17 percent fee.
“What was most important for our survival was making sure that the 17 percent came off for us,” said House, who represents Monroe-based Clearview Spirits and Wines.
Larger retailers, however, also want the same benefit. Holly Chisa, a lobbyist with the Northwest Grocery Association, said the retailers believe the state did not properly interpret the language of the liquor privatization initiative — passed by voters in 2011 — and that the 17 percent fee should not apply for such retailer-to-restaurant transactions.
Union Gap Liquor Store owner Craig Paddock, who sells to about 40 bars, said getting a break on the tax will allow him to better compete with distributors.
“It will make us more on par selling to restaurants and bars than we were before,” he said Friday. “It will make us more competitive. It won’t change the world, but it certainly will make things better.”
Ted Eaton, general manager of Good Spirits, which has several locations, including one at the Gateway Shopping Center in Yakima, agrees that the recent legislation will allow his stores to better compete for the restaurant and bar business.
He doubts, however, if the stores could match the level of restaurant and bar business that state-owned liquor stores received prior to privatization, since distributors are still likely to have better prices.
And Eaton believes that national chains like Costco still have an edge.
He would like legislators to consider a graduated rate scale for taxes on non-restaurant liquor sales to help smaller stores be on a true level playing field with Costco and other big competitors.
Providing those larger retailers with even more tax breaks would only give them an even bigger advantage, Eaton said.
“They want to turn it to where there are no competitors in the market against them,” Eaton said.
Paddock is not as worried.
If big box stores get the same break, it won’t hurt his store because it carries a larger variety, he said.
Of the roughly 40 bars he sells to, he is the sole provider to 15, he said. Because he carries a larger variety, he said he can specifically tailor orders to a bar’s or restaurant’s needs.
“If a licensee came to us, we’d have everything and anything they’d use,” he said. “But if they go to a big box store, they’re going to have to go somewhere else to get the rest of the stuff they use.”
Grocery outlets tried to get the law changed this year, but Chisa now says that they will work with lawmakers next year to get it implemented.
“We’re not giving up by any stretch,” Chisa said.
Senate Republican Leader Mark Schoesler of Ritzville said lawmakers didn’t have the votes this year to expand the measure to other retailers. He said there was a lot of sympathy for the former contract stores who needed a break, so lawmakers focused primarily on providing aid there.
Next year, Schoesler said it’s a possible that the Legislature will expand the rule, but he said budget writers may balk at the plan since it would likely impact state revenues.
“I think everybody’s just taking a wait-and-see attitude,” Schoesler said.
John Guadnola, executive director of the Association of Washington Spirits and Wine Distributors, said the group supported exempting the former contract stores from the 17 percent fee, since a lot of those people are small businesses trying to fill a niche. The group opposes the idea of eliminating the 17 percent fee for large retailers who are trying to act more like distributors.
If large retailers don’t pay the 17 percent and don’t pay the 10 percent fee paid by licensed distributors, Guadnola said those large retailers would have a significant and unfair competitive advantage.
That would make it difficult for distributors to compete in some ways. And, if restaurants and bars rely on retailers for their supply instead of distributors, it could mean less selection and variety for consumers, Guadnola said.
• Yakima Herald-Republic reporters Mai Hoang and Phil Ferolito contributed to this report.