Utah’s liquor markup among highest of any government-controlled agency

Utah Liquor Markup by The Salt Lake Tribune on Scribd

Discovering a $13 bottle of wine at the liquor store may sound like a deal, until Utahns realize more than $6 of the cost goes to the state.

The extra 88 percent — a combination of markup and freight— that Utah consumers pay on a single bottle of wine is the highest among all liquor-control jurisdictions in the country, according to numbers from California's Alcohol Research Group.

And Utah's drinkers could be paying a few cents more if the Legislature approves a bill being drafted by House Majority Leader Brad Wilson, R-Kaysville, and Sen. Jerry Stevenson, R-Layton.

The bill is expected to include numerous reforms to Utah's alcohol laws, but the most significant change would be the elimination of the state's "Zion Curtain" requirement, which mandates new restaurants have 7-foot-tall barriers to keep the mixing and pouring of alcoholic drinks out of the view of children. In return for tearing down the walls, the state would increase its markup 1 percent to 2 percent, with the additional money going for alcohol enforcement and prevention programs.

Consumers may not appreciate a higher markup, but Utah restaurants support the potential trade-off. "It's just a few cents more, but the money will go toward something that could actually help drop alcohol consumption, something that the Zion Curtain doesn't do," said Michele Corigliano, executive director of the Salt Lake Area Restaurant Association. "We absolutely support it."

Tight control • The ARG data compared the differences in retail prices from the 16 U.S. states — and one county — that still have government-controlled liquor operations, said William Kerr, a senior scientist and director of the group's Alcohol Research Center, which is funded by the U.S. National Institute on Alcohol Abuse and Alcoholism.

He said each liquor control entity has its own formula for earning revenues, often a confusing mix of taxes, handling fees, markups and multipliers. While all 17 reviewed have markups on spirits, only six, including Utah, control wine.

The Utah Department of Alcoholic Beverage Control formula is straightforward: an 86 percent markup, plus about 2 percent in freight costs, the ARG data show. For Utah consumers, that means a bottle of wine that costs $7.03 to produce will cost $13.22 retail.

The state gives a break to small producers — those who produce under 20,000 gallons per year — marking up their bottles only 47 percent.

Consumers in Pennsylvania pay the second-highest markup on wine at 76 percent, while New Hampshire is third with additional costs totaling 63.5 percent, data show.

In states where liquor sales are privatized, the average markup is 58 percent, said Kerr.

Utah consumers also pay an 88 percent markup on whiskey, vodka and other spirits, the sixth highest among the 17 liquor-control entities, ARC said. A spirit that costs $12.73 to produce, for example, will cost Utah consumers $23.95.

Oregon has the highest markup on spirits at 119 percent, followed by Alabama at 105 percent and Virginia at 100 percent, the research group data show.

The ARG statistics revealed one more unique Utah fact: It is the only state that still maintains full retail control of all wine and heavy beer.

Pennsylvania maintained full control of wine until 2016, when lawmakers loosened Prohibition-era regulations to allow wine to be sold in grocery stores and restaurants that already are licensed to sell beer.

In New Hampshire, Mississippi and Wyoming — as well as Montgomery County in Maryland — there is a hybrid system where "wine goes through a state warehouse, but then is sold in grocery stores and [private] liquor stores," said Kerr.

It's the same scenario for beer. Utah law requires that all brews higher than 4 percent alcohol by volume (or 3.2 by weight) be sold in state liquor stores and have a markup of 64.5 percent.

But making state-by-state comparisons is almost impossible, said Kerr, as most other states have handed control of all beer to the private sector — namely grocery and convenience stores. "There are still some control states that oversee sales of beer higher than 7 or 8 percent [ABV]," he said, "but no other state has full control over beer like Utah."

Cash cow • With the markups, it's no surprise that liquor in Utah is a moneymaker. Between July 1, 2015, and June 30, 2016, liquor sales brought in a record $405.9 million, excluding sales taxes. That's a 7.8 percent jump from 2015, when annual sales were $376.2 million.

The DABC keeps about $46.6 million, or about 11 percent of the revenues, to cover operating costs. But under Utah law, the rest of the money must be returned to the state, including about $104 million to the general fund, $40.64 million to Utah's school lunch program, more than $4 million to the State Bureau of Investigation for liquor-law enforcement efforts, and $2.19 million to an education program that works to prevent underage drinking.

The DABC also collected $21.74 million in sales taxes, which are split with cities and counties.

While revenue is the biggest reason to have liquor taxes and markups, Kerr said there is evidence that higher prices and taxes reduce the deaths and injuries caused by overconsumption of alcohol and underage drinking. "There's harm associated with alcohol use, which is a clear and strong motivation for states to have taxes and increase them," he said.

No surprise that consumers dislike the high markup and many in Utah violate state laws by crossing state lines seeking a better deal on their liquor purchases.

There are occasions, however, when Utah's set markup creates an advantage, said Terry Wood, spokesman for the DABC.

Take, for example, the yearly distribution of Pappy Van Winkle. Each year the bourbon distillery releases just 7,000 cases — with three bottles each — to liquor outlets around the country. This year, Utah's allotment was 107 bottles. With such limited distribution, the bourbon has a huge markup and sells for as much as $270 a bottle in other states, Wood said. But with Utah's set markup, consumers in the Beehive state were able to nab bottles for just $60.

Lawmakers drafting the alcohol reform measures did not indicate when they hope to introduce the bill.

kathys@sltrib.com