Case against state tax commission alleges $40 million in lost
revenue
San Jose – Santa Clara County filed a lawsuit Wednesday against the state’s tax commission to encourage an increase in taxation of flavored alcoholic beverages that mimic sodas and that are increasingly popular among underage drinkers.
Because they are classified as “beer,” concoctions laced with distilled spirits such as Mike’s Hard Lemonade, Smirnoff Ice and Bacardi Silver can be purchased in retail outlets that have only a license to sell beer and wine. Additionally, they are taxed at a rate of $0.20 per gallon while distilled spirits are taxed at a rate of $3.30 per gallon.
“The county is simply asking that the (California Board of Equalization) do its duty and properly classify the alcohol,” said County Counsel Ann Ravel. “And in so doing, we are hoping to eliminate underage drinking and at the same time increase the amount of revenue the state of California is lawfully entitled to collect.”
According to the Board of Equalization, changing how flavored malt beverages are taxed would result in a decline in consumption of 4,357,000 gallons and an increase in taxes of $40 million statewide.
But a spokeswoman for the Board of Equalization said the current tax classification for flavored malt beverages – commonly called “alcopops” – as “beer” is based on federal guidelines that are also followed by the California Department of Alcoholic Beverage Control. She said changing that classification could require changing the law – or at least require the board’s elected members to change how they interpret the law.
“The Board of Equalization follows the law in the way we tax the items we tax,” spokeswoman Anita Gore said, declining to comment further.
According to the county’s lawsuit, the Board of Equalization’s attempt to “hide behind” the harmonization of state regulations with federal regulations on alcohol is unavailing because the U.S. Constitution grants the states authority over such matters.
Proponents of the lawsuit want state officials to enforce existing state laws that classify flavored malt beverages as distilled spirits.
Doing so could reduce teen drinking, said Jim Mosher, who conducts legal research on underage drinking for the Pacific Institute for Research and Evaluation.
“The goal by the distilled spirits industry was to get a bigger share of the youth market,” Mosher said. “This is very sophisticated marketing that’s putting our young people at risk.”
Mosher said the industry has been working since 1999 to flood convenience store shelves with sweet drinks marketed toward “entry-level” drinkers under the age of 21.
Studies indicate flavored malt beverages are gaining popularity with teens. A 2005 survey by the National Institute on Drug Abuse found 12.9 percent of eighth graders, 23.1 percent of 10th graders and 30.5 percent of 12th graders said they consumed “alcopops” within the last 30 days.
The flavored beverages are especially popular with girls ages 16 to 18 who drink. According the American Medical Association, the percentage of girls ages 16 to 18 who had tried alcopops – about 40 percent – nearly equals the percentage of women ages 21 and up who’ve tried them.
“A lot of girls are drinking these,” said Alex Maldonado, a 17-year-old senior at El Portal Leadership Academy in Gilroy. “They assume they’re not going to catch a buzz or get drunk … and men take advantage of them.”
The San Francisco-based law firm of Renne, Sloane and Sakai is representing the county free of cost.
