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Court Said No, But Liquor-Privatization Opponents Use Tax Claim in Ad Anyway

Article by Erik Smith. Published on Friday, September 23, 2011 EST.

Measure’s Backers Urge Stations to Pull Ad – Opposition Strategy Becomes Clear


Longview restaurant owner Alice Dietz sounds the argument against I-1183.

By Erik Smith

Staff writer/ Washington State Wire


OLYMPIA, Sept. 23.—A claim that was rejected by a Thurston County Superior Court judge is being featured in a TV campaign ad, and backers of Initiative 1183 are crying foul.

            They are demanding that TV stations yank the ad, which claims that the liquor-privatization measure will impose a “brand-new 27 percent tax.” Here’s one problem. Whatever it does, the measure doesn’t impose a tax. It is a rare case where the argument already has been tested in court. It’s not a matter of opinion anymore. A judge said no.

            “It’s not a tax,” declared Thurston County Superior Court Judge Christine Pomeroy during a court hearing June 17. “It’s a fee.”

            And while the measure imposes a new licensing fee on booze sales, it also doesn’t mean that I-1183 will jack the price of Jack by 27 percent. The measure would eliminate a state booze markup that is already twice as high, at 51.9 percent.

            “As the opposition well knows, that deceptive ad is false and is a blatant attempt to mislead voters,” said Kathryn Stenger, spokeswoman for the liquor privatization measure. “I-1183 eliminates the outlandish state markups.”


            An Argument for Conservatives


By raising the issue in their latest TV ad, it appears that opponents are aiming at the very voters who might find the initiative most appealing. I-1183 would shut down the state liquor stores through which Washington residents have been buying their booze since Prohibition. For the first time Washingtonians would be able to buy their hard liquor in supermarkets and big-box stores, as they do in most other states. The measure, backed by Costco Wholesale, restaurants and retailers, is pitched at conservative and middle-of-the-road voters who might wonder what the state is doing in the booze business in the first place.

On the other side are the state-employee labor unions, who stand to lose jobs, and liquor and wine distributors who fear that the liberalization of Washington-state alcohol-sales rules will set a national precedent that will cut into their business. You don’t really hear those arguments much in the campaign, though – they’re not the sort that sway voters.

            So in the latest TV ad, now airing on stations statewide, the opposition campaign is claiming that the measure would impose a new tax on booze. For testimony it offers up Alice Dietz, owner of The Brits, a café in Longview:

              “The big corporations behind 1183 say it increases funding for government programs. But they don’t pay for it out of their corporate profits. Instead, you and I pay with a brand-new 27 percent tax. In this economy, I’m just trying to keep my doors open for my employees and customers. The last thing we need is higher taxes. I’m voting no on 1183.”

             The impact of the argument is made clear by a Facebook posting from Chris Vance, the former state Republican Party chairman who is acting as a consultant to the no-on-1183 campaign.

“Watch our new ad,” he says. “Conservatives need to understand that 1183 includes a $400 million tax increase.”


            Replaces Existing Markup


The claim concerns a hefty license fee that would be paid by retailers and distributors under the initiative. The idea is to replace that hefty markup that is charged at the state liquor stores, so that state and local governments would continue to reap big money from booze sales.

It gets a little complex, but in most cases booze would go first to distributors. They would pay the state a 10 percent cut of sales the first two years, and then 5 percent after that. Then retailers would pay the state 17 percent.

You can add those figures together and get 22 to 27 percent. But it doesn’t mean the price of booze would go up 27 percent, because it would be replacing the existing 52 percent markup.

What it’s going to do to booze prices is really anyone’s guess. Certainly retailers will want to cover their costs, but in the free market shopkeepers get to set their own prices. They could charge more than the state already does, it’s true. But a retailer that charges more than his competition probably isn’t going to move a lot of merchandise.

  Meanwhile, state and local governments actually would make more money under the initiative than they do under the current system. According to the state Office of Financial Management they would make somewhere between $400 million and $480 million more during the first five years.


            Argument Rejected by Court


Is it a tax? Is it new? Can anyone really say how much prices would go up? And is the argument fair?

Most of the time campaign arguments are a subjective matter of opinion. But this time, the questions have already been tested in court, and the decision was a resounding no. What happened was this.

Last June the state attorney general’s office wrote a ballot title, description and summary for the measure. That’s what voters see on the ballot and in the state voters’ pamphlet. The attorney general’s office is supposed to be as neutral as possible. And as nearly always occurs in an initiative campaign, opponents filed suit, as much to put a negative spin on the wording as to delay the signature drive.

At the June 17 hearing, the tax argument was raised by Joseph Rehberger, representing the Washington Coalition Against Substance Abuse and Violence, and by Knoll Lowney, a lawyer active in progressive causes, who technically was representing a client he described as “a mother, she also works at a Safeway store.”

Both argued that the ballot description ought to say that the measure “imposes a new tax of 22 to 27 percent.”

Judge Pomeroy rejected the argument before the lawyers could even begin. The legal difference between a tax and a fee is crystal-clear, she said.

“I’m going to tell you, I don’t like the word tax,” she said. “It’s not a tax, it’s a fee. I’ve been here long enough to know that tax and fee mean two entirely different things, so you are at a disadvantage as you begin here. But I am telling you, I don’t like the word tax, because it is not a tax, people don’t like the word tax, and it is a fee. It’s a fee, it is a licensing fee, so I am going to tell you that.”

All right then, Lowney argued. Whatever the court wanted to call it, the ballot description should still use the 22 to 27 percent figure, “to get some idea of the magnitude in here.”

But Jay Geck, representing the state attorney general’s office, said that would be “misleading” to voters, because there’s no increase. “The context there is critical,” he said. “That [state markup] goes away, [and] private business gets to decide what its markup will be. Private business is now going to pay a licensing fee that reflects that they are going in and taking over a share of the state monopoly. How that affects the public when they buy a bottle of spirits or hard liquor is anybody’s guess. It is going to vary quite a bit, I would assume, across the state.”

And once lawyers finished arguing the point, the judge said she was done with it, refused to consider further argument, and moved on.


            Another Way to Win


What the no-on-1183 campaign couldn’t win in Thurston County, it is trying to win in the court of public opinion. Campaign spokesman Alex Fryer says, “The impact on a consumer’s wallet is the same if it’s a fee or a tax. It’s the government taking your money. I’m surprised they would want to argue about that. If they want to have a conversation about what 27 percent means to the public, we’re happy to have it.”

And after the no-on-1183 campaign was notified by Washington State Wire that the ad was being challenged, it went on the offensive Friday, pumping out a press release that trumpeted, “The TV Ad That Costco Doesn’t Want You to See.”

Meanwhile, the initiative’s supporters are demanding that TV stations pull the ad. The judge’s decision in Thurston County has no bearing on what television stations choose to air. But in a letter to Seattle-area broadcasters, Michael Vaska, attorney for the yes campaign, warns that they could be sued for airing ads that make false statements. Political ads for ballot measures aren’t protected, as they are in federal campaigns.

            “By making these false statements, the No-on-1183 campaign is cynically attempting to dupe voters about ‘new taxes’ to distract them from the merits of whether the state should be in the business of selling liquor. As Justice Brennan once said, ‘the use of the known lie as a tool is at once at odds with the premises of democratic government and the orderly manner in which economic, social or political change is to be effected.'”

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