The Mississippi Legislature is making another attempt to get the state out of the wholesale wine and spirits distribution business.
House Bill 512, authored by state Rep. Trey Lamar, R-Senatobia, would get the state out of the liquor and wine distribution business by January 1, 2023 in favor of having private wholesalers take up the job. It would also lower the excise tax on wine and spirits from 27.5 percent to 18 percent.
The tax would also be collected by the Department of Revenue’s Alcoholic Beverage Control in a different fashion. Right now, the 27.5 percent tax is assessed on each bottle sold from the Gluckstadt warehouse, but the lower rate would be assessed on wholesalers on their gross proceeds from each wholesale purchase by a retailer.
The impetus behind the change was a massive uptick in sales due to the COVID-19 pandemic that put the warehouse behind.
“The one thing we agree upon is the status quo is not the best thing and it’s not getting it done,” Lamar told the Northside Sun. “The conversations we’ve had with the Senate leadership this past year, they’re getting tired of getting phone calls of how poor the service is at the ABC warehouse. From all indications, the Senate wants to join us and get something accomplished.”
There are three ways to fix the distribution problem. One solution is to empower private business to handle it, as Lamar proposes.
“The option we passed last year was to get us out of the business and let the private sector handle the warehouse,” Lamar said. “That’s what Louisiana does, that’s what Tennessee does, that’s what Alabama does in the wine business.”
The other is to hire a contractor to run the warehouse, as Ohio and New Hampshire have done. The problem, Lamar says, is the state’s prohibition in law on contracts that last longer than four years.
“We only contract with football coaches for four years,” Lamar said.
He also said that he doesn’t see the political will to change the law for a vendor to run the liquor warehouse for a longer term than four years, which would likely suppress the number of vendors replying to a bid process. The possibility of a change-over every four years would likely create havoc to a distribution system that’s already seen plenty due to the COVID-19 pandemic.
Lastly, lawmakers could pump more money into the warehouse, something that has already been done in past sessions. The Legislature voted to spend $4 million in 2019 in warehouse improvements, but the bonds were never authorized. In 2013 and 2014, $1 million was appropriated for repairs and renovation at the warehouse. The last expansion was 2003, when a climate-controlled wine room was added.
“Throwing a bunch of money at the warehouse, you’re not really fixing the problem and that’s the government running a liquor warehouse,” Lamar said. “It’s never going to be run as good as the private sector would.”
Lamar says the cost of retrofitting and expanding the warehouse could range from $50 million to even as much as $100 million. He also said taxpayers would be in the same situation 20 years from now when equipment wears out and the warehouse needs a new infusion of cash that Lamar says could be spent on core functions of government such as K-12 education.
Last year, Lamar got a similar wholesale privatization bill through the House and a rewritten version (known in legislative parlance as a strike-all amendment) was passed in the Senate, but it died in conference when the two chambers couldn’t reach a compromise acceptable to both sides.
Before the COVID-19 pandemic, the warehouse in Gluckstadt was largely up to the task of distributing liquor and wine to retailers statewide. Then the pandemic hit, people were stuck at home due to lockdowns and alcohol purchases skyrocketed.
In March 2020, excise tax collections (an excellent metric of sales volumes) were only slightly increased compared to the year prior. In April, tax collections increased by 21.5 percent over the same time the year before. In May, a 12 percent increase was followed by a 48 percent increase in June and a 32.6 percent hike in July. The massive increase in volume forced the DOR to cease taking orders for two weeks to allow warehouse workers to catch up with demand. An outcry from retailers got ABC taking orders again.
The trend has only gotten worse. In fiscal 2021, total tax collections and profit from the warehouse were up 18.83 percent from the year before, increasing from $129.2 million to $153.5 million. While that’s good news to the state's coffers, it represents a volume that the Gluckstadt warehouse is ill-equipped to handle.
Mississippi is one of 17 states that are known as control states, where the government acts as the wholesale distributor for at least one of the three tiers of alcoholic beverages — wine, spirits and beer — and possibly acts as the retailer (like in the case of Alabama) as well.
The last state to transition from a control state to a license state was Washington. The DOR, through its ABC division, licenses retailers, collects taxes at both the wholesale and retail levels and manages a warehouse that contracts with a trucking firm to ship product to retailers statewide.