REFUND OF DISTILLERS' PROFITS                                                           S.B. 448 (H-4):

                                                                                                    SUMMARY OF BILL

                                                                            REPORTED FROM HOUSE COMMITTEE

 

 

 

 

 

 

 

 

 

Senate Bill 448 (Substitute H-4)

Sponsor:  Senator John Proos

Senate Committee:  Regulatory Reform

House Committee:  Regulatory Reform

 

Date Completed:  12-13-16

 

CONTENT

 

The bill would amend the Michigan Liquor Control Code to require the Michigan Liquor Control Commission (MLCC) to reduce the gross markup on distilled spirits sold in Michigan from 65.0% to 64.0% in calendar year 2018, and then further reduce it by 0.5% each year until the markup reached 55.0% in 2036.  The bill specifies that a markup reduction would take effect only if the markup reduction from the prior year did not result in a decrease in State revenue during that year.

 

Beginning in calendar year 2018, the bill also would require the MLCC to pay an eligible distiller, upon its request, $15 per gallon of spirits it sold in Michigan, if the eligible distiller submitted to the MLCC its report of operations filed with the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of Treasury, for the MLCC to determine that the eligible distiller did not manufacture more than 60,000 gallons of spirits in that year.  The bill also specifies that the payment could not exceed the gross profit to the MLCC minus the 17% discount received by specially designated distributors and on-premises licensees.

 

The request for payment to an eligible distiller would have to be made not later than April 15 of each year, and the MLCC would have to remit payment to the eligible distiller by July 31.  The bill would define "eligible distiller" as a small distiller licensed under Section 534 of the Michigan Liquor Control Code, or an out-of-State entity that is the substantial equivalent of the licensed small distiller.

 

MCL 436.1233                                                                                                         

 

FISCAL IMPACT

 

In total, the bill would result in the loss of State revenue relative to what would otherwise have been collected each year, beginning in fiscal year (FY) 2017-18, and increasing each year until the bill would be fully phased-in in FY 2035-36.  The primary impact of the bill would be to reduce the amount of the Liquor Purchase Revolving Fund (LPRF) that lapses to the State General Fund each year, but other funds and taxes such as the School Aid Fund, the Convention Facility Development Fund, and the sales tax would be affected as well.  These impacts are detailed in Table 1.  For background purposes, the LPRF is the enterprise fund used by the MLCC to conduct the sale of spirits in Michigan.  Each year the profit generated by the MLCC's sales of spirits, once licensee discounts, payments to authorized distribution agents, and administrative costs are subtracted, lapses to the State General Fund.  In FY 2014-15, the lapse was about $195.7 million.

 


Revenue estimates provided in Table 1 assume that about 330,000 gallons of spirits would be eligible for the $15/gallon payment each year, which is the approximate amount estimated by the MLCC for current and pending Michigan small distillers, and does not take into account out-of-State equivalents, for which there are no data to use for an estimate.  It is also assumed that the spirits industry as a whole will grow at a rate of 2.5% per year, and that the number of gallons subject to the $15/gallon payment would increase at the same rate.  To provide some context, the industry has grown at a rate of about 3.5% per year since 1972. 

 

In total, due to the number of assumptions, limited data, and long (20-year) time frame, it is difficult to produce a precise estimate of the bill's fiscal impact.  Additionally, the estimates provided in Table 1 do not take into account the behavioral changes that would likely take place among small distillers in response to the $15/gallon payment.  To the extent that small distillers, given the payment, would be able to expand and compete with larger brands and effectively take some of their market share, the cost of those payments could increase dramatically, far beyond what this analysis takes into account.  Some of that increased cost would be offset by outright increased growth in the small distiller industry, but market share taken by small distillers from large ones would not be offset.  

 

                                                                                        Fiscal Analyst:  Josh Sefton


Table 1

Impact of Senate Bill 448 (H-4) on State Revenue

Effect of Bill on LPRF to GF/GP Lapse at Year-End

Effect of Bill on Three 4% Taxes for the Following: GF/GP, School Aid Fund, & Convention Facilities Fund[1]

Effect of Bill on Sales Tax

Total Effect of Bill on GF/GP

Total Effect of Bill on State Revenue

Fiscal Year

LPRF Lapse to GF/GP Under Current Law

LPRF Lapse to GF/GP Under SB 448

Lapse Loss Under SB 448

Sum of 4% Taxes Under Current Law

Sum of 4% Taxes Under SB 448

Loss of 4% Taxes Under SB 448

Sales Tax Under Current Law

Sales Tax Under SB 448

Sales Tax Loss Under SB 448

Sum of GF/GP Revenue Under Current Law

Sum of GF/GP Revenue Under SB 448

GF/GP Loss Under SB 448

Sum of State Government Revenue Under Current Law

Sum of State Government Revenue Under SB 448

Total State Government Revenue Loss Under SB 448

2015

195.7

195.7

0.0

147.8

147.8

0.0

82.8

82.8

0.0

245.0

245.0

0.0

426.3

426.3

0.0

2016

203.1

203.1

0.0

151.5

151.5

0.0

84.8

84.8

0.0

253.6

253.6

0.0

439.5

439.5

0.0

2017

207.2

207.2

0.0

155.3

155.3

0.0

87.0

87.0

0.0

259.0

259.0

0.0

449.5

449.5

0.0

2018

211.3

200.9

(10.4)

159.2

158.2

(1.0)

89.1

88.6

(0.5)

264.4

253.7

(10.7)

459.7

447.7

(11.9)

2019

215.6

200.2

(15.4)

163.2

161.7

(1.5)

91.4

90.5

(0.8)

270.0

254.1

(15.9)

470.1

452.4

(17.7)

2020

219.9

200.6

(19.3)

167.2

165.2

(2.0)

93.6

92.5

(1.1)

275.6

255.7

(19.9)

480.8

458.3

(22.4)

2021

224.3

200.9

(23.3)

171.4

168.8

(2.6)

96.0

94.5

(1.5)

281.4

257.2

(24.2)

491.7

464.3

(27.4)

2022

228.8

201.2

(27.6)

175.7

172.5

(3.2)

98.4

96.6

(1.8)

287.3

258.7

(28.7)

502.9

470.3

(32.6)

2023

233.3

201.3

(32.1)

180.1

176.3

(3.8)

100.8

98.7

(2.1)

293.4

260.0

(33.3)

514.3

476.2

(38.0)

2024

238.0

201.3

(36.7)

184.6

180.1

(4.5)

103.4

100.9

(2.5)

299.5

261.3

(38.2)

526.0

482.2

(43.7)

2025

242.8

201.1

(41.6)

189.2

184.0

(5.2)

106.0

103.1

(2.9)

305.8

262.5

(43.3)

537.9

488.2

(49.7)

2026

247.6

200.9

(46.7)

193.9

188.1

(5.9)

108.6

105.3

(3.3)

312.3

263.6

(48.7)

550.2

494.3

(55.9)

2027

252.6

200.5

(52.1)

198.8

192.2

(6.6)

111.3

107.6

(3.7)

318.8

264.6

(54.3)

562.7

500.3

(62.4)

2028

257.6

200.0

(57.6)

203.8

196.3

(7.4)

114.1

110.0

(4.1)

325.5

265.4

(60.1)

575.5

506.3

(69.2)

2029

262.8

199.3

(63.5)

208.8

200.6

(8.2)

117.0

112.3

(4.6)

332.4

266.2

(66.2)

588.6

512.3

(76.3)

2030

268.0

198.5

(69.5)

214.1

205.0

(9.1)

119.9

114.8

(5.1)

339.4

266.8

(72.6)

602.0

518.3

(83.7)

2031

273.4

197.5

(75.9)

219.4

209.4

(10.0)

122.9

117.3

(5.6)

346.5

267.3

(79.2)

615.7

524.3

(91.4)

2032

278.9

196.4

(82.5)

224.9

214.0

(10.9)

125.9

119.8

(6.1)

353.8

267.7

(86.1)

629.7

530.2

(99.5)

2033

284.4

195.1

(89.4)

230.5

218.7

(11.9)

129.1

122.4

(6.7)

361.3

267.9

(93.3)

644.1

536.2

(107.9)

2034

290.1

193.6

(96.6)

236.3

223.4

(12.9)

132.3

125.1

(7.2)

368.9

268.0

(100.9)

658.7

542.1

(116.7)

2035

295.9

191.9

(104.1)

242.2

228.3

(13.9)

135.6

127.8

(7.8)

376.7

268.0

(108.7)

673.8

548.0

(125.8)

2036

301.9

190.0

(111.9)

248.3

233.2

(15.0)

139.0

130.6

(8.4)

384.6

267.7

(116.9)

689.1

553.8

(135.3)

2037

307.9

193.2

(114.7)

254.5

239.0

(15.4)

142.5

133.9

(8.6)

392.7

272.9

(119.8)

704.8

566.1

(138.7)

 

This analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent.

 



[1] The Michigan Liquor Control Code assesses three simultaneous 4% taxes on the base price of each bottle of distilled spirits.  One tax is credited to the State General Fund, another is credited to the School Aid Fund, and the final one is credited to the Convention Facility Development Fund.  To conserve space, Table 1 combines the three taxes, but they are actually three separate taxes

 

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