By Sen. Michael Lazzara
Shortly after leaving active service in the U.S. Marine Corps, I become a local businessman, operating multiple pizza restaurants and a sign making business. As a legislator, I care about small businessowners because they are living proof that America is the land of opportunity. Unfortunately, our tax code does not always treat them fairly. In the alcohol business, for example, there is a loophole that disproportionately benefits big, multinational liquor corporations and makes it harder for small, craft distillers to compete. It’s called the foreign liquor loophole, and it’s time we get rid of it.
The foreign liquor loophole—Section 5010 of the tax code—lowers the excise tax bill for some spirits makers. Ordinarily, spirits are taxed at $13.50 per proof gallon. Under 5010, producers who blend in wine or alcoholic flavorings can claim a credit that reduces the tax on that portion of the bottle. Of course, most local craft distillers aren’t willing to mix wine into their whiskey just to claim a tax break. But they have to compete with the bigger companies that do, and since there’s no requirement to disclose this practice on labels, the consumer has no way of knowing the difference.
Agents from the Alcohol and Tobacco Tax and Trade Bureau (TTB) have jurisdiction in the U.S. to inspect distilleries to see what is going into the bottles. The result is that a distillery in North Carolina is under more scrutiny than one located overseas, beyond the reach of the TTB. That’s not even to mention the fact that some other countries allow more additive content than we do in the U.S., putting local distillers at an even greater disadvantage.
For the craft distillers across our state, this is completely unfair. They compete on the same shelves and bar menus as imported brands, but benefit less from the current tax code.
The foreign liquor loophole will cost the United States around $219 million this year. It will add up to $2.5 billion over the next decade. The program has gone unchecked for too long, and prioritizes big global businesses over small ones. That’s exactly the kind of bad policy I’ve dedicated my career to fighting.
Repealing Section 5010 would level the playing field and stop handing out tax breaks to multinational liquor conglomerates. Local distillers who are committed to creating high quality products deserve better. I urge North Carolina’s congressional delegation to support repeal of Section 5010.
Sen. Michael Lazzara, a Republican and U.S. Marine veteran, represents Onslow County in the North Carolina Senate, where he chairs the Senate Transportation Committee.