Cigars Would Be Cigarettes; Hard Lemonade a Distilled Spirit

Published April 1, 2008

To raise more revenue, New York Gov. Eliot Spitzer (D) proposes redefining little cigars as cigarettes and “hard” lemonade and other flavored alcohol drinks as liquor instead of beer.

Spitzer apparently is following the lead of California, where the State Board of Equalization has upheld a ruling that redefines flavored malt beverages, such as Smirnoff Ice, as distilled spirits. Such drinks, typically with an alcohol content of about 5.5 percent, have been considered equivalent to beers.

If approved by the governor’s Office of Administration, the tax on flavored malt beverages in California would go from 20 cents to $3.30 a gallon, an increase of 1,550 percent.

In New York, such a reclassification would also result in a steep tax increase, although the measure’s complexity has made it difficult to project its final impact.

Reclassifying small cigars as cigarettes would raise that tax from 40 percent of the wholesale price to $1.50 per pack in New York State or $3.00 per pack in New York City. On average, in New York State the tax would increase from $8.00 per carton to $15.00 per carton, and from $8.00 per carton to $30.00 per carton in New York City.

Businesses Concerned

“Once again government leaders are not understanding an industry or business and throwing the baby out with the bath water,” said Joel Sherman, president of Nat Sherman, Inc., a New York-based purveyor of premium tobacco products and accessories with an international reach. “They just slap a tax on tobacco products and treat us all the same.”

At Diageo, an international firm whose beer, wine, and spirits brands include Smirnoff, Johnnie Walker, Guinness, Baileys, J&B, Captain Morgan, Cuervo, Tanqueray, Beaulieu Vineyard, and Sterling Vineyards, executives are watching the push to reclassify certain beverages with concern, said Gary Galanis, vice president of corporation relations.

Same as Beer

“They are the same as beer, basically, just flavored,” Galanis said. “They’ve been around about 40 to 45 years. There lately have been attempts by various organizations and elected officials who are using the underage drinking issue to drive tax increases on these flavored beers.

“This penalizes responsible adult consumers and does absolutely nothing to lessen the issue of underage drinking,” Galanis said. “It looks great in press releases, but this will do nothing to raise revenue for states, considering these beverages are such a small portion of the market.”

Galanis said flavored malt beverages make up about 3 percent of the beer market. He also pointed out many sellers have licenses to sell beer or wine but not hard liquor. If the drinks are reclassified as proposed, they will be pulled from thousands of store shelves, resulting in no tax revenue.

Steve Stanek