Liquor bills look like an unfair tax break for Costco

About 31/2 years ago retailing behemoth Costco spent about $20 million to sell an initiative to Washington voters to privatize liquor sales. The passage of Initiative 1183 broke state government’s liquor monopoly, raised state tax revenues, and appeared to give the company everything it could want.

But Costco and its allies apparently aren’t satisfied. For the second time since 2013, legislation that would benefit the Issaquah-based company and others in the grocery and restaurant industries is circulating at the Legislature. Restaurants and grocers are backing bills that erase a 17 percent distributors’ fee on liquor sold to restaurants by retailers such as Costco that act as unlicensed distributors.

Senate Bill 5301 and House Bill 1343 are being presented as proposals to help out ailing restaurants that say they cannot get quick enough deliveries of alcohol on short notice when their supplies run out.

But the real effect is to create a loophole that Costco and its lawyers had intentionally closed by requiring the 17 percent fee in I-1183 – part of a political strategy to win over voters. That strategy emerged after voters shot down a previous Costco-backed initiative that offered less revenue for the state.

This tax break – which initially might cost the state a modest $585,000 over two years – would not promote competition, which the initiative was supposed to encourage. Rather it would let Costco and other grocers act as de facto liquor distributors, siphoning business from licensed distributors with a price advantage built on tax avoidance.

The state’s two major liquor distributors have been paying licensing and seller fees since 2012. Including a one-time payment and tariffs on actual liquor sales, this has totaled about $150 million, according to John Guadnola of the Association of Washington Spirits and Wine Distributors.

We understand that the Washington Restaurant Association wants to secure a price break for its members by going to Costco, which doesn't have to pay the same regulatory fees that licensed distributors do.

We’ve heard the unconvincing argument that restaurants and bars cannot get small and timely deliveries of liquor from the distributors.

Young’s Market and Southern Wine and Spirits, the two big distributors that now pay a 5 percent fee are playing by the rules. If Costco or Safeway or a subsidiary of any large grocery chain wanted to become a liquor distributor offering lower prices to restaurants, we would welcome it. That would be more honest.

Lawmakers need to kill these bills.