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10 Hartford Business Journal • April 6, 2015 www.HartfordBusiness.com CT mired in falling sin-tax receipts By Gregory Seay gseay@HartfordBusiness.com C onnecticut's slowing sin-tax collec- tions are posing real headaches for industry players and state budgetset- ters and policymakers. Once a growing and reliable source of state funding, tax revenues from alcohol and tobacco sales, and casino-revenue sharing have all been flat or declining in recent years, contributing to the state's mounting budget deficits. But that's not stopping lawmakers from con- sidering a host of sin-tax stimulus proposals from expanding package-store hours and cut- ting shelf-liquor prices to increasing the duty on cigarettes and opening the door to more casinos. Yet, the Connecticut merchants who dis- tribute and retail sin tax products say lawmakers' delibera- tions about whether to boost liquor sales and tax receipts with longer hours and uncorked pricing will do neither. "All the stores are very concerned,'' said Carroll Hughes, executive director of the Connecticut Package Stores Association, representing about 700 of the approximately 1,200 retail liquor stores in the state. Sin taxes from alcohol and tobacco sales and gaming contribute more than $721 mil- lion in annual state tax revenues, making up a significant part of Connecticut's budget. In the last three fiscal years, Connecti- cut's revenue from excise and sales taxes on beer, wine and liquor has been flat at around $60.5 million, even with package and gro- cery stores allowed to sell alcohol on Sunday beginning in May 2012, according to state Department of Revenue Services (DRS) data. DRS Commissioner Kevin B. Sullivan said he believes there is a correlation between the state's drop in liquor receipts and the general move nationally away from beer to wine. However, Sullivan says that deeper analysis into retailers' beer and liquor-sales data shows keg-beer sales are up noticeably since Connecticut extended the daily and Sunday window for alcohol sales. "Can I say they are directly related to extended sales? No," Sullivan said. Meantime, state receipts from tobacco lev- ies have fallen 15 percent from $420.8 million in fiscal 2012 to $377 million in fiscal 2014, even with a 40-cents-per-pack cigarette tax hike since 2011, to $3.40, state tax data shows. "Absolutely no surprise,'' said Sullivan, a former smoker. "People aren't smoking in Connecticut. They aren't smoking nationally. At that price, who can blame them.'' Health advocates from the American Cancer Society's Cancer Action network — a coalition of several national anti-smoking organizations — are urging state lawmakers to boost the cigarette tax again, this time to $4.90, a move they say would raise $60 mil- lion in additional tax revenues and help thou- sands of residents kick the habit. However, Sullivan said Connecticut author- ities are certain this and other Northeast states are seeing a rise in bootleg sales of cigarettes bought in states, mostly in the South, that tax tobacco far less. As a result, he said, the state is preparing to crackdown on bootleg-cigarette smuggling and sales. He did not elaborate. Booze effect For liquor retailers and wholesalers, boot- leg smokes is way down on their list of worries as to what they may face at the hands of law- makers who are under great pressure to bal- ance the state's budget with no tax hikes, or at least as few new or higher taxes as possible. According to the state package-store asso- ciation's Hughes and other retailers, Connecti- cut is losing out on liquor sales because neigh- boring vendors in Massachusetts and Rhode Island regularly undercut them on price. They say a lowered or altered tax structure in Con- necticut for alcohol could recapture those sales, returning more tax revenues to the state. But Connecticut authorities counter that it isn't the tax that is the problem, but the state's liquor subsidy known as "minimum pricing'' that increases the cost of alcohol and prevents consumers from buying more. Without mini- mum pricing, liquor stores could set whatever price they wanted to draw customers. "Consumers pay higher prices than those in other states because of laws like minimum bottle pricing — which artificially inflate the price of alcohol,'' said Gian-Carl Casa, undersecretary for legislative affairs at the state Office of Policy Management, the state's fiscal-budget arm. "The governor's compro- mise proposal is that a store could discount a bottle to the price it paid for the bottle.'' But liquor operators counter that minimum pricing is their shield against large, chain oper- ators leveraging their buying power with brew- ers, vineyards and their distributors to under- cut smaller, "mom and pop'' package stores. "If the governor wants us to have similar pric- ing with Massachusetts, then give us a similar tax environment," Hughes said. "You're asking us to play an 11-man football game with 10 guys." Gaming issues The biggest sin tax hit Connecticut has seen in recent years is from gaming led by the finan- cial struggles of Mohegan Sun and Foxwoods. Connecticut's gaming sector, which includes the lottery, parimutuel and off-track betting, charitable games, and casinos, contributed $603 million in state tax revenues in fiscal 2014, DRS data shows. That was down 1.4 percent from $612.6 mil- lion a year earlier and 16 percent from the 2006 peak of $718.8 million. The state's gaming industry was hurt by the Great Recession but also increased competition in nearby states. Tax revenues from off-track betting, charitable games, and casinos are all well-off their pre-recession levels and with new casinos slated to open in Massachusetts and New York the fear is things will get worse. That's why lawmakers are proposing to add up to three new gaming sites in the state, to entice Connecticut residents to place their bets in the Nutmeg State, rather than deposit their cash in slot machines or table games in Massachusetts or New York. The Connecticut Lottery Corp. has been the one bright. Its contribution to the state continues to increase, reaching a peak last year at $319.5 million, DRS data shows. That's up from $283 million in 2009. n CT Lottery State Budget Contributions General Fund Total Year Transfer Revenues 2013 $312.1M $1.12B 2012 $310M $1.08B 2011 $289.3M $1.02B 2010 $285.5M $996.8M 2009 $283M $991.3M 2008 $283M $998.1M 2007 $279M $957M 2014 Sin-Tax Collections Tax Category Revenues Lottery $319.5M Off-Track Betting $3.7M Charitable Games $416,962 Foxwoods $131.5M Mohegan Sun $148.3M Total Gaming $284.3M Tobacco levies $377M Liquors sales $60.5M Grand Total $721.8M S o u r c e : D e p a r t m e n t o f c o n S u m e r p r o t e c t I o n 100 LOTTO LOTTO A . 1 3 0 4 2 8 0 7 1 5 2 1 B. 3 2 1 7 4 4 4 9 2 7 0 3 LO LO LOTT TT TTO LOTTO A . 1 3 0 4 2 8 0 7 1 5 2 1 B 3 2 1 7 4 4 4 9 2 7 0 3 B. 3 2 1 7 4 4 4 9 2 7 0 3 Kevin B. Sullivan, commis- sioner, Department of Revenue Services I l l u S t r a t I o n | c ! 1.75 ML Grey Goose Vodka $56.99 Manufacturer Wholesale Markup $14.68 Retail Markup $2.08 Store Excise Tax $2.50 State Sales Tax $3.61 Federal Tax/Fee $4.99 1.75 ML Jim Beam Bourbon $28.99 Manufacturer Wholesale Markup $7.21 Retail Markup $4.42 Store Excise Tax $2.50 State Sales Tax $1.84 Federal Tax/Fee $4.99 1 Liter Jagermeister $23.99 Manufacturer Wholesale Markup $6.60 Retail Markup $2.20 Store Excise Tax $1.43 State Sales Tax $1.52 Federal Tax/Fee $2.85 750 ML Goslings Rum $16.49 Manufacturer Wholesale Markup $4.62 Retail Markup $1.83 Store Excise Tax $1.07 State Sales Tax $1.05 Federal Tax/Fee $2.14 Excise and Sales Tax on Distilled Liquor in Connecticut S o u r c e : c t p a c k a g e S t o r e S a S S o c I a t I o n