New alcohol tax goes into effect today

 Susan Anderson bags up a customer's purchase Thursday at State Line Liquors near Elkton. Under the new tax law, alcohol purchases will be taxed 9 percent. Previously, they were taxed 6 percent, the same as the sales tax for other products.

New laws that go into effect today spell good news for local wineries but leave liquor stores and bars worried about losing business.

The laws, passed earlier this year by the Maryland General Assembly, will raise the state's liquor tax by 50 percent and legalize direct shipping of wine.

Under the new tax law, alcohol purchases will be taxed 9 percent. Previously, they were taxed 6 percent, the same as the sales tax for other products.

The increase is projected to generate nearly $85 million more for the state government in 2012.

However, local merchants worry they will lose customers as the tax gap between Maryland and Delaware grows.

"Some tell me they'll re-evaluate whether it's smart to continue buying here since Delaware has no sales tax," said Greg Birney, owner of Cherry Hill Liquors in Elkton. "We're already at a 9 percent disadvantage."

Maryland's tax will remain lower than that of Pennsylvania, which charges a 6 percent sales tax on top of the so-called 18 percent Johnstown Flood Tax, which was originally intended as a temporary tax to help victims of the 1936 flood.

Robert Murray, owner of State Line Liquors in Elkton, said 40 percent of his customer base is from Delaware. Murray expects the tax hike could cost him 10 to 20 percent of his business, though he is attempting to mitigate it by offering some discounts.

Jeff Wesley, general manager of Wesley's Restaurant & Cocktails in Elkton, said he expects his liquor store, attached to the restaurant, to take a hit from the tax.

"Without a doubt, the man coming over the (state) line will just go back to Delaware," Wesley said.

He also said he will likely have to raise drink prices at his bar. For instance, he said, prior to the tax increase, he charged $3 for a beer, including the 6 percent tax. With the additional tax, the price would be $3.09. Since that is a nonstandard price, he will probably round it up to $3.25, he said.

Some other bars plan to absorb the extra cost, at least initially. Kathy McCarthy, manager of AJ Jokers bar in Elkton, said she will keep prices the same as long as she can - though a price increase may come later.

"I don't think it would have an effect on business because we have loyal customers," McCarthy said.

The second law taking effect today makes Maryland the 38th state to legalize direct shipping of wine. Both in-state and out-of-state wineries can mail bottles of wine to Maryland customers if they purchase a $200 permit.

It's another opportunity to get our wine to customers," said Morris Zwick, owner of Terrapin Station Winery near Elkton. "It can be difficult to do that as a small winery."

Zwick applied for his permit the day the application was available and plans to offer online ordering immediately. He said before the law was passed he received requests from people in 16 states but had to tell them shipping wine was illegal in Maryland.

Janel Griffith, manager of Dove Valley Vineyard in Rising Sun, said she applied for the permit this week and hopes to begin shipping soon.

"This will help our business grow within the state," Griffith said. "We get a lot of customers from western Maryland, but they can't get up the highway all the time."

According to the state comptroller's office, nine of the state's 50 wineries have received shipping permits.

Kevin Atticks, executive director of the Maryland Wineries Association, said he expects that number to rise.

"It will have a great effect on wineries, especially new wineries, because they have the ability to reach new audiences," Atticks said. "I think by fall we'll see that every winery has applied."

The new law is also a boon for out-of-state wineries with 17 receiving a permit.

One of those is Thomas Fogarty Winery in Woodside, Calif. Sales director Anne Krolczyk said the winery does 30 percent of its sales by direct shipping, but usually only offers its more obscure wines for shipping.

"Most of the stuff you see online is stuff we sell in our tasting room, not stuff you'd see on a retail shelf in Maryland," Krolczyk said. "We try not to be in competition with the retailer."

Still, some local retailers, already smarting from the alcohol tax hike, worry that customers will take advantage of the convenience and variety of direct shipping offers instead of buying their wine in a store.

"It will definitely hurt us because the wineries will sell their wines at a cheaper price than we can offer, and customers get it at their doorstep," said Rikin Parikh, owner of East Coast Liquors in Perryville.

Birney said he is happy that few wineries have received a permit so far, but predicts it could still have an effect on his business. Birney said he wishes retail stores like his could also ship wine, but legislators limited the law to wineries only.

"It's another avenue of competition," he said.

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