Distillers, industry advocates support bill that would lower taxes for 'ready-to-drink' cocktails
A vice president of the Distilled Spirits Council of the U.S. says high tax rate on “ready-to-drink” cocktails are a top barrier to market entry for craft distillers.
GRAND FORKS — A North Dakota bill seeking to reduce taxes for manufacturers of “ready-to-drink'' cocktails containing distilled spirits has the backing of spirits manufacturers and advocacy groups.
According to Adam Smith, vice president of state government relations for the Distilled Spirits Council of the United States, ready to drink cocktails — regardless of their alcohol content — are taxed at the distilled spirit level denoting an alcohol by volume of 40% or more. The tax rate for distilled spirits in North Dakota is $2.50 per gallon.
Smith said ready-to-drink cocktails are becoming increasingly popular among younger adults.
“The Gen Z and millennial populations are demanding a lower alcohol by volume product, with reduced calories and all natural ingredients,” Smith said. “The industry is producing a wide range of products — with alcohol contents ranging from as low as 3.5% ABV to upward of 14 and 15%.
House Bill 1303 would reduce the tax rate for ready-to-drink cocktails with an alcohol content below 12.5% by value to 50 cents per gallon, the current tax rate for wine below 17% alcohol by volume.
The bill, introduced by Rep. Mike Motschenbacher, R-Bismarck, is undergoing amendment in the House Finance and Taxation Committee.
According to Smith’s testimony in favor of the bill, the spirits industry generates nearly $306 million in annual economic activity, and $50 million in tax revenue for North Dakota. Smith believes lower taxes on ready-to-drink cocktails would increase sales, generating more tax revenue for the state.
“When consumers have the opportunity to purchase a higher quality product at a lower price, sales volume tends to increase,” Smith said. “We see a revenue generating opportunity for the state over the next two to three years were this bill to become law.”
Smith said disproportionately high tax rates levied on ready-to-drink cocktails has made distillers hesitant to manufacture these beverages.
“We’ve done polling of the nearly 250 craft distillers we represent — including two in North Dakota — and they cited the tax rate on ready to drink cocktails as the No. 1 barrier to entering the market,” Smith said.
Tyler Seim, owner of Red Pine Distilling in Grand Forks, says he plans to enter the ready-to-drink cocktail market, and is highly supportive of the proposed legislation.
“The lower tax rate would make a huge difference for us,” Seim said. “It would give us the ability to get our product on the shelf at a more reasonable price for consumers.”
Seim said his distillery is in the research and development stage of creating several different flavors of canned cocktails. Seim says the ABV levels of his planned cocktails will range from 5 to 8%.
“We’re primarily working with vodka-based cocktails,” Seim said. “We have a pickle-flavored vodka that we’re using to make a canned bloody mary or caesar, and a coffee flavored vodka to make a spiked iced coffee.”
Seim says one of the biggest challenges in the development of canned cocktails is maintaining their intended flavor profiles, which can change slightly during the canning process.
“Sometimes as the cocktails sit, their flavor can change, especially if they contain citrus juice like lemon or lime,” Seim said. “We’re also testing the shelf life of our noncarbonated and low-carbonated beverages, to make sure they aren’t susceptible to any bacteria that would affect flavor or the can’s structure.”
Red Pine has also taken its cocktails on the road in keg form. Seim said the distillery provided samples at Grand Forks’ street fair last August, along with at Pride of Dakota events in Minot, Grand Forks, Bismarck and Fargo.
“The feedback we’ve received has been quite positive,” Seim said. “The spiked coffee drink has been popular, and we’re also developing a rhubarb flavored lemonade infused with vodka that’s been well received.”