Flavored Malt Beverages to Be Taxed at Higher Rate

By Andrew McIntosh, The Sacramento Bee, Calif.

Jun. 11–Sales of flavored malt beverages like Smirnoff Ice and Barcardi Silver will be taxed as if they were distilled spirits rather than beer under new rules that take effect this fall, a state tax agency said Wednesday.

London-based Diageo PLC, one of the world’s biggest players in the sector, vowed in a statement that it will sue to have the rules overturned.

The decision by the Board of Equalization comes after a two-year policy review, divisive public hearings and state agency infighting. It is expected to generate about $41.4 million in taxes for state coffers every year, Board of Equalization spokeswoman Anita Gore said.

For consumers, it could mean hefty price increases for the popular alcoholic drinks, sometimes called “alcopops.”

The BOE approved the new regulations on April 8 to clarify the definition of “distilled spirits” under California’s Alcoholic Beverage Tax law.

This week, the state’s Office of Administrative Law reviewed and approved proposed new rules, paving the way for them to be implemented in October.

The change means flavored malt beverages will be taxed at the distilled spirits rate of $3.30 per gallon, rather than the rate of $0.20 per gallon for beer. A spokeswoman for Diageo, owner of Smirnoff Ice, said the company believes the BOE should not be making decisions about taxes.

“Decisions about raising taxes on flavored beer are the responsibility of the Legislature, not three politicians on the Board of Equalization,” said Amy Elliott, a Sacramento-based state government affairs director for Diageo.

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