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Liquor's retailers, consumers brace selves NEW YEAR, NEW TAXES

THE BALTIMORE EVENING SUN

Many liquor retailers across the state will be counting bottles tomorrow and the following days as they get ready for the new federal liquor excise tax, which goes into effect tomorrow.

Liquor store owners must determine how much product they have in stock on Jan. 1 and pay the additional excise tax by June 30. This is a one-time inventory, and tax will be paid by the liquor producers after Jan. 1.

To meet the government's requirements, Geoffrey W. Connor, president of Calvert Discount Liquors in Baltimore County, is calling in his 14 employees to tally the bottles at the 6,000-square-foot store on York Road.

"We're going to have a lot of unhappy campers here," he said about the prospects of his employees spending New Year's Day taking inventory. But Connors said it is necessary to get an accurate count.

Liquor stores have until Jan. 10 to determine how much liquor, beer and wine were on their floors on Jan. 1. Like Connor, many store owners have decided to count bottles tomorrow or early Wednesday morning.

Besides being closed tomorrow, Connor's store will also be closed on Wednesday as he and his staff raise the prices on thousands of bottles.

The imminent increase has prompted some consumers to stockpile alcohol at its current, lower prices, Connor and other retailers reported.

The excise tax increases were included in the November agreement between Congress and the Bush administration to reduce the federal deficit. The government also will begin taxing luxury cars, furs and other items tomorrow.

The new excise tax will boost the federal tax on a six-pack of beer in 12-ounce cans or bottles from 16 to 32 cents and on a 750-milliliter bottle of wine from 3 cents to 21 cents.

For liquor in 750- milliliter bottles, the tax will increase from 99 cents to $1.07 for a 40-proof liquor, from $1.98 to $2.14 for an 80-proof product and from $2.23 to $2.41 for a 90-proof liquor. ("Proof" is a term used to measure of strength for alcoholic products.)

However, the price increase faced by a consumer may be higher. The tax is levied by the producer, and the wholesaler and the retailer then apply their own markups, which are based on a percentage. The amount of the increase also depends on how much of the tax the producer, in being competitive, wants to pass on to the consumer.

As a result, the price of a six-pack of beer will go up 25 to 30 cents, and the price of a regular bottle of wine will go up 50 to 70 cents, Connor said. Wine could increase in price $1 to $2 a jug -- the most popular package -- depending on the brand, he said.

Liquor in 1.75-liter bottles could jump in price by $1 to $5 a bottle, depending on the brand, Connor said. The new prices, along with the wholesale and retail markups, will be in effect when Calvert Discount reopens on Thursday, he said.

The special inventory and the price changes are the finale of one of the busiest months he has ever had, Connor said. Besides the traditionally heavy business that accompanies the holidays, people have been stockpiling to avoid the price increase.

"We are seeing very large liquor orders," he said. "We expect to see a tremendous rush of business" in the final days of the month, he said last week.

Even before the last-minute rush, Connor said he handled one spectacularly large order. In early December an individual buyer bought 30 cases of whiskey, gin and vodka and 10 cases of vermouth for a total price of $2,410. "That's a lot of martinis," he said.

One of the largest discount liquor retailers in the mid-Atlantic region, Calvert normally has daily sales of about $5,000, Connor said. But in recent days, the volume has doubled, and he expects it to reach a new high today.

The last time excise taxes were increased was on Oct. 1, 1985. The day before, Calvert did $27,000 worth of business. Connor said he expects to match or exceed that today.

However, he does not plan to stay open until midnight, as allowed by Baltimore County law, to take advantage of last-minute shoppers. Instead, he will be closing at 10 p.m. in deference to his employees' New Year Eve plans. But that might change. "If it is terribly busy, we'll try to find someone to work, including myself," Connor said.

While business at the end of the year is great, he expects it to drop in January and February as a result of the tax increase and the ongoing change in alcoholic tastes, which are moving from liquors to wines.

"We perceive a very slow January and February for standard brands," Connor said. However, fine wines, which Calvert also stocks, traditionally do better in those months, he said.

For those stores that do not carry the specialty brands, "their future is increasingly glum," he said.

Michael D. Hyatt, president of Wells Discount Liquors, a large Baltimore discount operation, said sales in December have been "phenomenal" and are running 15 percent ahead of last December.

Hyatt does not expect the tax to have a large effect on the buying patterns of his customers, though they may be buying a lower-quality product to lessen the effect of the tax increase, he said.

Unlike the workers at Calvert Discount, the 65 full- and part-time workers at Wells will have New Year's Day off. In fact, the store will be closed at 6 p.m. today, instead of its normal 10 p.m. closing time, to allow employees the night off on New Year's Eve, Hyatt said.

Instead of counting bottles tomorrow, 15 management employees will take inventory early Wednesday, and the store will open later at 2 p.m., he said.

Wells has done a lot of preliminary work for the inventory, Hyatt said. "We know what's what and where everything is in the store."

The inventory and the price change is made easier by Wells' computerized system linked to a a scanner at the checkout counter that reads bar codes on the bottles. So instead of changing the prices on each bottle, the prices are changed in the computer, he said.

But even this is a large task since there are 14,000 types of alcoholic beverages in Hyatt's inventory and he can make only 750 changes a day in the computer system. He estimates the price conversions will take about four weeks to complete.

Until then, clerks will rely on the price changes that will be posted on the shelves, Hyatt said.

One small retailer who has not seen a rush is David Wells, the owner of Rotunda Wine and Spirits in the Rotunda shopping center in Hampden.

He said his wholesaler suggested he stock up during December for the anticipated demand. "That just hasn't happened," he said. To the average person, the tax increase has been of little concern, Wells said. "We have gotten very few questions about it," he said.

Instead of stocking up, Wells decided to buy only what was needed for a normal holiday season. However, he said other retailers have heeded the words of the wholesalers and have bought large stocks to the point of even going into debt.

While he does not think the tax increase will have a great effect on sales in the short term, he is afraid that the federal government might get used to going to the liquor tax well. "Now that the precedent has been established, it would be easier to come back to the source," he said.

He also expects consumer buying trends that are already in motion to change the business. "Wines have been extremely strong at the expense of liquor," he said. "It has more sex appeal."

As to the Jan. 1 inventory, Wells is hiring an outside company to handle it on Wednesday morning for him and to help with the government paperwork.

Morton's, a shop that sells specialty wines, beers and food, also has not seen individual stockpiling of supplies before the tax increase. "People have become somewhat jaded," said Bob Talbott, a partner at the shop on Eager Street in Baltimore. "People will adjust to it," he said.

Talbott said his store will be closed tomorrow through Thursday for the holidays and to take inventory. On Wednesday, four of his staff will handle the inventory for the federal tax increase.

"It will be a hassle," he said. "Its something that any store has to resent."

Drinking will cost more

Federal excise taxes that go into effect tomorrow will raise the cost of beer, wine and liquor. While the actual tax increase will be 18 cents or less per item, a markup added by producers, wholesalers and retailers could double or triple the extra amount consumers pay.

The following shows how much additional tax you must pay:

*16 cents on a six-pack of beer in 12-ounce cans or bottles. The increase will boost the federal tax from 16 cents to 32 cents.

*18 cents on a 750-milliliter bottle of wine, going from 3 to 21 cents.

*8 cents for a similar bottle, roughly a fifth of a gallon, of 40-proof liquor. That boosts the federal tax from 99 cents to $1.07.

*16 cents for a similar bottle of 80-proof liquor, from $1.98 to $2.14.

*18 cents for a similar bottle of 90-proof liquor, from $2.23 to $2.41.

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