N.C. Liquor laws - How a $5.79 case of vodka ends up costing $61.92

By Shannan Bowen
Friday, December 25, 2009 at 4:32 p.m.
StarNewsOnline.com
Jun. 07, 2010

Spirituous liquors take quite a journey through the state's government-monopoly alcohol operation to get to the consumer's drink or a bar's shot glass.

To understand that journey, one could follow a bottle of Aristocrat Supreme 80-proof vodka – the state's top-selling brand of liquor – from its distillery in Bardstown, Ky., to when it's purchased at a government-run N.C. Alcoholic Beverage Control store.

It's a process that has only slightly changed since the N.C. General Assembly of 1937 enacted the Alcoholic Beverage Control bill into law, establishing a state monopoly system for liquor just a few years after Prohibition ended. And it's a process some state government leaders and members of the state's ABC Commission say is antiquated and in need of reform.

At the warehouse

The cases are stacked dozens of feet high on wooden crates. There are only a few crates of some brands, and there are more crates of the more popular ones, such as Aristocrat Vodka, which is often the choice for well drinks at bars and an economical choice for consumers in the recession.

ABC Commission Administrator Mike Herring took the StarNews on a tour of the warehouse, which sits beside the ABC headquarters in Raleigh. It's large, about five acres under one roof, and there are usually more than 400,000 cases of liquor stacked inside at any given time.

Aristocrat Vodka is delivered from its distillery in Kentucky to the warehouse, where a private company called LB&B Associates is contracted to oversee the receipt, storage and distribution of the liquor.

The warehouse operates under a bailment system, meaning the liquor is still owned by the distiller while it sits inside the warehouse.

“We provide the roof and building,but the product that sits in there is owned by the distiller,” Herring said.

Local ABC boards send purchase orders to the warehouse, and warehouse workers place the orders on trucks to be delivered as requested. Trucks to New Hanover County usually go out three times a week, on Tuesday, Wednesday and Thursday, said Graham Thompson, project manager for LB&B Associates.

Sometimes the ABC boards ask for less, sometimes they want more. If a price on a type of liquor is about to change, for example, local ABC boards will usually purchase the product in bulk at the lower price to be able to sell at a higher price for more profit. They are given a 30-day notice before prices change, Herring said.

After the ABC board receives its liquor shipment for its various stores, the stores are required to send payment directly to the distillery within 30 days. At that point, the liquor is owned by the ABC board.

The markups

The state's ABC Commission sets prices on liquor uniformly throughout the state, as governed by state statute. And on every delivered case of spirituous liquor approved for sale, there is an 80.8 percent markup from the distiller's price, in addition to other charges.

The distiller's base price for a case of 12 bottles of Aristocrat Vodka, for example, is $5.79 – just less than 50 cents a bottle.

Then a federal excise tax, distiller's freight charges and bailment charges for the warehouse storage are added, and that case's price goes up to $32.91.

Then the local ABC board tacks on a 39 percent markup that's used to generate profit, bringing that price to $45.74, and then state taxes, additional markups and another bailment surcharge bring the case to a total of $61.92. With bottle charges added and an 8 percent sales tax added, that's $5.67 per bottle purchased at the ABC store.

Bars and restaurants with mixed beverage licenses pay an additional $3.75 mixed beverage tax per bottle, but they do not pay sales tax since sales taxes are generated when drinks are sold at the establishments.

So, purchase a mixed drink made with Aristocrat Vodka and you might pay $5 per drink – just less than the price of Aristocrat Vodka by the bottle.

The money cycle

All that money generated – more than $30.7 million in the past fiscal year for New Hanover County – has to go somewhere.

On the sale of the bottle of Aristocrat Vodka, 38 percent of what the buyer pays goes to the state in the form of sales and excise taxes, said Agnes Stevens, spokeswoman for the ABC Commission.

Herring said the ABC system does not receive state appropriations because revenues from liquor sales pay for its operation. Local ABC boards use 39 percent of a sale of a bottle of liquor to pay their operating costs, and the remainder of the purchase price, minus the 38 percent given to the state, covers the distiller's price, federal excise tax and administrative costs for the state commission and warehouse.

From sales to businesses with mixed beverage permits, the state gets 30 percent, local boards get 39 percent and the state and local boards split an additional mixed beverage tax. Boards with many mixed beverage permit accounts tend to be more profitable than others, Stevens said.

Funds dispersed in fiscal year 2008-09 to state agencies by the New Hanover County ABC board include $7.9 million in state taxes, $1.6 million to New Hanover County and $808,084 to the city of Wilmington.

The ABC board gave $280,000 for law enforcement by the New Hanover County Sheriff's Office, $302,345 to Wrightsville Beach, $161,518 to Carolina Beach and $12,284 to Kure Beach.

The board also gave $91,018 to state rehabilitation programs and $90,799 to rehabilitation programs in the county.

Looking for change

It's not that the government-run liquor operation's sales aren't successful. The industry has grown from selling 3.69 million cases of liquor in 1987 to selling 4.32 million cases in 2007, according to information from the ABC Commission.

But some officials want to take a closer look at the government's liquor operation after the StarNews revealed the New Hanover County ABC father-son administration team of Billy and Bradley Williams earns nearly $350,000 together in annual salaries.

Gov. Beverly Perdue said last week all options were on the table for reforming the ABC system, including privatization. North Carolina is one of 19 states that operate the sale of hard liquor.

The chairman of the state's ABC Commission also said salary disparities among some boards and some boards' reluctance in revealing salary information to the StarNews have prompted the need to re-examine how the liquor business is done in North Carolina.