In Surprise Move, Vinters Propose Increasing State Wine Tax by 900%

SAN FRANCISCO —  California wine makers have baffled the experts by proposing legislation to hike state wine taxes by 900%.

After an approach by the 540-winery Wine Institute, bills were introduced last week by state Sen. Alfred Alquist and Assemblyman Dominic Cortese, both San Jose Democrats.

“This is weird, completely unheard of,” said Lou Gomberg, the dean of wine industry consultants with nearly 60 years of experience. “This is totally without precedent.”

Wine Institute President John A. De Luca said that was about the reaction he got from Alquist and Cortese when they heard the proposal.

The state tax collector already gathers about $190 million annually in taxes on wine; the new taxes would raise an additional $10 million annually.

De Luca said the answer to questions about the unusual political move is that wine makers were convinced that they had to propose the higher taxes before voters were offered a tax-hiking initiative and to prove his industry’s “credibility” and “responsibility.”

The $7-billion industry would rather submit to the “give and take” of tax questions in legislative committee than get hit with what he characterized as the take-it-or-leave-it of an initiative.

Looming large in the background is the organized national “neo-prohibitionist” movement; suggestions that alcohol causes cancer and deformed babies; Proposition 65 and warning signs in restaurants, and federally mandated warning labels on alcoholic beverages.

Proposition 65 required that businesses employing 10 or more people--such as most restaurants--must warn people if they are being exposed to chemicals determined to cause cancer or birth defects. It led to signs being posted in many dining establishments.

De Luca said the industry voted for the tax for “enlightened self-interest . . . we’re saying we don’t like taxes but this is an investment in our future and the future of this state . . . this is for us an act of responsibility.”

The measures by Alquist and Cortese would raise the tax on table wine from 1 cent a gallon to 10 cents a gallon, and on dessert wines (port, sherry) from 2 cents a gallon to 20 cents a gallon. Champagne, already taxed 30 cents a gallon by the state, was not included.

According to Carolyn Martini, president of Napa Valley’s Louis M. Martini Winery, the institute’s board ratified the tax issue March 14 without objection.

She called it “meeting the devil half-way.”

“Obviously, the pressure is on from all quarters on all alcoholic beverages,” she said. “I think there was kind of an industry feeling that we hadn’t had a state tax increase since Prohibition. This is a unique situation . . . at the institute meeting nobody argued against it--nobody.”

Not everyone saw it that way, however.

“I don’t understand this,” said Phil Hiaring Jr., editor of the trade publication Wines & Vines. “I just don’t see giving in without a fight . . . why toss in the towel before the fight?”

Syndicated wine writer Jerry Mead, whose column appears in 25 newspapers, said, “It’s my opinion that the industry is shooting itself in the foot. . . . I don’t think it will stop the neo-drys from using the initiative process to attack wine and other alcoholic beverages.”

De Luca explained that the tax move was done by “consensus” of the institute’s executive committee and its board of directors as a means to deal with “a whole new puritanism” in California and elsewhere.

The tax move, he said, “is the price of credibility. You just can’t do things and put out press releases and expect people today to say anything other than ‘that’s self-serving.’ ”