Counties want alcohol tax to pay for alcohol-related crime

South Dakota counties want more money from alcohol tax to help pay for public safety costs they say are related to alcohol harm, but local beer and wine creators and sellers say the increase would crush small businesses and pickpocket consumers.

Two bills active in the legislature now would give counties a larger cut of alcohol tax: House Bills 1294 and 1308.

HB 1294 would essentially increase alcohol taxes by $.05 per drink on wholesalers and alcohol manufacturers. The revenue would be given to county governments, but the bill doesn't have language specifying where the funds need to go.

HB 1308 would increase the excise tax on alcohol by $.25 per drink. The revenue would be distributed to the state, counties and cities. The state would receive half and counties and cities would each receive 25 percent.

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The revenue from taxes received under HB 1308 would be used to pay for "alcohol harm" related costs, such as public safety, alcohol treatment, underage alcohol and drug prevention, healthcare, mental healthcare, child and family services, adjudication of alcohol-related criminal activity or property tax reduction.

The Minnehaha County Commissioners on Tuesday expressed support for both, saying public safety costs contribute to a large portion of their spending.

Public safety and criminal justice costs make up about 60 percent of the county’s budget, according to a Financial Action Network study on county costs done by local accountants.

"Jails are full of people who use alcohol as a gateway drug," said commissioner Jeff Barth at Tuesday's meeting. "Few people do methamphetamine first. We need to ensure people who drink are paying for cost of that product."

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In Minnehaha county, about $4.5 million is spent on prosecuting alcohol-related charges and another $4 million is spent on defending the accused offender, Barth said. Minnehaha County is also looking for any help with the upcoming cost of the jail expansion, estimated to be about $46 million.

"There is a constant need for more money, particularly by the counties, but also continued need expressed by judicial system," said Rep. Susan Wismer, D-Britton, who is a sponsor of H.B. 1308. "People with addiction issues occupy too much space in our correctional system. Anything we can do to keep those numbers lower, the better."

But local businesses don't think they should have to shoulder such a large tax increase.

Explaining the proposed tax increase from HB 1294 in terms of a nickel extra per drink is dangerous, said Dereck Fernholz, co-founder and brewer for Fernson Brewing Company.

If an extra nickel were to be added to each drink, as in HB 1294, another $16 would be taxed from each barrel of beer, Fernholz said. He already pays the state $8.50 per barrel in excise tax. If he were to have to tick up prices to cover for that tax, consumers may have to pay 30 percent or so more than they do now for their beer at a grocery store, he said.

"The cause behind it is good," Fernholz said. "I don't think anybody is going to disagree with that, but putting it on the back of the people making and selling beer in this state is a little one-sided. Beer has a lot of tax on it already."

If HB 1308, which would add $.25 per drink, were to pass, an extra $82 or so would be taxed per barrel — that's how much he profits from a barrel now.

He would have to double his beer price to profit.

"All of this hurts the consumer," Fernholz said. "If it doesn't hurt the consumer, it's hurting the business. Somebody is paying for it."

For a state that seems to be for small business, growth and entrepreneurial spirit, for us this is a crippling blow for someone our size or smaller."

Phillip Klein, who owns Glacial Lakes Distillery in Watertown with his wife, said either tax would take a hit on his business. HB 1294 would put an increase of about $1.60 per bottle, and HB 1308 would add $4.21.

"We would not survive," Klein said. "We’re already on the higher end of price, so to get a consumer to look at our product, another $4.21 would make it less attractive."

Rep. Thomas Brunner, R- Nisland, a sponsor of HB 1294, attended a few town hall meetings last winter and heard from addiction counseling groups that support raising alcohol tax.

"There’s a real need for more dollars to do education and prevention, especially (with) young people," Brunner said.

Counties for the first time received a cut of the alcohol tax in 2016, after a bill redistributed revenue, giving a third each to the state, counties and cities.

In fiscal year 2017, the alcohol beverage excise tax brought in about $14.9 million, according to the state Department of Revenue. Minnehaha County received about $600,000 of that.

Both are in the committee for taxation and are scheduled to be up for debate next week.