Indicates Matter Stricken
Indicates New Matter

The Senate assembled at 11:00 A.M., the hour to which it stood adjourned, and was called to order by the ACTING PRESIDENT, Senator SETZLER.

Pursuant to Section 11, Act No. 434 of 1998, a study committee was created to examine state law relating to the transportation, possession, and consumption of alcoholic liquor in minibottles. The committee was also directed to examine the effects of the marketing and sale of malt liquor in containers of more than one liter. The committee consisted of eleven voting and seven non-voting members.

Voting members:
Senator John C. Land, III, Chairman
Senator Glenn F. McConnell
Senator Maggie W. Glover
Senator C. Bradley Hutto
Representative Douglas Jennings, Jr.
Representative Mark S. Kelley
Representative John L. Scott, Jr.
Representative Richard M. Quinn, Jr.
Mr. William B. Dukes
Ms. Martha S. Hunn
Mr. Craig M. Phillips

Non-voting members:
Mr. Harold D. Watson, MADD
Mr. Gary L. Turner, S.C. Department of Revenue
Mr. R. David Miller, T Bonz Restaurant Group
Ms. Cynthia R. Konduros, SLED
Ms. Beverly G. Hamilton, S.C. Department of Alcohol and Other Drug Abuse Services
Mr. David R. Jameson, Lexington-Richland Alcohol and Drug Abuse Council
Ms. Rachel D. Erwin, S.C. Department of Public Safety

The study committee met on September 9, 1998, at which time members of the committee directed staff to research several issues and formulate responses to be distributed by mail and discussed at a subsequent meeting. The study committee met again on November 10, 1998, at which time an informational packet prepared by staff was again distributed and reviewed, testimony was given by various persons, and an in-depth discussion ensued on issues such as taxation and public safety. The consensus of the committee was that the best interests of the citizens of South Carolina should be at the center of any decision. The committee also discussed the marketing and sale of malt liquor in containers of more than one liter and agreed that there should be no prohibition on the marketing and sale of malt liquor in containers of more than one liter.

A third meeting was held on January 7, 1999. Testimony was given and a discussion followed on taxation issues, mandatory bartender training, public safety issues, and the prohibition on the marketing and sale of malt liquor in containers of one liter or more.

RECOMMENDATIONS

The following recommendations were adopted by the Liquor Sales Study Committee on January 7, 1999:
1. The study committee finds the funding for alcohol abuse prevention and treatment services through the minibottle tax, as a percentage of overall funding for these services, to have significantly diminished in terms of today's dollar. The study committee also finds the services to be highly effective and warrant not only the maintenance of the current funding level but also a substantial funding increase. Therefore, the study committee proposes that appropriate amendments be enacted to existing distilled spirits legislation that would significantly increase the funding level to the agencies and organizations established pursuant to Section 61-12-20. The study committee specifically recommends that the House Ways and Means and Senate Finance committees determine a method for substantially increasing funding for the agencies and organizations established pursuant to Section 61-12-20 and to maintain a floor so that funding may not go lower than the present funding level.
2. Further, the study committee recommends that the House Ways & Means Committee and the Senate Finance Committee consider legislation that would allow the on-premise sale of alcoholic liquors to be dispensed either from a minibottle or by a free pour method. It is further recommended that the House Ways and Means Committee and the Senate Finance Committee devise a system of taxation for this dual method of dispensing alcohol that would provide appropriate funding for alcohol and drug abuse services.
3. Further, the study committee recommends that the Department of Alcohol and Other Drug Abuse Services develop a plan for the training of bartenders.
4. Finally, the study committee recommends that Section 16 of Act No. 434 be stricken so that there is no prohibition on the marketing and sale of malt liquor in containers of more than one liter. 5.

Due to his limited tenure as a member of the study committee and because of the lack of a recommended tax structure, Representative Richard M. Quinn, Jr. did not participate in voting on the recommendations made in this report.

Due to a death in the family, Senator Glenn F. McConnell was unable to attend the third meeting and, therefore, did not participate in voting on the recommendations made in this report.

Except for the above abstentions, the study committee voted to adopt the recommendations made in this report.

FINDINGS

After careful review of the alcohol beverage laws of various states, the study committee reports the following:
1.   Laws related to the sale of distilled spirits by restaurants, hotels, and other on-premise retail establishments are incorporated in the Constitution of the State of South Carolina and will require a Constitutional Amendment passed by referendum of the people to change the type of on-premise method of dispensing alcoholic liquors currently in practice. These laws include the provision which requires on-premise retail establishments to sell distilled spirits in containers of two (2) ounces or less (commonly referred to as minibottles).
2.   While other states allow restaurants to sell minibottles as well as pour from large bottles, South Carolina is the only state that requires the exclusive use of minibottles by on-premise retail establishments.
3.   South Carolina is the only state using a licensed alcohol beverage system that requires on-premise retailers to purchase and pick-up liquor from retail liquor stores.
4.   Currently, South Carolina taxes distilled spirits at a rate of $1.42 per liter for alcohol sold by off-premise retail stores and $5.94 per liter for minibottles sold by on-premise establishments. The additional taxes generated by the minibottle tax bring approximately $13.4 million in revenue to the State of South Carolina. Based upon fiscal year 1997-98, minibottle taxes generated $17.6 million. In fiscal year 1997-98, minibottles accounted for 14.6% of the total liters of alcoholic liquors sold.
5.   Liquor taxes for off-premise retail liquor stores at $1.42 per liter are the seventh highest in the country, with Florida being the highest at $1.72 per liter. Liquor taxes for on-premise establishments at $5.94 per liter are the highest in the country, with Florida coming in second at $5.12 per liter and Oklahoma in third at $2.47 per liter. The Florida General Assembly repealed $3.40 per liter of the on-premise tax during the 1998 session, only to be vetoed by the Governor. The national average for on-premise liquor taxes is $1.27 per liter.
6.   Several states have higher taxes imposed for the sale of on-premise alcohol, the vast majority of which are computed as higher sales taxes on mixed drinks. In South Carolina and North Carolina, on-premise retail establishments pay a higher alcoholic liquor tax. In North Carolina, the state operates the alcohol beverage distribution system. In Florida, on-premise establishments pay a per-ounce tax based on alcoholic liquor sold. Because the on-premise establishment may claim a deduction for sales tax, this system allows deception as retailers are given allowances for spillage and other waste of alcoholic liquors.
7.   In approximately twenty-one (21) states where higher sales taxes are computed on mixed drink sales, state revenue agents are able to audit the system through normal sales and use tax audits. In North Carolina, higher taxes are paid at the wholesale level to the state.
8.   In South Carolina, with on-premise establishments being required to purchase alcohol from Class B licensed retail liquor stores, a higher wholesale tax for on-premise licenses would be difficult to enforce and collect.
9.   The South Carolina Department of Revenue presented to the study committee three methods to keep a potential change of on-premise alcohol service revenue neutral to the State. The methods included: (a) a sales tax of 4.25% on mixed drinks sold on-premises by restaurants and bars; (b) a wholesale tax of 7.75% on all alcohol sold to retailers, or (c) an increase of 66¢ per liter on all liquor sold through retail liquor stores. In addition to the department's findings, some states have a relatively small additional percentage sales tax on all items sold by licensed on-premise establishments instead of a mixed drink sales tax.
10.   Liquor tax collections in South Carolina, based on a flat per liter or per minibottle tax rate have been static for the past several years.
11.   The Liquor Sales Study Committee recognizes that tax collection of per bottle liquor taxes is most effectively accomplished at the wholesale level. The committee also recognizes that twenty-one (21) states effectively collect higher on-premise liquor taxes as a higher on-premise mixed drink tax.

(On motion of Senator LAND, with unanimous consent, ordered printed in the Journal of Friday, January 15, 1999.)

On motion of Senator PATTERSON, with unanimous consent, the Senate stood adjourned out of respect to the memory of Ms. Gina Lamar of Columbia, S.C.

At 11:15 A.M., on motion of Senator COURSON, the Senate adjourned to meet next Tuesday, January 19, 1999, at 12:00 Noon.

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