Private club owners and the Utah Tax Commission appear on a collision course over whether to slap a 1 percent tax on alcohol.
The so-called restaurant tax is levied by clubs and restaurants on food and non-alcoholic drinks. But earlier this year the commission issued its final opinion on the question of levying the tax on booze too.The February bulletin was actually a clarification of the commission's long-standing position that alcohol is a beverage and is therefore subject to the tax.
"The bulletin clarified how it should be calculated," said commission spokeswoman Janice Perry. "There never was a question (by the commission) as to whether it applied to alcohol."
But the Utah Hospitality Association believes a question remains and it is considering hiring an attorney to find the answer, said association President Kent Knowley, owner of the private club Port O' Call.
Knowley knows of no club that has collected or paid the tax on alcohol, and he said none intend to pay it now.
Besides the lengthy and expensive process of Tax Commission hearings and possible court appeals, "we also have the option of getting the Legislature to change it," he said.
When lawmakers passed the restaurant tax three years ago, it was intended to tax the necessities of travel - food and lodging, in Utah terms - so counties could expand their tourism infrastructure, explained Randy Horiuchi, who lobbied for the tax and is now a Salt Lake County commissioner.
"I've met with the Tax Commission and told them when I lobbied for the bill liquor was intended to be exempt," Horiuchi said. The fiscal note on the legislation did not include tax revenue from liquor sales.
But that distinction is not in the law that passed, and the commission wants the tax enforced since it issued its first opinion in 1992.
He said the association would go to court over the retroactive demand, but the clubs could give in on taxing alcohol as long as they don't have to collect it.
The actual cost of alcohol in a typical drink is about 50 cents, so applying the tax would add about a half cent to the price. But a club couldn't practically raise its prices by a half cent. Nor could an establishment boost the price by a penny to cover the half-cent tax because state law prohibits liquor licensees from making a profit or charging more than its exact cost.
Clubs make money on the setup for the drink and the food, Knowley said. So they would have to adjust those prices to cover the tax, he explained, if that is legal.
A simpler solution, Knowley and Horiuchi agreed, would be for the state Department of Alcoholic Beverage Control to collect the tax. The state charges clubs and other customers sales tax at local liquor stores, so the clubs don't have to. But director Kenneth Wynn said the restaurant tax would be more difficult for the state to administer.
"The sales tax is statewide. Some counties impose the (restaurant) tax and some don't. We would have to track every licensee to its county and have different prices by county," Wynn said.
He said the department won't comment on whether the tax should apply to alcohol, but he noted his staff is "kicking the issue around" and will soon have a recommendation for the commission on how it should be collected.