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Restaurant Business: How House Bill 3572 Affects Liquor Taxes Paid by Dallas Restaurants

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photo by Kevin Marple

Amy Severson, co-owner of Sevy’s Grill is an accountant. Today she discusses some important legislation that will impact the Texas restaurant industry.

The clancular conversation of restaurateurs at the recent D Magazine’s 100 Best Restaurants party was not only about numbers between one and one hundred. Quietly discussed was number 3572, as in House Bill 3572. On May 22, the bill that represents tens of thousands of dollars in annual tax savings for each restaurant (present at the event with a Mixed Beverage licensee) passed both the House and Senate.

The bill lowers the Mixed Beverage Gross Receipts (MBGR) tax rate to 6.7% and creates a new Mixed Beverage sales tax of 8.25%. According to the Texas Restaurant Association the revision “moves us forward in our goal of equity between those selling mixed beverages and those selling beer and wine only.” While technically eligible for a veto by Governor Perry until June 16, it seems doubtful that will happen.

According to GDRA Executive Director Dotty Griffith, “The governor is expected to sign the bill which will take effect January, 2014.” MBGR tax relief was a target of the TRA for the recently concluded 83rd Legislative Session. They geared up to make their case over a year ago, presenting their concerns to attendees of the 2012 Southwest Food Expo. It appears to have worked. While not entirely remedying inequities, the 50% cut is welcomed by the payers, offering relief to the minority of retail sellers who bear the majority of alcohol levies.

Texans enjoy some of the lowest alcohol excise tax rates in the country, but missing revenue is replaced with a (current) 14% MBGR tax on each cocktail, glass of wine or beer sold by many restaurants and bars. MBGR income totaled $728 million for fiscal year 2012, (a 17% increase over 2010) and represented 78% of the total alcoholic beverage taxes collected. The revision does not affect holders of a Beer/Wine restaurant license or packaged sellers of liquor, beer, or wine. They continue to be exempt from Mixed Beverage tax.

Fearful of a last minute jinx, plans for the tax savings were only whispered among the owners at the party on May 22. Some mentioned lower prices for guests. Others expressed interest in featuring more discounted wine dinners, happy hours, and drink specials to attract new diners. Unfortunately, many will be forced to replace the expense with a new cost: healthcare mandates that begin in 2014. While appearing to be a large reduction, it applies to (typically) one-third of a restaurant’s total sales. Overall it’s a 2 ½ percent savings for the business. It can only be stretched so far. Certainly it is an intoxicating windfall for owners, but the burden is being shifted, not reduced: 8.25% tacked on to a check as a sales tax on alcoholic beverages. And for every $100 spent, the state will get $14.95 vs. $14 previously – a 6.7% increase.

The Comptroller’s fiscal analysis declares the revisions to be more-or-less a wash for the state budget; while the total rate represents an increase, their assumption is people will drink fewer poured drinks. This could very well be the case if the new sum adds up to indigestion for the guest. Or maybe not. An argument could be made that some small restaurants avoid a Mixed Beverage license because of the current high costs. The reduction could sway them to upgrade or add a license, resulting in more taxes and licensing fees for the state. Another theory is that at only a fraction of the drinking public are aware of the amount of sales tax added on a check and more people are upset when a martini costs $13, to pay for a hidden 14% tax. It might be the numbers calculate to even more revenue for the state.