Drinkers already pay more taxes on the hard stuff in Oregon than in almost every other state, so Bend distiller Brad Irwin is conscious of every dollar added to the price of his whiskey.

As the owner of Oregon Spirit Distillers, Irwin said there’s a market for a $45 bottle, but one or two dollars beyond that, and consumers would reach for a cheaper brand, switch to beer or “roll a fatty.”

That’s why Irwin, president of the Oregon Distillers Guild, was disappointed to learn Gov. Kate Brown’s budget proposal calls for a 5 percent increase in the markup on liquor, which could raise $21.2 million for the general fund. It’s another example of tax policy that favors beer and wine producers, making it difficult for distillers to grow in Oregon, he said.

“We’re all competing for the same luxury dollar with different sin tax on it,” he said.

Through the Oregon Liquor Control Commission, the state controls distribution of spirits and applies a set markup, currently averaging 104 percent, to wholesale prices. The OLCC also adds a surcharge of 50 cents per bottle, which will be in effect through the next two-year budget cycle, 2019-21.

Oregon is No. 2 in the country, behind Washington, for excise taxes applied to spirits, which are $22.75 per gallon, according to the conservative Tax Foundation.

Craft distillers are still starting up in the state. The Oregon Distillers Guild has five members in Central Oregon. Another young company, Waterman Distillery, which makes Gompers Gin, is in the process of opening a tasting room in Redmond.

Waterman Distillery owner Michael Hart said when he and his wife, Jessica, started making gin in 2012, they wanted the brand to be “very Oregon.”

“When you think of Oregon, you think of nature, clean water, clean air, everything I would want to drink if it were in a bottle,” he said. “That’s why we’re here. I wouldn’t move a business here thinking you were going to get any kind of tax break or probably even a fair shake considering how as a craft distiller you’re treated.”

Even the tasting room that Hart hopes to open in January will be less profitable than it would be as a brewery taproom.

While brewers can reap big profits on sales of their own product directly to consumers, the OLCC acts as a middleman on tasting room sales, Irwin said.

Because of the three-tier system, distillers can’t sell directly to consumers. Irwin argues that the OLCC takes an outsize share of tasting room sales.

“Last year I sold out of my tasting room $145,000 at retail. The amount of money I sent to OLCC was $44,000,” Irwin said. “That is before I pay any property tax, income tax, any of my fees, or labor.

“And the big thing is we’re carrying the inventory,” Irwin added. “OLCC never even touches it. Why do I pay them 30 percent?”

Irwin said he’s hoping for a break on OLCC fees for tasting rooms.

He was disgruntled to find out about the 5 percent markup in the governor’s budget because just six months ago, the industry resisted a proposed increase in the per-bottle surcharge, he said.

Brown spokeswoman Kate Kondayen said the budget proposal includes a hike in liquor prices because the governor’s office is trying to use “every tool in our toolkit to fund Oregonians’ priorities, while staying competitive with neighboring states.”

The markup generated $264.4 million for the state general fund in the last biennium, OLCC spokesman Matt Van Sickle said.

With additional breakouts for cities, counties metal health, alcoholism and drug services, the liquor-generated revenue totaled $465.2 million, he said.

Although the OLCC voted in July to continue the per-bottle surcharge, it wouldn’t necessarily agree to change the state markup formula.

The commission would have to vote on the matter after hearing public comments, Van Sickle said. The formula was last changed in the 1990s, he said.

— Reporter: 541-617-7860, kmclaughlin@bendbulletin.com

21916598