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Owners: smaller liquor stores face extinction without tax break

Owners: smaller liquor stores face extinction without tax break »Play Video
FILE - In this Nov. 9, 2011, file photo, Michelle Smith stocks the shelves at a liquor store in Pullman, Wash. Major grocery chains say they won’t be asking Oregon voters to follow Washington and privatize liquor sales this year. (AP Photo/Moscow-Pullman Daily News, Geoff Crimmins, file)

SEATTLE -- Small, privately-run liquor stores in Washington are closing at a rapid rate.

The owners are blaming high tax rates and unfair business practices by distributors and larger warehouse stores, supermarkets and chain liquor stores.

Two years ago, voters approved the privatization of hard liquor sales, forcing the end of state-run liquor stores. Many small-business owners with dreams of making a living by selling booze for the first time spent hundreds of thousands of dollars in many cases on licensees.

Now those dreams are dying.

A resent survey conducted by the Washington Liquor Store Association showed 60 percent of small liquor stores are either closed or will close by the end of the year.  A small store is considered less than 10,000 square feet. The WLSA is a trade organization made up of small liquor stores.

Biniam Habte owns two Seattle area liquor stores, including University Liquors near the University of Washington.  He paid $320,000 for the liquor license at the formerly state-run store.

Before I-1183's passage, the store was doing booming business, fueled by college students. Now, Habte says it does one-tenth the sales. He's finding it tough to compete with the supermarkets down the street.

Habte says his store has generated $800,000 in tax revenue for the state, including a whooping 17 percent tax that goes to the Liquor Control Board. But Habte says he has made zero profits.

"We are not making any money for ourselves. There's no doubt that not just 90 but 100 percent of our liquor stores will be gone," he said.

Liquor store owners are now banding together to ask lawmakers in Olympia for special consideration.

"We are specifically asking the legislature to give just the former state liquor stores and the contract stores just that 17 percent tax break for small businesses," said Bunti Sarai, VP of Operation for G3 Liquors in Olympia. 

Larger stores would still pay the tax.

Members of the WSLA believe the big liquor chains, warehouse store and supermarkets can spread that 17 percent tax into the cost of non-liquor items. It's something that small liquor stores can't do because 90 percent of sales is taxable liquor.

"They are spreading the 17 percent on other things they sell and we believe thats unfair competition," said WSLA President Jas Singha.

Habte says distributors can sell the same bottle of spirits at the same price to everyone, but because larger stores can spread out the cost of the tax to other items, they can undercut the small liquor store on price.

"Do we make the same margin? No, so that's what is killing us," Habte said.

The Washington Liquor Control Board says 40 percent of small liquor stores have stopped paying taxes.  That's the only indication the board has of the number of licensed stores that may have closed.

"It's been a sheer nightmare to compete and survive," Sarai said.

This year, state lawmakers rescinded the 17 percent tax for small Washington-based distillers by waving the tax at the wholesale level.  It will be up the lawmakers to expand that tax cut for just the small liquor store owner.  Any store larger than 10,000 square feet would still pay the 17 percent tax.