Boston Tea Party Re-Enacted to Celebrate MA Tax Repeal: But Will Retailers See a Difference in 2011?

Friday, December 31, 2010

Thanks to a tip from Jon Chesto I learned that a group of wine retailers and enthusiasts gathered yesterday on the Boston side of the Fort Point Channel yesterday to re-enact the Boston Tea Party.  But instead of tossing tea into the harbor they poured water from empty wine bottles to commemorate the alcohol tax repeal Massachusetts voters passed as part of Question 1 back in November.  Starting January 1st, 2011, alcohol will be exempt from sales tax as it was from prohibition to 2008.

There was also a group present showing their support for maintaining the tax as it was said to fund a variety of behavioral health services.  I won't rehash that argument here.  I'd rather focus today on how what impact this change will have on wine consumers in 2011.

In talking to wine retailers over the past few months I've noticed a few trends:
  • They're surprised the tax was repealed.
  • They're glad the tax was repealed.
  • They saw a huge boost in sales during the 2010 Massachusetts tax free weekend.
  • They're cautiously optimistic about whether the tax repeal will have a sustained positive effect on their business in 2011.
People sometimes find it hard to believe that others were making purchase decisions based on the tax.  And in most low-dollar transactions I'd agree that was the case.  But I think there's two scenarios where the sales tax does have an impact on purchase decisions, and they're both situations where the dollar volume is large and therefore worth paying attention to.

The first is where you're buying a large quantity of wine for an event like a wedding.  Say you're buying 8 cases of $15/bottle wine for a wedding.  The 6.25% tax previous in effect amounted to $90.  That's significant, and would be enough to make it worth your while to take a trip up to tax-free New Hampshire.  Never mind for a moment that it's illegal to import alcohol into Massachusetts -and- illegal to carry more than 15 bottles of wine in your car without a special permit - more on that here.

The second is more relevant to your typical Massachusetts wine enthusiast and that's in terms of a series of high dollar purchases.  When you spend several thousands of dollars on a wine a year, it pays to think about the fully loaded cost of wine.  When I say full loaded I mean thinking about quantity discounts, shipping, and tax.

When the sales tax first went into place in 2008, it diminished the positive effect of case discounts.  If you only got 10% off a straight case, most of that discount came right back as the 6.25% sales tax was applied.  With the sales tax gone the effect of a case discount will be more compelling psychologically because I know when I see a $29.99 sticker on a bottle I'm eyeing I'd be able to knock that down to $23.99 out the door with a 20% discount.  I like that.

Massachusetts will become the only state in the union that taxes goods in general but excludes wine from sales tax.  Prior to the tax going into effect, I don't think as many people realized how unique the situation was.  I know I didn't.  When I was out in California it always seemed like prices were really low.  And they were, but the roughly 9% sure ate into the savings.

I think retailers can really work this to their advantage now, especially when it comes to more expensive wines.  At the higher end, consumers tend to do more price shopping - especially online - because shipping costs can be absorbed if the savings are high enough.  Wine retailers can't legally ship wine to Masschusetts but that doesn't mean they can't ship wine to neighboring states.  Consumers know this, and they also know that most retailers don't charge sales tax when shipping to most neighboring states.  Just like with shopping online can be a beautiful thing in that respect.  It's a gray legal area but when you're buying wine that costs $50 plus dollars a bottle it can make a big difference especially combined with being able to search nationwide for the best prices.

But we've got some excellent wine retailers in the Boston area.  Combine that with a legal tax-free advantage  and free in-store pickup.  Add to that the ability to try wines before you buy, establish relationships with knowledge retailers (especially at higher price points), and the ability to easily return corked bottles and the incentive to patronize local retailers is as strong as it's ever been.

Shipping restrictions continue to limit consumer access to limited production wines (more on that in this brief history of MA wine shipping laws) but for wines that do make it into the state the question becomes whether retailers will be able to put wine on the shelves at compelling prices?  Their prices are dictated by distributors - will they enable MA retailers to compete favorable when compared nationally?

We shall see, but I'm more optimistic than I've been in a long time about buying wine in Massachusetts.

Pro Tip for New Year's Eve consumption:  Drink 1 full glass of water for every 5 ounce glass of wine you consume to avoid a hangover.

Hope you have a safe night and here's to a great 2011 for you and yours.  Cheers!


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