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New tax shakes up cocktail prices in Texas
BY COREY PAUL firstname.lastname@example.org, writer
(AP) -- Starting New Years Day, a change in sales taxes could mean people buying mixed drinks at bars and restaurants will pay more.
The so called mixed beverage sales tax stems from House Bill 3572, which supporters describe as an attempt to reduce hidden taxes and lessen the parity between businesses that sell only beer and wine and those that also sell liquor. The bill passed in the regular session.
The change will cut the taxes businesses pay on mixed drinks sold, from 14 percent to 6.7 percent. But purchasers of mixed drinks will pay a new sales tax of 8.25 percent the same tax on beer and wine.
Michael Klein, president of the Texas Bar and Nightclub Alliance based in Austin, told the Associated Press the new system is more complicated and creates room for error.
But Richie Jackson of the Texas Restaurant Association, also based in Austin, said vendors now have more flexibility.
As it stands now, businesses that sell liquor must pay a 14 percent tax on beer, wine and mixed drinks. These bars and restaurants build this mixed beverage gross receipts tax into their drink prices, because they cannot directly collect the tax from their customers or charge them separately from the purchase price, according to a review from the Austin-based Seay Law Firm.
The businesses can, however, give customers a statement that shows how much the business will pay based on their drink purchase. The Barn Door Steakhouse in Odessa recently began doing this, owner Roy Gillean told the paper in October.
Meanwhile, businesses licensed to sell just beer and wine, such as Woodys Lounge on Dixie Boulevard, must collect the 8.25 percent from their customers.
So the legislation going into effect on Wednesday applies this 8.25 percent sales tax at bars that do sell liquorwhile lessening the percentage the bars must pay to the state based on their customers purchases.
Jackson said sometimes that bars landlords consider that mixed beverage gross receipts tax when determining rents. He said the new legislation helps to fix that and also helps level the playing field for bars that sell liquor and bars that do not.
On Monday, Jackson cited three options businesses will have in handling the new tax:
>> First, a business can combine the new and old taxes so that drink prices stay roughly the same even though customers are picking up greater share of payments to the state. (The market beverage sales tax and the new mixed beverage gross receipts tax add to a total of nearly 15 percent in drink taxes. But Jackson said the sales tax would be applied separately from the gross receipts tax, thus keeping the total paid to the state closer to the 14 percent paid to the state from a drink receipt).
>> Second, a business could more easily raise drink prices, by just adding the sales tax on top of the existing price.
>> Third, a business could lower drink prices closer to the level of bars and restaurants that do not sell alcohol and then add the sales tax on top like they do.
Jackson said he expected bars and restaurants to handle the change differently but that many Texan consumers will not feel it.
I dont expect it to be a big issue one way or the other, Jackson said.
The Seay Law Firm review expected a mixed impact and possibly greater profits for restaurants and bars that do not reduce their prices as long as customers do not respond by changing their habits.
However, the change certainly makes things more complicated for bars and restaurants, the review stated. These businesses will now have to deal with two different types of tax, with two different sets of rules, and two different sets of associated paperwork and procedures. It is unclear why such a complicated taxation scheme is necessary for these types of businesses.
Zucchis bar and restaurant owner Larry Burdette said he planned to meet with his accountant on today to determine how he would need to comply with the new tax, which he said was not on his radar until the newspaper called him to ask about it.
I think it is making it more complicated and its probably going to be more confusing for the customer but over time it will simplify, Burdette said, adding that he hoped he would not have to make difficult changes to Zucchis computer system but that it sounds like Im just going to be making more money.
The Associated Press contributed to this report.