Drink tax revenue more than needed, restaurateurs complain

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The 10 percent drink tax in Allegheny County could raise a lot more than the $30 million the county needs for its Port Authority subsidy next year and beyond, say restaurateurs who contend the county didn't do its homework in estimating revenue from the tax.

County Chief Executive Dan Onorato, who proposed the drink tax and a $2 a day tax on car rentals, says the county used Philadelphia, a larger city with a similar tax in place, to come up with revenue estimates. Philadelphia brought in about $40 million from the tax this year. He expects to collect $25 million to $30 million, but he said he'd be happy to deal with the problem if more money is collected.

But restaurateurs, bar owners and industry experts, who must start collecting the drink tax at midnight on Jan. 1, say either Mr. Onorato did not do his homework in establishing how much of a tax was needed or intentionally pushed through the two new levies hoping for a revenue windfall.

"There is no question about it, they are going to raise way more than the $30 million they said they needed," said Ned Sokoloff, president and chief executive officer of Specialty Group, a one-stop shop in the North Hills for people in the bar and restaurant business.

Mr. Sokoloff, a broker in the business for more than 38 years, said the threshold of liquor sales for restaurateurs and bars alone could put the drink tax revenues well over the projected $30 million.

The exact amount of retail alcohol sales for Allegheny County is difficult to determine, but Mr. Sokoloff said liquor establishments like the smaller corner bar shot-and-beer places he deals with must gross about $300,000 in liquor sales annually to stay afloat. If that were the average for the county's 1,902 liquor license holders, they would pay a tax of $30,000 each, generating a potential collection of about $57 million.

High-end restaurants and bars, which generally gross more from liquor sales sold at higher prices, generate substantially more tax revenue than smaller businesses.

Tom Lindahl, an accountant to a number of restaurateurs and bar owners who opposed the drink tax, agreed.

"If a small bar like Peter's Pub in Oakland would have paid $73,000 in this drink tax last year, how much do you think bigger bars on the South Side and all over the city are going to pay?" Mr. Lindahl asked.

Jay Barto, a retired teacher who owns two even smaller neighborhood taverns in Shaler and Hampton, said the drink tax will especially "press down" bar owners like him because their markup on liquor is considerably low.

Mr. Barto owns Mount Royal Inn in Shaler and Jay's Other Place in Hampton. In 2006, he would have paid about $42,000 in the drink tax for both of his taverns, each of which grossed about $215,000 in liquor sales.

On the South Side, Penny Folino, owner of Folino's Ristorante, said she would have paid $50,000 in drink tax last year because she grossed about $500,000 in liquor sales at her Carson Street restaurant alone.

Ms. Folino also owns Tom's Diner in Dormont.

Furthermore, restaurateurs and bar owners say, the county really needed to raise $24 million to $26 million from the alcohol tax because it expects to raise about $4 million to $6 million from the car rental tax. As a result, they say, Mr. Onorato could have asked for an alcohol tax of less than the maximum 10 percent.

"I didn't object the tax itself, but what I didn't appreciate is the fact that they chose the maximum tax they could get," Mr. Sokoloff said. "They didn't have to go to the [10 percent] max."

For his part, Mr. Onorato said that if his alcohol tax estimates are off, he would be happy with a "problem" of too much money.

"We think [the drink tax] will bring in between $25 million and $30 million, but let's assume it brings in more -- we will gladly deal with that," Mr. Onorato said.

Although the tax was introduced with the intention of paying the county's annual subsidy to the Port Authority, Mr. Onorato said any additional money could be used for other county services.

At this point, however, it is all a matter of speculation. Mr. Onorato said his revenue calculations were based on Philadelphia's model.

A look at wholesale Allegheny and Philadelphia liquor purchases from the Pennsylvania Liquor Control Board, coupled with the number of active liquor licenses in both counties, could offer some comparisons.

According to the PLCB, Philadelphia, which enacted its 10 percent drink tax in 1994 to raise revenue for its school district, has 1,798 active liquor licenses, about 100 fewer than Allegheny County's 1,902.

Those liquor licenses include restaurants, bars and taverns, hotels, airport restaurants and club licenses, which would be affected by the drink tax.

According to the PLCB, Philadelphia liquor license holders purchased wholesale $52.4 million worth of liquor from the control board, and the county collected about $40 million from the drink tax.

A straight comparison would suggest that all things being equal, Allegheny County liquor license holders, who purchased $46.4 million, would have paid $35.4 million in the drink tax.

Spokesman Nick Hays of the PLCB, however, was quick to caution that the figures only measure sales to liquor licenses at stores within the county. For example, if a restaurant or bar in Allegheny County purchased its liquor from distributors in Butler County, that sale would be registered in Butler County.

Furthermore, Mr. Hays said, PLCB sales don't include beer sales, which make up a substantial portion of all alcohol sales.

Meanwhile, Kevin Joyce, proprietor of The Carlton restaurant and chairman of the Pennsylvania Restaurant Association, said the group is planning to seek a temporary court injunction next week to stop the drink tax.

"This is not over by a long shot," Mr. Joyce said.

Karamagi Rujumba can be reached at krujumba@post-gazette.com or 412-263-1719.


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