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Originally published Monday, June 3, 2013 at 4:32 PM

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Guest: Legislature should reject Costco’s unfair liquor legislation

The Legislature should not support changes to Initiative 118, proposed by Costco, the main backer of the initiative. The state would lose tens of million dollars in needed revenue.

Special to The Times

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As mandated by Initiative 1183, the state liquor stores and distribution center shut down for good on June 1, 2012. Unfortunately, that has not meant the end of needlessly divisive battles over our state’s liquor policies.

After spending more than $20 million to pass I-1183, Costco, in alliance with the restaurant industry and big grocery chains, is now attempting to rewrite the very rules it put in the initiative. The intent is to game the rules of the new system in a way that gives the big retailers an unfair competitive advantage over licensed distributors.

Costco and its surrogates are pushing legislation, 2SHB 1161, in the special session that would exempt retailers from paying the 17-percent fee required on retailer-to-restaurant sales. Creating a new tax break costing the state millions in revenue, at the same time the state is scrambling to find funding for tougher drunken-driving laws, makes no sense.

The proposed change would allow Costco to act as a liquor distributor, making unlimited sales to bars and restaurants, while exempting it from paying any of the $150 million in fees required of licensed distributors. This would not only unfairly tilt the competitive playing field, it would thwart the voters’ will and cost the state tens of millions in lost revenue.

I-1183 clearly states that retailers must pay the 17-percent fee on all their sales. Costco added this requirement to address the public’s concern that taxpayers could lose hundreds of millions in revenue by privatizing the liquor system. In combination with other fees and taxes, this retailer fee ensures taxpayers get more liquor revenue now than they did before privatization.

Now, Costco and its allies blame the Liquor Control Board for a fee Costco itself included in the initiative, and their proposed legislation eliminates the 17-percent fee on sales to restaurants. If big chains can make unlimited sales without paying the fee, the state loses revenue. But on most liquor brands, prices for restaurants would remain unchanged because suppliers have made it clear they prefer to go through a distributor rather than sell directly to retailers.

Washington’s spirits and wine distributors have been doing business here for many years, and with the imposition of new distributor fees their profit margins here are among the lowest in the country. Nonetheless, they are rooted in communities across the state and they are proud to have built good relationships with their employees.

Over the past 18 months they have invested hundreds of millions of dollars in creating a state-of-the-art private distribution system that reaches every corner of Washington, adding 1,000 well-paid jobs, many of them union jobs represented by the Teamsters. All of that will be put at risk if Costco has its way.

Backers of the Costco approach claim that a bipartisan group of legislators is supportive [“Repeal liquor fee for retailers to supply restaurants,” Opinion, May, 24]. They fail to mention that another bipartisan group of legislators strongly opposes the Costco approach, and instead favors a better alternative where distributors would voluntarily agree to pay more in fees in order to pay for a substantial tax cut for restaurants and other changes to warehousing and other rules to help smaller liquor retailers and independent grocers compete.

The Liquor Control Board is currently initiating a court-mandated small business economic study of the rules implementing I-1183. Legislators should slow down and allow this study to proceed.

With time and careful consideration, elected leaders in Olympia can come to an agreement that treats all market players fairly, rather than rushing through special-interest legislation that benefits one group at the expense of others and undermines the expressed will of the voters in the process.

John Guadnola is the executive director of the Association of Washington Spirits and Wine Distributors. Rick Hicks is president of Teamsters Joint Council 28.

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