Reason #4 -- the 18% Emergency Tax

I remember the first time I visited Johnstown. I was driving in from Pittsburgh, and it had been raining heavily. The sky was still gray and threatening, and local streams and creeks were swollen, brim-full. I mentioned this to a Johnstown resident, and his dead-serious response was, "You might not want to talk about that. We're kind of touchy about that."

Say the name, "Johnstown," and people think "flood." The flood they're thinking of was in 1889, a catastrophe caused by a dam failure, but there were other floods in Johnstown, in 1894, 1907, 1924, and 1977. The biggest flood after the 1889 event, though, was the "St. Patrick's Day Flood" in 1936. Damage was extensive, and the State responded with clean-up and recovery aid. The expenditures were covered by a quickly-imposed Emergency Tax of 10% on all wine and liquor sold in the State Stores.

You may have heard that we're still paying this Emergency Tax. Well, that's not really true; we're no longer paying a 10% Johnstown Flood Emergency Tax. Don't be silly; that was over 70 years ago! No, we're paying an 18% Johnstown Flood Emergency Tax for an "emergency" that ended 71 years ago, because the State raised the tax to 15% in 1963 and then again to 18% in 1968. That's some emergency.

Reason #4:

The Ridiculous 72-Year Old Emergency Tax

You may find this hard to believe, so here's the proof, right off "e-TIDES" (PA's Electronic Tax Information and Data Exchange System). You'll see at the bottom of the page that the cite is "Emergency Liquor Sales Tax Act, Act of June 9, 1936." The emergency has been over for 70 years, and of course, the money hasn't gone to the citizens of Johnstown (or...the contractors hired to help the citizens of Johnstown) for many, many years: it goes to the General Fund. It's just money the State is taking from you every time you buy booze.

The Emergency Tax is an amazing thing, kind of the creamy center of a towering cake of taxes Pennsylvanians pay when they buy booze. First, there's the actual cost of the packaged beverage. The federal excise tax is added at the producer/importer level. Then the fun starts. The State imposes its set mark-up (for "profit", which in the case of so-called "control states" is really an additional tax, since it all goes to the State) of 30%. Now put that luscious Emergency Tax in there, adding 18% of the cost, the federal excise tax, and the 30% mark-up onto your bill. Think that's rapacious? Wait, there's more! That's right, folks, now you get to add the 6% State sales tax (7% in Philadelphia County)!

Let's look at that. Say you get a bottle of 100 proof bottled-in-bond bourbon. Cost from producer: $10. Federal excise tax of just about $2.50 (it's a set amount per gallon of 100 proof liquor; that's why we bought bottled-in-bond):$12.50. The State's mark-up of 30% is $3.75: $16.25. Now add the 18% Johnstown Flood Emergency Tax of $2.93 (note that it's more than the federal tax): $19.18. Top it all off with the 6% sales tax you pay on computers, cars, books, pets, toilet paper (whoops -- turns out PA doesn't tax toilet paper; make that kleenex...which, believe it or not, was what I had there originally, and for some reason, changed it)-- $1.15 -- and you get a grand total of $20.33. That is more than twice the cost of the whiskey.

Please note three things. First, there may be some additional charges in there that I've missed: the PLCB's site does not make it easy to get a total breakdown of charges. If I get better data, I'll add it. Second, this is what's called a "regressive tax." As a flat percentage, it hits poorer people harder by taking a proportionally larger part of their income. (Thanks to Grey Lodge Pub owner Mike Scotese for pointing that out.)

Finally, I hope you noticed that the Emergency Tax taxes the tax: you're paying 18% of both the federal excise tax and the State's "mark-up". Of course, the State sales tax then does that too, taxing the Emergency tax, and effectively taxing the federal tax and the State's mark-up twice. It's sweet, what you can do in business when you write the rules.

Is the Emergency Tax higher than other states' booze taxes? It's actually hard to compare state liquor taxes. Many of them (but not all) are imposed on gallons at a set rate, rather than a percentage, so the tax load is actually lower on high-end booze. Not the case in Pennsylvania, where you're expected to pay 18% on $500 bottles of single malt (and that nifty 30% "mark-up," don't forget that).

The Pennsylvania Tourism & Lodging Association has an official position supporting repeal of the Johnstown Flood Emergency Tax. They point out that the tax, along with the State's monopoly pricing and minimal bulk discounts, puts Pennsylvania restaurants and bars at a distinct price disadvantage.

I can't realistically expect that the state will repeal the Johnstown Flood Tax and leave us with no excise tax on liquor and wine at all. What I would like to see is something more in line with other states. Something like this:

The PLCB should be abolished so that the current compound tax situation of an artificially imposed state "mark-up" of 30% -- a de facto tax -- plus the ludicrously outdated "Johnstown Flood Emergency Tax" could be replaced by a tax system more in line with neighboring states.

Collecting those taxes could be a lot easier, too...but we've got plenty of Reasons to address that. For now, let's zero in on admitting that the Johnstown Flood Emergency...is over. The emergency is a state legislature with a drinking tax problem.