Tuesday, May 26, 2015

More fun with math and myths

"Modernization"  math
The Math:
Is there something in the water or air in this state that causes people to not be able to read and do simple arithmetic when it comes to talking about PLCB numbers? How many times have I proven Wendell W. "Haircut 100" Young IV wrong, or the PA Whine and Spiteful Council wrong, or the notoriously un-mathematical state store supporters wrong? Even Representatives like DiGirolamo and Ferlo couldn't escape. Representative Sonney, now it's your turn.

The "Save the PLCB" universe was all atwitter when a Republican (actually two, counting DiGirolamo) announced a direct shipping bill or supported the idea of a direct shipping bill. Here was the proof that modernization was what the people wanted (provided you were one of the people who got campaign contributions) and a great way to show that the PLCB was at the forefront of almost — but not quite — being consumer oriented. 

Now Rep. DiGirolamo said that his version of direct shipping would bring in an additional $25 million in use taxes (called 'profit' by the PLCB) based on additional sales of  $361 million at a 6.92% margin. These are his numbers, I just do the math.(1).

However, Rep. Sonney has a fiscal note attached to his bill with a chart right on top that shows the state will lose $13,750.000. The interesting thing is that if you read the fiscal note on page 2, Fiscal Impact, it says: "The PLCB projects that the reduction in the mark-up from 30% to 10% could reduce revenue by approximately $16,500,000 annually..."  It goes on to use completely different numbers from the chart on page one. I'm guessing that he doesn't even know this, but the point being made is that if nothing else changed but the reduction in mark-up, the state will make less.

The Myth:
But HB 189 does change other things.  Instead of 55 wineries signed up for the current system supposedly at least 300 more will join the party, which sounds like a lot...but is only about 5% of U.S. wineries. How much more direct-shipped wine will Pennsylvania citizens and businesses buy when there are 400 choices instead of 55? Rep. DiGirolamo says 5.4 times as much (2), he isn't saying where he came up with the figure.

Will the state still lose money if sales increase by over 5 times and the mark-up is only 10% on SLO's? This is the PLCB we are talking about, so nothing they do should surprise you. They shouldn't lose money, in my opinion, but never underestimate their incompetence.

So this is good for the state and the citizens, right?  Not really. It still places the PLCB as the roadblock for which items can be ordered. If the PLCB can get it, you have to order from them. As I pointed out, those 400 wineries that signed up only represent 5% of U.S. wineries. But will there really be 400 wineries that sign up? More importantly, don't expect to direct ship anything from outside the country — that isn't allowed.

HB 189:

1. Wants the wineries to pay $100 license fee.
2. Wants a list of all wines shipped to PA residents
3. Wants permission to audit the direct wine shippers' books.
4. Wants submission to the jurisdiction of the board, any other State agency and the courts of this Commonwealth for purposes of enforcement.
5. Wants to require proof of age of the recipient, in a manner or format approved by the board.
6. Wants all boxes labeled with the words "CONTAINS ALCOHOL:SIGNATURE OF PERSON 21 YEARS OF AGE OR OLDER REQUIRED FOR DELIVERY." (no other state requires this)

And it goes on. How many wineries will make special boxes just for PA? How many will submit to jurisdiction? How many residents want the government to know what and how much they ordered?  Is this really what you think of when you say direct shipment?

Will this bill change the tax code to determine what  the state uses as the definition of a nexus for tax purposes? Some companies will have no physical presence in the state and no third parties who act as agents or representatives of the remote seller who have a physical presence within the Commonwealth. This point was brought up to me by a lawyer who is sympathetic to privatization; it carries no legal weight, but is interesting to think about..

All in all, it's looking like another failed attempt to improve the consumer satisfaction when buying wine and spirits in the Commonwealth. Band-aids like Rep Sonney's HB 189 do little to fix the problem of a broken system that most think is insufficient to their needs and wants, and does nothing significant to  move the state forward to the free market system that all normal states use.


1.) $25 million divided by .0692 is $361,271,676.30
2.) Current SLO wine orders are $67 million, $361 million is 5.4 times as much

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