ARIZONA STATE SENATE

ANASTASIA LOBO

LEGISLATIVE RESEARCH INTERN

MOLLY GRAVER

LEGISLATIVE RESEARCH ANALYST

FINANCE COMMITTEE

Telephone: (602) 926-3171

RESEARCH STAFF

TO:                  MEMBERS OF THE SENATE

FINANCE COMMITTEE

DATE:            March 20, 2025

SUBJECT:      Strike everything amendment to H.B. 2654, relating to luxury tax; ready-to-drink spirits products

Purpose

Establishes a luxury privilege tax classification for ready-to-drink spirits products and imposes a tax of $1.50 per gallon on each sealed container. Requires craft distillers, producers and wholesalers to pay the luxury privilege tax and add the amount of tax to the sales price. Outlines Arizona Department of Revenue (ADOR) administrative requirements for ready-to-drink spirits product treatment.

Background

A luxury privilege tax is imposed on wholesalers of spirituous, vinous and malt liquors. The luxury privilege tax on spirituous liquor is levied and collected at a rate of $3.00 per gallon on each sealed container and at a proportionate rate for any lesser or greater quantity than one gallon. Luxury privilege tax collections are allocated to the state General Fund, Corrections Fund, Corrections Revolving Fund and the Drug Treatment and Education Fund in prescribed percentages (A.R.S. §§ 42-3051; 42-3052; 42-3102; and 42-3106).

A farm winery, manufacturer, microbrewery, craft distiller or direct shipment licensee must prepare an annual tax return that includes the amount of liquors or beer sold during the tax year. ADOR requires a farm winery or direct shipment licensee that makes deliveries to file surety bonds conditioned on the payment of all taxes, penalties and other obligations of the farm winery or direct shipment licensee (A.R.S. §§ 42-3355 and 42-3356).

Distilled spirits include alcohol, brandy, whiskey, rum, tequila, mescal, gin, absinthe, a compound or mixture of any of them or of any of them with any vegetable or other substance, alcohol bitters, bitters containing alcohol, fruits preserved in ardent spirits, and any alcoholic mixture or preparation, whether patented or otherwise, that may in sufficient quantities produce intoxication (A.R.S. § 4-101).

If imposing a luxury privilege tax on ready-to-drink spirits products results in a change in luxury privilege tax collections, there may be an impact to the state General Fund.

Provisions

1. Defines ready-to-drink spirits products as distilled spirits that are mixed with another beverage that may contain flavoring or coloring materials and other ingredients, that do not exceed 10 percent alcohol by volume, that are sealed in an original container of not more than 16 ounces and that are sold in the manufacturer's original packaging.

2. Establishes a luxury privilege tax classification for ready-to-drink spirits products and imposes a tax rate of $1.50 per gallon on each sealed container and a proportionate rate for any lesser or greater quantity than one-gallon.

3. Applies the statute governing the ADOR bond requirements for wholesalers of spiritous, vinous and malt liquors to wholesalers of ready-to-drink spirits products.

4. Requires a wholesaler of ready-to-drink spirits products that is selling the products within Arizona to pay the required luxury privilege tax on the products sold within Arizona and add the amount of the tax to the sales price.

5. Requires a craft distiller selling ready-to-drink spirits products at retail or to a retail licensee that are manufactured or produced on the premises to pay the required luxury privilege tax and add the amount of tax to the sales price.

6. Requires a farm winery, microbrewery, craft distiller or direct shipment licensee to include, in its annual tax return, the amount of ready-to-drink spirits products sold in Arizona during the year in which the tax accrues.

7. Makes technical and conforming changes.

8. Becomes effective on the general effective date.