Pouring a beer

Andrew Burke, proprietor of John Steven Ltd. (pouring beer) believes Maryland's new alcohol tax, which kicks in July 1, 2011, will have an impact on business. The bar owners must decide between "eating" the increase or charging more. (Baltimore Sun photo by Gene Sweeney Jr. / June 28, 2011)

Maryland lawmakers voted this year to raise the sales tax on alcohol by three cents on the dollar.

But when the increase kicks in Friday, bar patrons could see prices going up by twice as much.

Chalk it up to pub economics: Bar owners, who typically include the sales tax as part of a beverage's advertised price, don't like dealing in pennies, nickels or dimes. Prices, particularly at the local joints, are set in 25-cent increments.

"If you are tending bar, and it is a Saturday night, you can't make change," explained Andrew Burke, the owner of John Steven Ltd., a bar in Baltimore's Fells Point neighborhood. "The guy at the bar isn't going to count out 86 cents while three more people are waiting for a drink."

That means that when the state adds a 3 percent surcharge for alcohol on top of the 6 percent sales tax Friday, bar owners say, your $3 Bud Lite will cost $3.25.

It was one of several wrinkles that went unmentioned in the debate over the alcohol tax during the waning hours of this year's legislative session. But as bar and small-business owners work through pages of explanations about the new tax from the the state comptroller' office, they are discovering that the tax is likely to hit in some unpredicted ways.

It's the first tax hike targeted at booze in a generation, and the most significant change to the tax code since 2007, when the sales tax on all goods was bumped up a percentage point.

When the sales tax surcharge on alcohol was introduced in the General Assembly this year, it was seen by the powerful liquor lobby as an improvement over the so-called dime-a-drink increase on wholesale prices, which advocates had pushed for years as a way to boost funding for the developmentally disabled.

The reason: With a sales tax, the price on the shelf remains static; the true cost is clear to the consumer only at the cash register. Restaurant and store owners liked the new approach — but nobody, it appeared, realized that bars would still be stung.

The state expects the new tax to bring in roughly $87 million annually. It wasn't needed to balance the budget for the fiscal year that begins Friday — lawmakers did that with a combination of cuts and fee increases — but the continuing stream of new revenue is expected to make future deficits smaller.

About 80 percent of the money the increase raises this year will be spent on school construction, mostly in Baltimore and the Washington suburbs, heavily Democratic areas where support was needed for final passage. The rest will go to services for the developmentally disabled.

Next year, the cash goes into the state's general fund — though lobbyists for disabled people already are pressuring Gov. Martin O'Malley to commit funds to their cause. They are planning a news conference on the subject Thursday.

Democratic lawmakers say they are unmoved by the complaints from bar owners who are contemplating adding a quarter or two to prices. After all, the difference between the actual tax and the bars' increases will be profit.

"If they think it will cause us to undo what we did, I think they will be drowning in their own beer," said Del. Sandy Rosenberg, a Baltimore Democrat on the tax-writing House Ways and Means Committee.

Sen. Rich Madaleno, a Montgomery County Democrat on the Senate Budget and Taxation Committee, predicted that if bars decided to raise prices in 25-cent increments, Annapolis would be blamed.

"I guess that is a role we are doomed to play," he said.

The staff in the wood-paneled second-floor lounge at Sláinte Irish Pub and Restaurant in Fells Point let out groans and a few expletives last week when owners announced that new, higher prices were in the works. It's the first time in three years they've touched prices.

"You need to let people know it is not our fault," said Chris Marquis, a chef. "It is that guy O'Malley."

Democratic Gov. Martin O'Malley put his signature on the bill last month. Marquis suggested posting a sign on the door encouraging customers to direct their anger at the government.