By JULIE MIANECKI
Capital News Service
LANSING – The word ‘bootlegging’ brings to mind images of Prohibition-era gangsters wearing fedoras and smoking cigars.
It’s not an issue most people expect to encounter in 2010, but Rep. Bert Johnson, D-Highland Park, begs to differ.
“There are people who are absolutely making a living off of bootlegging,” Johnson said. “Not the smart wholesalers or distributors or retail outlets, but the ones that are unscrupulous believe that it’s an act that they can participate in, so we want to stop it.”
Johnson is the primary sponsor of a bill that would raise penalties for those who sell, deliver or import liquor into the state without going through Michigan’s Liquor Control Commission (LCC).
A 2008 study by the LCC estimated the average bootlegger brings about $30,000 worth of products over state lines, two to three times a week. That results in a revenue loss for the state of between $1 million and $2 million annually in liquor taxes.
In 2007, a bootlegger was arrested while driving a van carrying about $30,000 worth of liquor into Michigan. He told a reporter from a Detroit television station that he intended to sell it on street corners out of the back of his van and did so regularly, about three times a week.
The bill is predicted to earn $9.1 million annually for the state’s general fund, primarily from fines of $1,000 to $5,000, depending on the amount of liquor involved. Under the current law, the maximum fine is $1,000.
The School Aid Fund and Convention Facilities Development Fund would each receive another $900,000 annually under the bill.
The bill passed through the Senate and House by votes of 30 to 7 and 77 to 28, respectively.
Now, all that remains is for the governor to sign it, which she is expected do before the Oct. 1 state budget deadline, Johnson said.
Johnson said the potential tax revenue, in addition to the lack of major objections, was the main reason why it passed so quickly.
Rep. Mark Meadows, D-East Lansing, a co-sponsor, said an updated bootlegging law is necessary.
“We need an increased penalty, a more modern penalty, a penalty that wasn’t decided back in 1978,” Meadows said. “It may have been good at the time, but inflation has taken it out of the realm of being a real disincentive to illegal action.
“Some of these individuals do this because it’s just the cost of doing business,” Meadows said. “They get caught once, but if they’re moving a lot of shipments and a lot of alcohol, it might be worth the penalty.”
A companion measure, also awaiting Granholm’s approval, would make it a felony to illegally sell, deliver or import spirits.
Lance Binoniemi, executive director of the Michigan Licensed Beverage Association (MLBA), said the large gap between Michigan’s liquor tax and that of surrounding states adds to the lure of bootlegging.
The MLBA represents businesses with liquor licenses.
“We are the sixth-highest taxed state in the country when it comes to distilled spirits,” Binoniemi said. “Our tax rate is four times higher than Indiana’s, and over three times higher than Wisconsin’s.”
In Michigan, the liquor tax is about $10.09 a gallon, compared to about $2.68 in Indiana and $3.25 in Wisconsin. That means a fifth of vodka that costs $17.02 in Michigan would cost only $15.54 in Indiana.
Therefore, Binomiemi said, a large profit can be made by buying liquor in another state then smuggling it into Michigan for resale.
“Although we support increased penalties for illegal importation of alcohol,” Binoniemi said, “we don’t think the legislation addresses the real problem, which is the enormous tax burden that we have in the state on distilled spirits.”
Binoniemi added that the MLBA has concerns about the other major component of the measure, which would allow designated retailers to provide consumers with samples of alcoholic beverages of up to one-third of an ounce.
“It allows for consumption of alcohol off the premise – party stores, grocery stores, that kind of thing,” Binoniemi said. “If a grocery store or a party store wants to be a bar, they should go out and get the same license that a bar has to get.”
Officially, the association is neutral on the overall legislation, but opposes the sampling aspect, Binomiemi said.
Steve Robinson, director of financial management at the LCC, also expressed concerns about the idea of sampling, although he said the commission is neutral on the proposal as a whole.
“It seems to be too open, allowing too much sampling,” he said. “It was set up to allow all the liquor vendors to do three samplings a month at a licensed establishment. But we have 170 to 190 vendors. So if every vendor could do three at one place, that would be an awful lot of samplings.”
John David, president of the Michigan Spirits Association (MSA), said another provision that would permit manufacturers to package nonalcoholic carbonated beverages with spirits would be most relevant with the sale of gift baskets or similar products. For example, liquor could be packaged with ingredients for a gin-and-tonic or scotch-and-soda.
His group, which represents companies that sell, market and deliver liquor, fully supports the bills.
“With bootlegging, the penalties have not been strong enough to deter a person from doing it again,” David said. “We wanted to increase the penalty so it would set an example for those that are caught, that you can’t just pay a small amount of money like a traffic ticket and go on your way.”
Johnson added, however, that the legislation wouldn’t affect consumers who bring liquor from other states into Michigan solely for personal consumption.
“If you bought a really nice bottle of scotch,” Johnson said, and you happened to be in Indiana and brought it back, I can’t see where you’re part of the problem.”