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Originally published May 31, 2012 at 9:05 PM | Page modified June 1, 2012 at 6:24 AM

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Privatized liquor sales begin Friday in state

The ruling comes a day before private retailers in Washington are to take over the liquor business for the first time since Prohibition ended

Seattle Times business reporter

Count the taxes

Liquor buyers could be in for a rude awakening Friday when they go to pay. That's because unlike the list prices at state-run liquor stores, the numbers they see on the shelves of private retailers will not include two taxes applied at checkout. Added to their final purchase prices will be Washington's 20.5 percent spirits sales tax and a $3.77 liter tax ($2.83 for a 750-milliliter bottle or $6.60 for 1.75 liters). To minimize confusion, some retailers will put up signs stating that both taxes will be applied at checkout.

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Starting Friday, consumers in King County will be able to buy liquor at some 270 places, nearly four times the number as when only state-controlled stores could sell spirits.

But that number will only grow as dozens of new stores seeking liquor licenses join the fray.

The competition includes some of the biggest names in retail — everyone from Costco and Walmart to Safeway and Walgreens.

As retailers prepared new rows of bottled alcohol for Friday's unveiling, the Washington Supreme Court removed the last remaining roadblock to privatizing the state's liquor business.

In a 5-4 decision Thursday, the justices upheld Initiative 1183, which dramatically transforms Washington's 78-year-old system for liquor sales from state-controlled stores to private industry.

"Tomorrow morning, we will have, for the first time in 78 years, spirits on the shelves of private retail stores in Washington," Joel Benoliel, Costco senior vice president and chief legal counsel, said shortly after the decision. "We're very gratified."

Opponents who filed suit to overturn I-1183 argued that it violated state rules by including a provision to set aside $10 million for public safety. The state's constitution requires initiatives to address only one subject, but the court disagreed with opponents that voters would have rejected the measure had the funding provision not been included.

Michael Subit, a Seattle attorney representing the opponents, said the court's decision ends a months-long legal battle.

"There's nowhere to go from here. On the issue of the constitutionality of a state statute, the Washington Supreme Court is the final word," Subit said.

The initiative, heavily backed by Costco, requires the changeover to take place Friday, June 1. A total of about 1,640 retailers have applied to sell liquor in Washington, up from roughly 350 state-owned or state-contracted liquor stores under the old system.

Voters approved I-1183 last fall, allowing stores larger than 10,000 square feet and some smaller specialty shops to sell liquor.

Critics warn that consumers likely won't see the big price drops they might have expected from an industry that's no longer monopolized.

QFC is advertising 750-milliliter bottles of Ketel One vodka for $19.59. But that doesn't include Washington's 20.5 percent liquor sales tax and a $3.77 per-liter tax.

Counting both taxes, customers will pay about $26.40 for the vodka, roughly 50 cents less than at state-run liquor stores.

At Fred Meyer, a 750-milliliter bottle of Captain Morgan spiced rum will cost about $20.90 after taxes, compared with $19.95 under the old system.

The initiative also imposes 27 percent in fees on wholesalers and retailers to compensate the state for closing its lucrative liquor business. (The wholesalers' portion of the fee, now at 10 percent, drops to 5 percent in 2014, but retailers' 17 percent stays the same.)

Justice Charles Wiggins, in a 21-page dissenting opinion in the Supreme Court decision, said the fees imposed by I-1183 essentially are new taxes. While the constitution allows voter initiatives to create new taxes, he wrote, "the ballot title cannot misleadingly imply that it does not."

The ballot title stated that Washington would license private businesses to sell and distribute spirits and set license fees based on sales.

"The title of I-1183 refers to 'license fees' but then imposes 'license fees' that are actually taxes and would be understood by the public to be taxes," he said.

Wiggins also argued that earmarking new tax revenue for public safety is not inherently problematic, but it has "no rational relation to liquor privatization and may have been included only to win votes."

Justice Steven González, writing the majority opinion, countered that the measure's use of the word "fee" was not misleading or false, and that opponents' focus on the legal distinction between taxes and fees ignored the court's role "of construing the language of the initiative as the average informed voter would have read it."

González also said the public-safety earmark was "germane to the general topic" of I-1183 and did not constitute "logrolling," the grouping of incompatible measures to win votes.

Dave Grumbois, a plaintiff in the legal challenge, said he's ready to move on despite his disappointment over the court's decision.

Grumbois owns a shopping center in Longview where Washington's Liquor Control Board has had a store since 1977. Another man won the rights at auction to apply for a liquor license at the same location and plans to continue running it as a spirits store.

Citing state worker layoffs and possible price increases, Grumbois said voters may look back on I-1183 with regret.

"By and large, people like me will get by," he said. "The people who'll bear the brunt of this are the people who are going to lose their jobs, the people now drawing unemployment checks, and consumers who'll be paying more for the price of alcohol."

Meanwhile, Costco said its liquor prices will be about 5 percent below the state's. Its 27 stores in Washington will carry about 70 liquor products, a narrower selection than the state's.

Benoliel, the Costco chief legal counsel, said he does not expect "a carnival atmosphere" around liquor sales Friday.

"People doing their grocery shopping at Costco are going to pick up plants for the garden and whatever else they need. And they'll experience the convenience of buying spirits without making an out-of-the-way trip to a state store," he said.

"Our objective is to be priced lower than the state," he added. "We think it's feasible."

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com. Seattle Times business reporter Melissa Allison contributed to this story.

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