LINCOLN — State liquor officials were weighing their options Friday after groups battling underage drinking won a major victory in the Nebraska Supreme Court.
The court ruled that flavored malt beverages, such as Mike's Hard Lemonade and Smirnoff Ice, should be taxed as liquor rather than beer.
Diane Riibe, executive director of Project Extra Mile, said she was “beyond ecstatic” about the outcome.
“Justice came today for Nebraska's children and taxpayers,” she said.
Her group has long argued that higher taxes would discourage youngsters from drinking the fruity, sweet beverages, which critics dub “alcopops.”
State taxes on spirits are $3.75 per gallon compared with 31 cents per gallon for beer.
Hobert Rupe, executive director of the Nebraska Liquor Control Commission, said the ruling puts Nebraska out of step with the federal government and most other states.
It would mean an increase in the cost of flavored malt beverages and would force them out of stores that are licensed to sell beer only, he said.
Rupe said the commission is considering its next step. Among the options, it is seeking a rehearing from the state high court. Another is to redouble efforts to change state law.
The commission backs a bill awaiting first-round debate that would classify — and tax — the drinks as beer.
Riibe, on the other hand, called on lawmakers to back the court ruling and vote down the bill.
Legislative Bill 824 would change the state law at issue in the court case brought by Project Extra Mile, the Public Health Association of Nebraska, PRIDE Omaha and Mary Doghman, an Omaha parent.
The groups went to court over a rule adopted by the liquor commission in 2006, which used federal definitions of what constitutes beer. Federal regulations allow beers to have up to 49 percent of their alcohol content from distilled spirits.
The groups bringing the lawsuit contended, and the state high court agreed, that the commission had exceeded its authority by classifying flavored malt beverages as beer.
The Supreme Court said state law is clear that “any beverage containing more than an insignificant amount of alcohol used for flavorings” is considered liquor.
The Nebraska Liquor Control Act “cannot be reasonably interpreted as permitting the alcohol in a beer product to have up to 49 percent distilled alcohol,” the court said.
Flavored malt beverages are brewed like beer, although most of the beer taste and color and some of the alcohol are stripped away. Flavors produced through a distilling process are added to replace some of the brewed alcohol.
The beverages' alcohol level is similar to the level in beer.
Vince Powers, attorney for Project Extra Mile and the other plaintiffs, said Nebraska has missed an estimated $2 million a year in taxes because the drinks haven't been taxed at the proper level.
“The ruling means the out-of-state companies will have to start paying their fair share of taxes like everyone else,” he said.
Powers said the ruling also is significant because it strengthens citizens' ability to go to court to challenge government actions.
In the Friday ruling, the court said Doghman could sue over the commission's failure to assess or collect the taxes required by state law.
“No better-suited party exists to assert the public's interests in challenging the commission's alleged failure to assess statutorily required taxes,” the court said, noting that the parties most directly affected by the commission's actions are those who benefited from it.
Riibe criticized Attorney General Jon Bruning for appealing the lower court ruling at the expense of children and taxpayers.
A spokeswoman for Bruning referred calls to the Liquor Control Commission.
Controversy about how to classify and tax flavored malt beverages has existed for nearly 10 years. A 2003 federal study found that most of the alcohol in the beverages came from distilled spirits.
However, the drinks have never been taxed at the higher distilled spirits level in Nebraska.
World-Herald staff writer Paul Hammel contributed to this report.
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