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State lawmakers spent last week looking at ways to address problems left from the voter-approved initiative to privatize liquor sales.

Two years after the state left the liquor business, stores are closing and many customers are crossing borders to buy spirits.

Previously, stores were run by the state or through independent contractors. All liquor retailers, including supermarkets and big-box stores, now have to pay a quarterly license-issuance fee equal to 17 percent of all their liquor sales, a provision in the initiative to bring more money back to state and local governments.

Many say the fee is too high and is driving them out of business.

After the industry was privatized, some contractors purchased their stores; other state-owned stores were sold to private business owners through online auctions.

Of the 167 stores purchased from the state, 116 still have licenses, according to the Washington State Liquor Control Board. The Washington Liquor Store Association estimates 60 percent of the former state liquor stores have closed in the past two years.

Senate Bill 6237 would waive or reduce the license-issuance fee for liquor stores, but lawmakers are arguing about who should qualify.

Sen. Jim Honeyford, R-Sunnyside, sponsored the bill, which would have reduced or eliminated the fee for most liquor stores. But he amended the bill to exclusively benefit stores purchased by contractors, excluding stores purchased through auctions.

He said that was necessary for approval in the Senate, where some lawmakers told him that private business owners should have known what they were getting into.

Now, there’s legislative maneuvering from House Democrats to have provisions for former non-contract stores restored.

Members of the House Government Accountability and Oversight Committee passed the bill with an amendment that would return it to the Senate, hoping senators will reconsider the exclusion of former non-contract stores.

Owner Meru Belbayeva and her family purchased Downtown Spirits, a non-contract Seattle store, two years ago through an online auction. It was the largest liquor store in the state by square footage and sales volume, she said.

“Liquor is a recession-proof item,” she said. “We thought it would be a viable business.”

Today, they aren’t breaking even. Belbayeva said the largest burden is the license-issuance fee that eats up 53 percent of her overall revenue. That’s before rent, employment, taxes and other expenses.

Right now, the bill would lessen or eliminate this fee only for stores purchased by contractors. Retailers bringing in less than $200,000 in liquor sales each month would be altogether exempt from license-issuance fees.

Stores making less than $350,000 each month would pay a fee equal to 7 percent of liquor sales, and stores making more than $350,000 each month would pay 17 percent of liquor sales — the same as now.

The state Office of Financial Management estimates this could cost the state more than $3.8 million by June 2015. The Independent Liquor Store Association, which supports the bill, says it would be closer to $200,000.

Sen. Janea Holmquist Newbry, a Moses Lake Republican who chairs the Senate Commerce and Labor Committee, says solutions should start with customers.

Washington customers pay a liquor sales tax that’s five times the national average, driving sales to other states. Idaho’s liquor division says stores there gained an additional $10 million from Washington customers last year.

Holmquist Newbry is sponsoring Senate Bill 6547, which would decrease sales tax on liquor from 20.5 percent to 6.5 percent over the next eight years. The bill was introduced Feb. 4, and her committee held a work session on it Wednesday.

David Ozgo, chief economist for the Distilled Spirits Council of the United States, criticized the debate about contract and non-contract stores, telling committee members “any tax relief should focus on the consumer.”

Fall City Liquor owner Chuck Emigh isn’t sure.

In order to keep his store and other former contract stores open, he said it’s more important for lawmakers to sort out the license-issuance fee.

“Stores are failing quicker than I can track them,” he said, and some of the businesses he says could be saved might not be around to see the result of the gradual tax reduction.

If he has to continue paying the fee, Emigh said, he will have to lay off four employees. About 50 other former contract stores in the Independent Liquor Store Association would have to take similar steps, he added.

Supermarkets and big-box stores bring in more revenue than most liquor stores. Spirits will still be available there if liquor stores continue to close, but most don’t have as wide a selection because of limited shelf space.

Downtown Spirits has 1,300 different liquor products, Belbayeva said, and most supermarkets and big-box stores have around 50.

Broad fallout

Will Maschmeier, owner of 3 Howls Distillery in Seattle’s Sodo neighborhood, worries about where state micro-distilleries will sell their products if liquor stores continue to close.

“My customers want to find my products, but there have been less and less points of sale,” he said.

Other lawmakers have pushed to remove the license-issuance fee for some business owners.

Senate Bill 6220 would have granted an exemption to retailers who allow customers to drink on site, such as restaurants and bars, but the measure did not pass out of the Senate by the deadline for legislation to move out of its house of origin.

Ashley Stewart: 360-236-8266 or On Twitter: @ashannstew