Beer or booze? Nebraska tackles question

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By SCOTT BAUER / The Associated Press

When does a beer stop being a beer?

The answer is at the heart of the problem being looked at in Nebraska and nationally over how to classify flavored malt beverages such as Mike's Hard Lemonade, Smirnoff Ice and Zima.

Sometimes called malternatives, the small but profitable market niche features drinks that start as brewed malt beverages but are flavored with distilled spirits. They generally have the same 5 percent to 8 percent alcohol content as beer.

It's the creation of the drinks, using both brewing and distillation, that has liquor policy makers across the country seeing double.

If the drinks remain under the beer classification in Nebraska, they are taxed at a rate of 31 cents a gallon. Call them spirits and the tax goes to $3.75 a gallon.

Not only are taxes involved, but because distributors of alcohol in Nebraska hold different licenses based on what they sell, some that currently offer the malted beverages may not be able to if they were classified as spirits.

Alcohol wholesalers, distributors, manufacturers and the grocery industry urged the Legislature's General Affairs Committee at a hearing Tuesday not to do anything until after the federal Tax and Trade Bureau weighs in. Its definition of flavored malt beverages, once expected to be released in 2003, is now expected in January or February.

"Nebraska can't be a leader in this instance," said Kathy Siefken, who represents the grocery industry. Creating a different, more stringent standard in Nebraska will chase malt beverage products out of the state and hurt retailers, she said.

Some stores report that the drinks are 5 percent to 12 percent of all alcohol sales, which Siefken said was huge.

The Nebraska Liquor Commission had proposed to change how the drinks were classified and make them spirits on Jan. 1, 2003, but it postponed the switch until July after complaints from the alcohol industry. In April the commission indefinitely postponed the decision, awaiting state or federal guidance.

Project Extra Mile, an Omaha-based group that fights underage drinking, wants malt drinks to be taxed at the higher rate to dissuade young people from consuming them.

The federal regulations are expected to be worded in a way that would allow the drinks to remain classified as beer in Nebraska, said Hobert Rupe, executive director of the state liquor commission.

The real problem is if a new standard would be implemented that would then force Nebraska to change its laws in order to comply, Rupe said. He called that a "nightmare scenario."