PIERRE - The owners of a small winery in the Black Hills say a proposal to nearly triple the wholesale tax on alcohol threatens their business.

"It will put wineries out of business," Matt Keck said.

Keck and his wife, Sandi Vojta, own and manage the Prairie Berry Winery in Hill City, where they produce more than 30 wines made mostly with South Dakota-grown grapes, chokecherries, wild plums and other fruit.

Last week, a legislative committee in Pierre killed a proposal to raise wholesale alcohol taxes in order to help counties deal with increasing costs related to alcohol abuse.

However, even before the bill was officially declared dead, the South Dakota Association of County Commissioners announced a petition drive to put the measure on the ballot in November.

Supporters need to gather about 16,700 signatures to do that.

Pennington County Commissioner Jim Kjerstad said the commission had been pushing for the legislation for years. "At one time, we were the only county supporting it," he said. "Now there's widespread support for it.

Kjerstad added, "I'm totally in favor of it."

The proposed alcohol-tax hike, which would raise an estimated $35 million, is in response to rising costs associated with alcohol abuse - costs now paid mainly by property-tax payers.

Keck and Vojta were in Pierre last week for the annual Governor's Conference on Tourism, and they listened to the debate on the measure in the Senate State Affairs Committee.

Supporters of the bill have described it as amounting to "10 cents a drink" - whether it's a cocktail, a beer or a glass of wine.

"They're being disingenuous when they call it a drink tax," Keck says. "It's not assessed at a bar."

Rather, the tax is an excise tax that wholesalers or small "farm wineries" like Prairie Berry pay on their inventory, before it is sold. An excise tax bill is a shock for new businesses, Keck said.

"When you write out that first check, it's like, 'Wow, this hurts.'"

The current excise tax on farm winery products is 93 cents a gallon, Vojta said. "We're already one of highest in the nation."

The new tax would add $2.56 a gallon to the original. Keck and Vojta hope to be producing almost 50,000 gallons a year soon, and the measure could add more than $100,000 to their excise-tax bill.

Keck said, "That's very difficult for a small business starting out to swallow."

Pennington County Commissioner Brenda Young, who is "very much in favor of" the new tax, said that in the end, consumers would pay the costs.

Vojta, however, argues that excise taxes tie up money until products are sold to retailers. That cash isn't immediately available to hire workers or make capital improvements that she said "could mean more money for the entire area."

Slowing cash flow is especially damaging to small producers, Vojta said. Prairie Berry now employs 10 workers year-round and 30 more during the summer. The company sells wine from its retail store and at 30 other retailers, mostly in South Dakota.

Vojta said the tax also would immediately force Prairie Berry to increase prices in a competitive industry in which prices are dropping and quality is increasing. "It takes away our competitiveness," she said.

Keck and Vojta left good jobs to take a chance in the competitive wine industry.

Keck grew up in Rapid City. Vojta is from Mobridge, where her family has been making farm wine for five generations.

The couple met at South Dakota State University in Brookings, where she studied biology and chemistry and he studied mechanical engineering. After graduation, they both got jobs in Portland, Ore. She was an environmental chemist, and he was engineering computer chips.

Keck and Vojta moved back to the Rapid City in 1998 to make wine, and their first bottle was released in 2000. She's the vintner. "Every drop of wine that's produced goes through my hands," she said.

"We haven't figured out what I do yet," Keck said.

Keck and Vojta also point out that their business adds value to a product of South Dakota agriculture - one of the goals of state economic development officials. (Gov. Mike Rounds, in fact, has opposed such taxes in the past.)

Keck thinks small wineries are being singled out to pay for a problem they don't cause. "Wine is part of a healthy lifestyle," he said. "There are always fringe elements that abuse things."

Counties, however, do have a big problem.

Pennington County, for example, spends about $30 million a year on law enforcement - including court services, the sheriff's office, the county jail, drug and alcohol programs, domestic violence programs and related services.

About 70 percent to 80 percent of those costs are related to alcohol abuse, county commission administrative assistant Ron Buskerud said.

Young said alcohol abuse also raises the cost of health care and social services. "It's just a huge expense," she said.

Kjerstad said, "Property tax payers are getting tired of supporting those services."

Keck doesn't think small wineries should bear the burden, either. "That's an argument that has to be between the county commissioners and the legislators. It's not between the county commissioners and the alcohol industry."

The state association of county commissioners and the state bar association, which also supports the measure, have until April 1 to turn in the ballot petitions. Kjerstad said the commission can't spend taxpayer money on the election, so commissioners and others who support the tax will have to volunteer their time and money to collect signatures and then, if they are successful, to campaign for the tax increase.

Some county commissioners will not support the tax.

Pennington County Commissioner Ethan Schmidt, for example, acknowledged that the commission had to cut $3 million from the county budget for fiscal 2008, including some money for courts. "We are in a budget crunch," he said. Still, Schmidt will not immediately support the measure. "I'm not in favor of it until I learn more," he said.

Keck and Vojta will join South Dakota alcohol wholesalers, who are allowed to spend money to defeat a tax hike to pay for the costs of alcohol abuse.

"The county commissioners are doing their own social engineering," Keck said.

Contact Bill Harlan at 394-8424 or bill.harlan@rapidcityjournal.com