The decision by the California Board of Equalization (BOE) to regulate alcopop drinks as distilled spirits rather than beer has received final approval by the state Office of Administrative Law, meaning higher state taxes on drinks like Bacardi Breezers, Mike's Hard Lemonade, and Smirnoff Ice.

Previously, the drinks known in alcohol industry parlance as flavored malt beverages (FMBs) were taxed at the beer rate of 20 cents per gallon in California; they will now be taxed at the liquor rate of $3.30 per gallon. The change, originally proposed last August, will take place in October.

"This regulation clarifies that, effective October 1, 2008, distilled spirits include any alcoholic beverage, except wine ... which contains 0.5 percent or more alcohol by volume from flavors or ingredients containing alcohol obtained from the distillation of fermented agricultural products," according to a notice published by the BOE (PDF). "The purpose of this regulation is to establish a bright line to determine when an alcoholic beverage is a "distilled spirit" under the Alcoholic Beverage Tax Law."

"I believe that the ultimate effect of this regulatory change will be positive," said BOE chair Judy Chu, Ph.D. "It will send a signal to youth that alcopops are hard liquor -- because these drinks will now have costs that are similar to hard liquor. It will make it harder for young people to access alcopops, and that can only be helpful in reducing underage drinking."

"For years, Big Alcohol has fraudulently evaded proper taxation on these products. Now, both the state and our youth will benefit," said Bruce Livingston, executive director of Marin Institute, which lobbied for the regulatory change as part of the California Coalition on Alcopops and Youth. The coalition also is seeking action from California Gov. Arnold Schwarzenegger to place stricter limits on where alcopops can be sold.

The new California regulations oblige manufacturers to prove that their products do not meet the definition of a distilled spirit; one bone of contention in the debate over alcopops has been the source of the alcohol in the drinks -- whether it comes from distillation such as with liquor products or brewing as with beer.

The board estimated that the regulatory change will result in an additional $41.4 million in state tax revenues annually.

However, the Flavored Malt Beverage Coalition, an industry group, and alcohol company Diageo announced that they would challenge the California decision in court, saying that it "flies in the face of the state constitution and public opinion."

"Not only does [the decision] hurt adult consumers and more than 35,000 small businesses across California, but it also misleads the public to think raising taxes on a consumer product will combat the very serious problem of underage drinking," said Amy Elliott, director of state government affairs for Diageo North America, which referred to alcopops as "flavored beer."

"The anti-alcohol advocates have foisted a tax increase on law-abiding Californians at a time when our economy is struggling and sleight-of-hand tax increases are not helpful to everyday consumers," added Guy L. Smith, executive vice president of Diageo North America. "Tax increases are the sole purview of the members of the legislature, not obscure politicians."

Diageo and other alcohol companies have waged a national campaign to get states to declare that alcopops are beer, with industry-friendly legislation passed in Maryland even as states like Maine, Utah, and now California have moved to classify these products as distilled spirits.

"Diageo is still trying to protect their old, fraudulent tax rate on Smirnoff Ice, at a rate that allows kids to buy their product," said Livingston.  "Any court delays by Diageo will keep Smirnoff Ice prices low, and harm and sometimes kill the youth of California."