Death and Taxes…and Beer

| April 10th, 2013 | No comments

It is interesting to see craft beer grow into an industry as large as it has become. With this growth, invariably, comes matters of propositions, legislation, and taxes. Currently, Florida is trying to legalize the sale of 64oz growlers. Maryland just legalized on premise beer sales and consumption for breweries.

Taxes have a bit of a mixed reputation in this country, to put it lightly. With regards to the beer industry, this is no different. Currently, the Brewers Association is pushing to enact the Small BREW Act through congress. This act is seeking to amend the tax code to lower the rates of excise taxes brewers pay. Well, specifically the first 2 million barrels produced by a brewery making less than 6 million barrels of beer a year.

The craft beer industry is one of the fastest growing industries in America, and for the breweries making less than 60,000 barrels a year, the new proposition would cut their taxes in half. Considering the massive growth the industry has seen, and considering the continuation of this growth, these tax cuts would allow for continued growth, investment, and jobs being added to the economy.

As for the breweries making more than 60,000 but less than 6 million, they would receive a smaller tax cut, decreasing from 50%, depending on their production. For the largest craft brewery, Sam Adams producing 2.7 million barrels a year, this equates to a 8.5% reduction in taxes, or $4,090,000 off.

Now the question of course is whether or not this is necessary. It should be noted however, that 95% of the craft breweries in America make less than 15,000 barrels a year. For these brewers, this would definitely cement their roots in place to continue growing, and to be successful as small business owners. For the other 5% of craft breweries, about 100 of them, it is a tougher sell, especially for the handful making several hundred thousand barrels of beer a year. They may not need the tax cut to stay successful, but because of their size, they have the potential to create the most jobs with the additional revenue. The curious thing to note however, is if 95% of craft breweries make less than 15,000 barrels a year, then why is the Brewers Association pushing to cut taxes on the first 2 million barrels of beer a brewery makes? Even more interesting, some breweries are divided on whether they even want the tax cut.

Lagunitas is the 6th largest craft brewery in the US, currently brewing 700,000 barrels of beer a year. Founder and CEO Tony Magee had this to say on Twitter:

 So, wouldja be cool with us brewers dipping our wicks while you kick in? I think I feel bad about it happening. I wish it weren’t. I guess I’d like to pay less taxes, that’s rational. But it’s also rational 4 no one t want t pay taxes. I feel ok with the current deal.

Jeremy Grenert from Lagunitas then joined the Twitter conversation:

 I think what he is saying is pay your fair share if you can. It does no good to decrease the tax burdon on the segment growing the most… If our current brewers do not want to pay their share, what sets them apart from the big boys?

Tax cuts are one thing, however some states are attempting to raise taxes on brewers. Washington governor Jay Inslee is proposing raising the state excise tax on Washington brewers to help fund the state’s needed education programs. In 2010, a temporary increase on state excise taxes was enacted on brewers, up from $8.08 a barrel to $23.58 a barrel. Breweries making less than 60,000 barrels a year were exempt. The expiration of these temporary taxes is this June, however the governor is looking to make these permanent, and extending them to all breweries. It should also be noted that candy and soda makers were also given a tax hike in 2010, however those industries were able to fight to get those taxes removed.

Should the taxes become permanent, the biggest hit would be to the state’s small brewers who are currently exempt from paying these taxes. The breweries I visited when I was in Washington would immediately face a large tax that was never expected, hurting them and any future breweries in planning. For reference, Washington’s neighboring states charge $2.60 a barrel in Oregon and $4.65 in Idaho. Added taxes on the breweries mean higher prices for distributors, and in turn higher prices for customers, making beers from neighboring states more price competitive.

On the bright side, this morning Tennessee passed a tax reform allowing the state to start taxing beer based off of volume produced, which is what 48 other states, and the federal government, use to tax beer. Previously, Tennessee was one of two states that was taxing beer based off of price.

With regards to taxes, it is a difficult balance of priorities. Governments need tax revenue to fund operations. Governments also try to be lenient to smaller businesses to help drive economic growth. When it comes to beer, it gets more complicated. Once prohibition was repealed, the three tier system was enacted to balance the power between all the breweries, preventing any sort of monopoly. By only giving tax breaks to one group, it is no longer fair. However despite best intentions, there most definitely is a beer monopoly in America, and providing tax incentives to the smaller breweries helps to level the field.

Hmm, “Beer Monopoly” sounds like a fun board game…