The cost of selling beer goes down, but will it help?
A part of the federal tax overhaul that passed through Congress this week was a provision likely to impact local craft-beverage business. The Craft Beverage Modernization and Tax Reform Act lowers the federal excise tax on alcoholic beverages.
For local breweries, that means the excise on the first 60,000 barrels of production will be cut in half, dropping from $7 per barrel (31 gallons) to $3.50. For higher-volume businesses, the excise on volume over 60,000 barrels will change from $18 to $16.
Craft-beer trade organization the Brewers Association has been advocating for the bill for ten years and estimates $142 million in annual savings for the U.S. beer industry, with $80 million of that applied to craft breweries producing under 6 million barrels per year. A statement from the Brewers Association suggests the tax relief is designed to help small brewers, "reinvest in their businesses, expand their operations, and hire more workers."
For one of the nation's largest craft breweries, Samuel Adams producer Boston Beer Co., production numbers suggest savings will amount to more than $8 million. Bloomberg reported that Boston Beer founder Jim Koch became craft beer's first billionaire in 2013.
Based on the most recent published production numbers for San Diego's largest independent producer, Stone Brewing, the change could save the company more than three quarters of a million dollars each year. However, most local craft brewers operate on a much smaller scale, and immediate reactions were mixed.
Societe Brewing Co. cofounder Douglas Constantiner calls change, "A big victory to bring the excise tax to a modern-day craft-brewery climate," noting the existing excise was established long before the rise of craft beer. At current production rates, Societe would stand to net about $14,000 in annual savings. Constantiner suggests the new bill "allows more operating cash flow to afford new equipment or increase benefits to employees."
Curtis Chism, cofounder of Council Brewing, appreciates what the Brewers Association's efforts mean for the industry. However, he notes Council's small production numbers (1000 barrels per year) means the new rate won't help growth just yet. "[It] doesn't amount to a particularly large overall tax cut and will likely be used to off-set our other overhead expenses," Chism says. "As we grow larger the savings will amount to much more."
Alex Van Horne, cofounder of Intergalactic Brewing Company, operates on a very small scale, producing about 250 barrels per year. "It will save us a few hundred dollars next year. Maybe a thousand," he says. Van Horne recently announced he may need to sell or shut down his brewery due to rising competition, and he doesn't envision lower federal taxes changing that. "The beer industry is so capital-intensive, going from a nano setup to a true micro costs hundreds of thousands," he says. "It's a win, but it won't be the deciding factor in a brewery's success or failure."
Meanwhile, Modern Times Beer founder Jacob McKean acknowledges his growing business — which is about to open new breweries in Los Angeles and Portland, Oregon — would appear to benefit. However, he looks at a broader perspective. "Whatever direct savings we will have from the tax bill will unfortunately be wiped out many times over by the terrible toll this bill will take on society as a whole," he says. "The increased cost of health care alone will make this tax cut worthless for breweries."
The local businesses standing to benefit the most may be craft distilleries. The new bill drops the excise per proof gallon of spirits from $13.50 all the way down to $2.70 for small producers (under 100,000 proof gallons).
"This is a huge deal for small distilleries," says Bill Rogers, founder of Liberty Call Distilling and president of the San Diego Distillers Guild. He explains the change could average a saving of $1.71 per 750ml bottle for the manufacturer (vs. $1.75 per keg of beer). He believes it could help craft distillers in the uphill battle to compete against large manufacturers. "It might mean the difference in losing money or breaking even," he says. "It’s definitely a silver lining in the controversial tax bill."