Pub Problems

Tax cuts to expire for craft brewers, cutting into revenue stream

Certain taxes for craft breweries may soon double.
Certain taxes for craft breweries may soon double.
On Thursday, Dec. 5, the Arizona Craft Brewers Guild participated in a nationwide day of action to ask Congress to extend the tax cuts the craft beverage industry has enjoyed since January 2018. At the end of this year, a recalibrated Federal Excise Tax rate as part of the Craft Beverage Modernization and Tax Reform Act will expire, increasing certain taxes on local businesses by 100 percent.

"The craft beer industry, when it comes to legislation, doesn't really put out a public message like this very often," said Arizona Craft Brewers Guild executive director Rob Fullmer. "But in our industry, we're also seeing tariffs on stainless steel and aluminum as part of a larger fight imposed on our industry. So this is not a net windfall. For a lot of people, this is staying above water and keeping business planning predictable... It definitely puts a lot of people at risk."

The Craft Beverage Modernization and Tax Reform Act lowered excise taxes for breweries, wineries and distilleries. For instance, for businesses identified as small domestic breweries—which are the majority of breweries affected by the cuts—the act reduces taxes on barrels from $7 to $3.50. The ACBG estimates the tax relief led to an additional $800,000 to $900,000 for Arizona breweries in 2018 alone.

"If the taxes are raised, that is money that isn't going to be invested back into the business," Fullmer said. "And over the last two years, we've demonstrated that's exactly what it does. Let's talk about the 21 or so breweries in Tucson: For a brewery like Barrio, that savings is potentially a new employee hired, or it could be the beginnings of a healthcare package for the entire workforce... It really is going to go back into more production, and therefore more revenue and state taxes."

These tax cuts may not have only led to more revenue for craft breweries, but more breweries in general. According to the Brewers' Association, Arizona is home to 117 craft breweries, more than 10 of which formed since the tax cuts initiated.

"In Arizona, most of these [breweries] are smaller, they're more on the startup side. And a good number of these people have never seen the old tax rate," Fullmer said. "So this will be a big punch in the gut when coupled with the minimum wage increase, and we all support that, but this is kind of an offset for that."

The Craft Beverage Modernization and Tax Reform Act provided tax relief for all brewers producing less than two million barrels annually. The Act came with a two-year provision, only reducing the taxes through 2018-2019. According to Fullmer, this two-year "grace period" allowed the government to see the economic impact of reducing taxes on small and independent breweries. And now that the two years is ending, he feels local breweries have proved the value of those tax cuts.

Brewers nationally hope to either convince Congress to pass an updated Craft Beverage Modernization act, or extend the current excise tax rates. The Craft Beverage Modernization and Tax Reform Act of 2019 (S. 362; H.R. 1175) has already been introduced in Congress, and may be added to a future bill, such as the December 20 spending bill to avoid a government shutdown.

"This is an excise tax, and very few businesses even pay excise taxes. It's a tax before anything is even sold. Excise taxes were created to ease the burdens of Civil War veterans; they've been decoupled from any sort of appropriation at this point, they just go into the General Fund," Fullmer said. "The tax credit hasn't been recalibrated since the 1970s, and at that time there were about 100 breweries and they were all very large. Now we have 8,000 and they're varying sizes, a lot of them are small. So to ask for a recalibration after that amount of time, and given what the history of that is, and what excise taxes are, I think it's time it be made permanent."

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