20 Dec Congress Passes Massive Tax Reform Act with Significant Effects for Indiana Craft Breweries and Beyond
The tax reform act passed in Congress on Dec. 19 and 20 includes a healthy nugget for craft beer brewers. As reported in Forbes (here and here) and Brewbound, the excise taxes on beer and spirits production, someof the heaviest in the country, is about to be eased.
The Craft Beverage Modernization and Tax Reform Act, years in the making and the product of collaboration between spirits, beer, and wine trade groups, was presented first to Congress in 2015. While it was not brought up for a vote in the last Congress, the bill was recently attached to the tax reform legislation that was just passed with a vote along party lines.
The greatest relief comes to spirits makers, reducing the excise tax from $13.50 per proof gallon to $2.70/proof gallon for the first 100,000 gallons. This is still greater than the tax on beer and wine, but is comparable when ABV is taken into consideration. For wine, the excise tax credit in place for production under 250,000 gallon is now extended to unlimited production.
The new excise rates for small brewers will be reduced from $7 to $3.50/bbl for the first 60,000 barrels. Large breweries also benefit, paying only $16/bbl excise tax (down from $18/bbl) on their first six million barrels. The Brewers Association estimates that small, independent brewers will see a savings of $142 million each year (and $320 million for all breweries).
In Indiana alone, this will result in a tax reduction of nearly $800,000, if the law is enforced quickly. While the legislation will take effect on January 1st, 2018, the action will have to await implementation by the Alcohol and Tobacco Trade Bureau (TTB). Beer Institute CEO Jim McGreevy stated that the institute would work diligently to see that the measures were implemented swiftly. Unfortunately, the legislation as passed will expire on December 31, 2019.
Bob Pease, CEO of the Brewers Association stated that the craft beer industry is looking forward to strengthening themselves in the marketplace through the use of the retained funds. “Our expectation is that small brewers will use their savings related to the recalibration of the federal excise tax on beer to invest in their breweries, expand their operations, create more jobs and hire more American workers,” he said. Daredevil Brewing reinforced this view when they tweeted out, “Thank you to Congress for passing the Craft Beverage Modernization & Tax Reform Act (CBMTRA) lowering the federal excise tax to $3.50/bbl (from $7/bbl) on the first 60,000 barrels for small brewers. For us that reduction equals hiring 1 or 2 employees in 2018.”
Even for those breweries producing only 1000 barrels/year or less, the savings will provide opportunities to strengthen their position in the marketplace. A $3500 dollar savings (if 1000 bbl are produced) would be more than enough to help defray costs associated with canning some beers as a way to extend the reach and brand recognition of their brewery. The effects will also be seen in the Indiana craft distillery and farm winery (including places that work farm winery licenses, like Ash & Elm and New Day) establishments, and will be even greater for those breweries that are branching out into distilling and wine making (Danny Boy, Quaff On!, Sun King, Big Leaf, Cedar Creek, etc.).
New equipment, providing health insurance to employees (a rarity in craft beer), repaying loans… the effects of this legislation will be far reaching for establishments of all sizes. Without exaggeration, this tax relief will be the difference between surviving and closing for some craft breweries and distilleries.