Craft beer makers, wineries and distillers and the people who love their products got an early Christmas present when President Trump signed into law an extension of a federal alcohol excise tax cut.
The Craft Beverage Modernization and Tax Reform Act, which has allowed smaller-scale alcohol producers to keep their prices lower, was extended last week for another year.
The extension goes through Dec. 31, 2020. It keeps in place an alcohol excise tax rate of $3.50 per barrel on the first 60,000 barrels for domestic brewers and wineries producing fewer than 2 million barrels annually. If not passed, the tax would have doubled to $7 a barrel.
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“It’s a big deal for most of the breweries in Southwest Ohio,” said John Haggerty, co-owner of Warped Wing Brewing Co. in downtown Dayton.
Without the tax cut, beer brewers and most alcoholic-beverage producers would have been looking at a higher tax bill the second week in January. The tax cut also reduced the amount that distilleries paid on the first 100,000 proof gallons from $13.50 to $2.70 per gallon. A proof gallon is a gallon of spirits at 50 percent alcohol.
“We’ve been waiting for this. We planned for it to go up in our strategic budgeting for next year, but it’s hard because it affects decisions like giving raises to employees, buying new equipment, future bank loans and ultimately the price beer drinkers would have to pay.
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Haggerty said there are few breweries in Southwest Ohio that produce more than 60,000 barrels of beer a year.
If not passed, it would have cost Warped Wing — the largest producing brewery in Dayton — up to $30,000 a year, Haggerty said. Warped Wing produces around 8,000 barrels of beer a year from its location at 26 Wyandot St.
“I would have had to consider, A, eat the cost, B, pass it on to the customer, or C, a combination of both,” Haggerty said.
Chris King, who was drinking a beer Friday in Toxic Brew Company in the Oregon District, said he was glad “Congress got its act together.”
“All we’ve been hearing about is how the Democrats and Republicans hate each other during the impeachment hearings. I’m glad they came together for us beer drinkers,” King said as he raised his beer in the air.
Opponents of the tax cut have said alcoholism remains high in the U.S. and any way that increases consumption is troublesome.
David Roodman, a researcher with Open Philanthropy Project, has testified that an increase in alcohol taxes helps lower alcoholism and deaths. He has said research shows a 10% price increase would cut the U.S. death rate from alcohol-caused diseases by 9 to 25%.
In 2017, Congress agreed to the two-year excise tax cut that would have expired on Dec. 31. The tax cut and other new Ohio laws in the past five years have allowed the craft beer industry, wineries and distillers to prosper in the Buckeye State.
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The region has seen an abundance of new breweries open. It’s estimated there are more than 300 craft breweries in Ohio today and more than 2,000 in the U.S.
The Ohio Craft Brewers Association said another 66 new breweries are in the planning stages in the state.
“Obviously, the best outcome for stability in the industry is to make the current rates permanent, but there’s always a balance to maintain and a compromise to be struck when it comes to taxation,” OCBA spokesman Justin Hemminger told Crain’s Business. “This isn’t a one-time effort or a final result: Our legislative advocacy is an ongoing process. A one-year extension is better than a tax increase, and we’ll continue to work with Congress to get the current (federal excise tax) rates extended beyond 2020.”
Haggerty said he hopes Congress can agree to a more permanent tax cut beyond 2020. He said the bigger picture for the future is the tightening of the market in Ohio.
“Ohio is behind the curve of craft beer making from the rest of the country. Six or seven years ago there were only an handful of breweries in Dayton. The market hasn’t tightened in Ohio like it has in other states,” said Haggerty, who is a board member at-large with the Ohio Craft Breweries Association.
Craft brewers in other states have been able to bring and sell their beers in Ohio when the competition became abundant in their states. Now that Ohio has more breweries, out-of-state brewers don’t have the market they used to in the Buckeye State.
But Haggerty predicts the Ohio market will become tighter and brewers will have to watch their costs. Not worrying about a federal tax increase would help Ohio brewers, Haggerty said.
“It has been a long, hard fight for this one-year extension, a critical relief that will protect our industry in the near-term, and we look forward to working towards relief permanence as together we protect the future success of craft spirits and the peripheral industries we support,” said Margie Lehrman, CEO of the American Craft Spirits Association.