Friday, April 12, 2013

Small BREW Act, Taxes and Craft Brew

The growth of craft beer as an industry has persuaded some to take notice as to what "craft" brewing really means and its role in the overall beer industry. While debates continue over craft v. crafty, production levels salience on definitions and independent v. corporate brewing, one issue has craft brewers seemingly debating each other, and that issue is tax.  More precisely, excise federal tax on the production of beer, no matter if it's craft, independent, neither or both. 
Basically the excise tax code is set up so that those breweries who produce more beer are taxed more on the federal level. Right now, that production level is 2 Million barrels per year (those producing such quantities are taxed more per barrel than those producing less).  On the ground, it currently means that all craft breweries do not pay this extra tax, but large breweries (like SABMiller and AB-InBev) fork over the money.
Yet, the growth of craft beer has pushed some breweries closer to this 2 Million barrel level, and therefore more taxation.  As such, or by coincidence, the Brewers Association has altered/updated its definition of craft brewery to include breweries producing up to 6 Million barrels per year (among other stipulations).  Following this, there have been efforts to alter/update the tax code.  Without getting into details, the new tax proposals seek to increase the production level to 6 Million barrels per year before enduring the full excise tax of $18/barrel. 
This has some people in an uproar (or at least discomfort).  Some claim that only a handful of large craft breweries will benefit from this while most of the other medium/small craft breweries will see little benefit, especially if the money saved by the large breweries is spent on marketing--giving them a leg up on the competition, which is the smaller breweries.  Are you following?  It's a bit complicated, so to summarize:  Craft breweries are getting bigger. Getting bigger means more excise tax.  Change definition of "bigger" to avoid this tax burden increase. Those "bigger" breweries benefit most, while smaller breweries see little gain. I think that's the gist of it.
This will be interesting to watch to see if a rift develops (or grows) between the handful of big craft breweries (like Sam Adams, Sierra Nevada, New Belgium , etc) and the more numerous small breweries (like Crooked Stave, Lagunitas, Foothills). It will also be interesting to see how the Brewers Association handles this disagreement.  It should be noted that the BA supports this new tax code, as well as a majority of its member breweries. Consensus is difficult to achieve in any industry, so we'll see how this situation develops, if at all.  Sources predict that this new tax code will not pass Congress.
It should also be noted that the main argument in favor of this proposed tax code is job creation.  With the money saved from the discounted excise tax (from $7/barrel to $3.50/barrel for production under 60,000 barrels), small breweries can re-invest in their companies, hire more employees and build up their neighborhoods.