Dozens of small craft beer producers, distilleries and wineries throughout the Greater Lehigh Valley this year will see a reduction in the federal excise tax and an increase in tax credits because of a provision attached to the new tax law. And all wineries, distilleries and beer makers – regardless of their production size – also will receive a tax break.
The U.S. Craft Beverage Modernization and Tax Reform Act was introduced last January by Democrats and received bipartisan support. The growing craft beverage industry had wide appeal to politicians on both sides of the aisle who viewed the provision as a boost to small business – and likely have a small brewery in their district.
Bob Pease, president and CEO of the Brewers Association, said the expectation is that brewers will use their savings from the reduction in barrel taxes to expand their operations and hire more workers.
Under the new law, effective Jan. 1, the federal excise tax on beer will be reduced to $3.50 a barrel, down from $7 a barrel, on the first 60,000 barrels for domestic brewers producing less than 2 million barrels annually.
The tax is reduced to $16 a barrel, down from $18 a barrel, on the first 6 million barrels for all other brewers and all beer importers.
Kraig R. Naasz, president and CEO of the Distilled Spirits Council, said the new law will create a more equitable tax structure for craft alcohol producers by reducing the federal excise tax for the first 100,000 proof gallons, the first break on taxes for distilled spirits producers since the Civil War.
All wineries can claim an expanded excise tax credit between .535 cents and a $1 per gallon on the first 750,000 gallons of production. And for the first time, producers of sparkling wines qualify for the credit.
Robert Koch, president and CEO of the Wine Institute, an advocacy group for the California wine industry, said the craft beverage bill will propel the growth of wineries across the country, including the nearly 5,000 in California, most of which are small and family owned.
“Wineries are some of the most heavily taxed and regulated businesses in the country and this will provide meaningful relief from some of these burdens,” Koch said in a statement.
Wines that are made with a higher percentage of alcohol by volume, 14 percent to 16 percent, will now be taxed as other wine at $1.07, down from $1.57 a gallon.
And certain low-alcohol wines, such as mead, that are made with higher carbonation will not be taxed at a higher rate than still wines.
Greg Heller-LaBelle, CEO and co-founder of Colony Meadery in Allentown, said the law is a good first step for mead, an ancient honey-based alcoholic beverage that is often overlooked in alcohol legislation.
Under the new law, mead will now be taxed at the same rate as beer or cider.
Meaderies, which are considered wineries, were subjected to a so-called bubble tax, where the higher the carbonation, the higher the tax.
“By granting a break to a certain number of types of meads, it allows us to carbonate a little bit more aggressively for lighter meads, which is a fast-growing segment of the market,” Heller-LaBelle said.
“It’s a significant boon that helps us where we’ve got really big competitors like big wine houses. It allows us to compete and produce a beverage that people like.”
As legislative affairs chair for the American Mead Makers Association, Heller-LaBelle has been monitoring the developments of the craft beverage act, which it helped draft.
“Our board worked very hard in getting it into place,” he said. “We are looking forward to seeing how this new bill is used and to make sure it is interpreted correctly.
“The big achievement is the fact that you’re seeing mead being acknowledged and recognized as a growing craft beverage. It has a place in this law. That’s a first.”