When Congress passed the Tax Cuts and Jobs Act at the end of last year, it certainly made headlines.
But one part of that legislation that has not been highly publicized is the Craft Beverage Modernization and Tax Reform Act.
This act provides excise tax relief for 2018 and 2019 to breweries annually producing up to 6 million barrels of beer. Many Greater Lehigh Valley craft brewers will be taking advantage of the additional capital this tax break will provide in the next two years.
They’ll be reinvesting in their breweries such as buying new equipment, improving efficiencies and hiring more people.
“It’s great to see that our representatives understand the importance of small craft breweries in the communities they serve,” said Kyle Neuheimer, owner and head brewer of the Oakbrook Brewing Co. in Reading. “Craft breweries, brewpubs especially, can be strong anchors of growth in their neighborhoods.”
HALF THE TAX ON FIRST 60K
The Craft Beverage Modernization and Tax Reform Act:
< Reduces the federal excise tax from $7 to $3.50 per barrel on the first 60,000 barrels for domestic brewers annually producing fewer than 2 million barrels.
< Reduces the federal excise tax from $18 to $16 per barrel on the first 6 million barrels for all other brewers and all beer importers.
< Retains the excise tax at $18 per barrel rate for barrels produced beyond 6 million.
According to the Beer Institute, a national trade association for the American brewing industry, this tax relief could create an additional $320 million in annual economic growth for the industry. This means that for at least the next two years, small breweries will have additional capital to invest.
SEEKING EXTENSION OF LAW
Chris Lampe, co-owner of Weyerbacher Brewing Co. in Easton and the president of Brewers of Pennsylvania – a nonprofit trade association that brings together leaders of Pennsylvania-based breweries – said most of its members plan to reinvest the additional capital into the company.
He also said the association is lobbying lawmakers to extend the tax relief beyond two years.
“Every time we reduce the tax and regulation burden on the small craft brewer, we indirectly give a boost to those communities and neighborhoods,” Neuheimer said.
Oakbrook, a 3-year-old brewery with 11 employees, is on target to produce about 400 barrels next year and expects to save roughly $2,500 from the tax break over the next two years.
Neuheimer said the brewery plans to invest that savings into equipment to help sustain growth.
Lampe said Weyerbacher, which has about 40 full-time employees and produced 17,000 barrels in 2017, also plans to use the money to buy new equipment. He said the better the equipment, the more efficient the brewery, which will allow it to produce more beer and hire more people.
Bill Covaleski, founder and brewmaster for Victory Brewing Co. in Chester County, said the tax break will offer the brewery discretionary flexibility in hiring.
“We continue to hire at a rate slightly ahead of our growth, as we did before the Craft Beverage Modernization and Tax Reform Act,” he said.
Victory Brewing Co. has three locations with 415 employees and produces about 150,000 barrels per year.
The craft beer industry is growing locally and across the nation. According to Lampe, when the Brewers of Pennsylvania formed several years ago, there were 11 members, and the association now has more than 190 members, including some still in the planning stages.
He said there are 350-400 brewery licenses in Pennsylvania and 30-40 in Berks County and the Lehigh Valley.
In 2017, the overall U.S. beer volume sales were down by 1 percent, but craft brewer sales grew by 5 percent, making it 12.7 percent of the U.S. beer market by volume, according to the Brewers Association, a 46,000 member organization for brewers.
Retail dollar sales of craft brewers increased by 8 percent. At $26 billion, craft brewers now account for more than 23 percent of the $111.4 billion annual U.S. beer market.