Struggling Craft Producers Face Significant Tax Hike if Congress Fails to Act by Year-End
WASHINGTON – Chief executive officers from eight major beverage alcohol associations sent a letter to Congressional leaders today urging immediate passage of the bipartisan Craft Beverage Modernization and Tax Reform Act, S. 362/H.R. 1175 (CBMTRA) to keep craft distillers, brewers, vintners, cider producers and mead makers from suffering a devastating tax hike in January.
The coalition letter was signed by CEOs from the Beer Institute, Brewers Association, Distilled Spirits Council of the United States, American Craft Spirits Association, Wine Institute, WineAmerica, the American Cider Association and American Mead Makers Association.
“Now, weeks away from a federal excise tax increase, producers fear their businesses will not be able to shoulder another burden after such a challenging year,” said the coalition. “Unlike other tax provisions, absent Congressional action, the increase in federal excise taxes will have an immediate impact on the industries.”
In 2018, the beverage alcohol industry supported more than 5.4 million jobs across the country and generated more than $562 billion in economic activity.
“This year, producers across the country have seen dramatic declines in revenue, suspended production, furloughed or laid-off employees, and closed their doors to visitors,” the coalition said. “These changes have impacted not only the livelihoods of their employees – but also the livelihoods of farmers, distributors, truck drivers, warehouse workers and countless others connected to the industries.”
Introduced by Senators Ron Wyden (D-Ore.) and Roy Blunt (R-Mo.) and by Representatives Ron Kind (D-Wis.) and Mike Kelly (R-Pa.), CBMTRA will make permanent reforms enacted in 2017 that create a fair and equitable tax structure for brewers, winemakers, distillers and importers of all beverage alcohol. The bill currently has 351 cosponsors in the House and 77 in the Senate.
SMALL BUSINESS OWNERS ACROSS U.S. REACT
The letter also featured comments from owners of small distilleries, breweries and wineries underscoring the urgency of the legislation’s passage:
“When our local community needed us, we leapt into action and delivered over 405,000 bottles of hand sanitizer (or 300 million hand washes) to individuals across the state,” said Jason Barrett, president of Black Button Distilling in Rochester, New York. “Our employees have been working seven days a week, up to 20 hours a day regardless of the weather conditions fighting for their community with the knowledge that many lives and livelihoods depend on it. At the same time, we have already lost 40 percent of our staff this year from unavoidable cuts. With the loss of our offsite division, tasting room revenue, and decreased sales to bars and restaurants, we just could not afford to keep them. We were forced to cut back our production of spirits by over 50 percent, which hurts our farmers, glass suppliers, and label producers and other partners. We have slashed budgets across the company trying to stem the bleeding, but if this federal excise tax increase moves forward, the additional loss next year could cost upwards of four or more additional jobs.”
“As we attempt to finalize our business plans for 2021, there is no matter more urgent to us both here at home in Iowa and to our broader craft distilling industry than making permanent the reduced FET rate we have received for the last three years — one that previously didn’t exist for small distillers,” said Jeff Quint, owner and founder of Cedar Ridge Distillery in Swisher, Iowa. “In its first two years, this critical savings allowed us to reinvest in our small businesses and support peripheral industries, like U.S. agriculture, hospitality and tourism, and manufacturing; but this year, the reduced rate has merely helped keep our businesses afloat as we attempt to survive. If we receive the 400 percent tax increase slated for January 1, 2021, we will almost certainly face more company debt and sweeping layoffs.”
“The COVID-19 pandemic has resulted in dramatic losses for brewers and beer importers,” said Dan Kopman, CEO of Heavy Seas Beer & E.Krisper’s Cider in Baltimore, Maryland. “Specifically, our volume is down 15 percent, and our revenue is down 20 percent as we had to close our taproom. Expiration of CBMTRA will be a further kick in the gut when we can least afford it.”
“The money that we have saved through the recalibrated excise tax has helped us keep people employed during the pandemic,” said Jeff Schrag, founder and owner of Mother’s Brewing Co. in Springfield, Missouri. “As we budget for next year, we are re-evaluating staffing levels, and this is a big question mark. Yes, we can keep our current staff if the recalibration continues, if not, we likely would need to shed one full-time employee. We just do not have a cushion.”
“Like others across our great state of California, we have faced multiple challenges throughout the year as a result of the COVID-19 pandemic and wildfires that ravaged Napa Valley and other major grape growing regions,” said Robin Baggett, managing partner of Alpha Omega Winery in Rutherford, California. “We managed to stay afloat by launching virtual tastings and expanding online sales, and we’ve worked to support the restaurants and small businesses in our community. But now the future of our industry is at stake. Increased excise taxes combined with another round of mandated tastings room closings, growing operating costs as a result of the pandemic and wildfire damage to vineyards, buildings, barrels, equipment and inventory will be too much to bear.”
“As a medium-sized, family-owned and operated winery in the Willamette Valley, we have been hit hard in 2020,” said Janie Brooks Heuck, chair of WineAmerica and managing director of Brooks Winery in Amity, Oregon. “Starting with the shutdowns in March, we immediately lost 70 percent of our revenue streams from restaurants across the country and our tasting room. Now, we are back to day-to-day mandates about being able to have our tasting room open, or outside only service for the winter. With no relief beyond the initial round of PPP loans, having our federal excise taxes going back up in 2021 will be crippling and an extra burden that many, including our winery, likely will not be able to handle.”
“There is normal uncertainty in any business and there are risks involved when chasing the American Dream,” said John Behrens board member of the American Cider Association and founder and president of Farmhaus Cider in Grand Rapids, Michigan. “That risk and uncertainty is understandable and necessary. What we currently face through the artificial uncertainty created by the lack of resolution regarding the CBMTRA’s permanence is different, however. We need urgent resolution. Cider is the quintessential small business American dream success story built on local agriculture and community. If that’s not worth working to save, what is? The failure to make the CBMTRA permanent now would be a crushing blow to our cider business and several hundred others just like us.”
“2020 has been a challenge for everyone, but it has hit the alcohol manufacturers in their hearts and their wallets,” said Brandalynn Armstrong, business development manager of Upper Reach Meadery in Phoenixville, Pennsylvania. “March marked a drastic change in our industry, as well as those in the service industry that support us. Relief for everyone affected by the COVID-19 pandemic is not feasible, and a lot of us will not survive, but including the Craft Beverage Modernization and Tax Reform Act in the next legislative package would be the life support that will help us live to brew another day.”