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Sunday, 16 August 2015 22:00

New federal legislation takes aim at craft beverage tax code, inefficient bureaucracy

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Craft beverage producers agree that federal regulations have not kept pace with the rapidly evolving industry, but help could be on the way.

That’s if Congress passes the sweeping, bipartisan legislation known as the Craft Beverage Modernization and Tax Reform Act (CBMTA), which addresses a litany of tax and bureaucratic challenges that have plagued beer, wine, cider and spirits producers in recent years. If passed, it could save West Michigan producers hundreds of thousands of dollars in federal taxes, as well as streamline the processes for labeling and enforcement.

For Bellaire-based Short’s Brewing Co., the proposed changes to the excise tax would result in a savings of $115,000 based on 2014 production volumes, money the company would reinvest immediately into growing the business and hiring additional workers, according to partner Scott Newman-Bale.

“I think the most important point is that as brewers, any time we have extra money, it goes back into the company to create more jobs and tax revenue — and has a quick economic impact,” Newman-Bale told MiBiz.

The CBMTA targets the existing tax structures for all craft beverage producers. The legislation cuts the federal excise tax in half to $3.50 per barrel of beer on the first 60,000 barrels for domestic brewers producing less than 2 million barrels annually. It also reduces the federal excise tax to $16 per barrel on the first 6 million barrels for all other brewers and importers.

The excise tax of $18 per barrel would remain for companies making more than 6 million barrels of beer annually.

For cider producers, the new legislation would address two long-sought-after regulatory changes that would increase the alcohol by volume threshold from 7 percent to 8.5 percent for a product to remain classified as a cider and not a specialty wine, which has a higher tax rate. The legislation also raises the carbonation limits for cider, allowing producers to avoid being taxed at significantly higher rates as specialty wines or champagne. Additionally, the new definition would allow pears as an ingredient in ciders.

Distillers may be the most impacted financially by the CBMTA. Distillers of all sizes currently pay excise taxes of $13.50 per proof gallon — defined as one liquid gallon of spirits at 50 percent alcohol by volume at 60 degrees fahrenheit, according to the U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB). The bill would set the excise tax on distillers at $2.70 per proof gallon for the first 100,000 proof gallons produced in a calendar year.

Wine producers would also see an expansion of the wine-producer tax credit.

Rather than wade through separate bills for the individual industries, the proposed CBMTA brings all the craft beverage producers under one banner for the first time, said Newman-Bale, who also serves as chair of the federal excise tax committee for the Boulder, Colo.-based Brewers Association, a trade group for the craft beer industry.

“It was weird to have (multiple) bills and it’s weird that we’ve gotten to the agreement, but it’s a genuine mutual support of the bill,” said Newman-Bale. “The cool part is that with craft beverage manufacturers, there’s a lot of overlap.”

The reason for banding together as a unified craft beverage industry was simple: “Everyone has their bills going and you only have so much political capital in Washington,” he said.

EASING THE BUREAUCRACY

On top of the changes to the tax structure for craft beverage manufacturers, the CBMTA also aims to cut down on the amount of bureaucracy that companies encounter for various approval processes and day-to-day operations.

The often tedious and lengthy approval process for beer labels would be simplified by allowing all “wholesome” ingredients generally considered safe for human consumption to be included without a special approval process. Currently, ingredients such as blueberries and apples are exempted from needing special approval, while others such as huckleberries and pears are not.

“Right now, there is a barrage of paperwork that everyone has to fill out,” Newman-Bale said. “A lot of times, these forms are meaningless, no one looks at them and they have no regulatory impact. Imagine having to file your tax return every other week. It really cleans up some of that.”

The new bill includes appropriations to increase funding to modernize the TTB — the agency that also approves alcoholic beverage labels — and to ramp up enforcement and communication on tax policy.

With so many industry groups addressed in the legislation, Newman-Bale expects the CBMTA to pass through the legislative process by the end of 2015 or early 2016 — most likely as part of a larger tax bill.

To date, the legislation has already gained considerable traction among industry groups and legislators, Newman-Bale said. The Brewer’s Association, the Beer Institute, U.S. Association of Cider Makers and the American Craft Spirits Association all support the bill.

At the time this report went to press, 74 congressmen and 14 senators, including U.S. Sens. Gary Peters and Debbie Stabenow of Michigan, signed on as co-sponsors of the bill.

The act currently awaits a vote from both the House and the Senate.

With all of the support surrounding the proposed bill, Newman-Bale expects little opposition going forward.

“It’s a very unique situation,” he said. “Everyone is happy with it and there are no major stumbling blocks right now.”

Sidebar: Diverse industries join forces in pushing new legislation

The Craft Beverage Modernization and Tax Reform Act incorporates elements from several proposed bills, including the Brewers Excise and Economic Relief (BEER) Act, the Small Brewer Reinvestment and Expanding Workforce (Small BREW) Act, and the Cider Industry Deserves Equal Regulation (CIDER) Act. The combined legislation, which was introduced in the Senate in June by Sen. Ron Wyden, D-Oregon, and in the U.S. House by Rep. Erik Paulsen, R-Minnesota, also includes provisions for the distilling and wine industries.

Read 3688 times Last modified on Tuesday, 18 August 2015 16:37