CLEVELAND, Ohio – Brewers have endured their share of economic woes brought on by the coronavirus pandemic, closing taprooms and seeing keg sales drop considerably. But as the year winds down another challenge looms: Whether the Craft Beverage Modernization and Tax Reform Act -- and its lower excise taxes on beer -- will be continued.
The act and the lower tax rate expires Dec. 31. A higher tax hike is set to kick in Jan. 1, according to the Colorado-based Brewers Association, which represents 8,300 small and independent craft breweries, and the Beer Institute, a Washington, D.C.-based national trade association for the industry. They are seeking an extension of the current federal excise tax rate, and this week held a press conference with industry representatives who delivered a clear message: Maintaining the current tax rate is imperative for their industry’s survival.
The act is supported by 77 Senators and 351 Representatives. Last week, Sens. Rob Portman (R-Ohio) and Ron Wyden (D-Oregon) led a bipartisan letter with 55 of their Senate colleagues urging Majority Leader Mitch McConnell (R-Kentucky) and Minority Leader Chuck Schumer (D-New York) to include the act in the next legislative package under consideration. Portman cosponsored the legislation, which was part of the 2017 tax-reform law. Sen. Sherrod Brown (D-Ohio) also signed the letter.
According to the Alcohol and Tobacco Tax and Trade Bureau, “In general, the Act provides for a tax rate of $16 per barrel on the first six million barrels of beer brewed by the brewer and removed during the calendar year or imported by the importer into the United States during the calendar year.” That is a break from the standard tax on the barrels. According to the Urban Institute and Brookings Institution’s Tax Policy Center, “Beer is typically taxed at $18 per barrel (31 gallons), although a reduced rate of $3.50 per barrel applied to the first 60,000 barrels for breweries that produce less than two million barrels.”
Not gaining the continuation will have multiple negative effects on breweries, said Mark King, CEO of Great Lakes Brewing Co.
“Reverting back to the old rate will cost us in excess of $350,000 per year,” he said. “That’s a significant hit.”
King told the panel Great Lakes is “a little bit different in that we’re a bigger regional craft brewer, but Covid has been no less devastating and the potential tax increase is no less devasting.”
“We’re really dependent on our on-site business and our bar and restaurant business,” said King, who said the 32-year-old company is one of the few larger and established craft breweries still owned by its original owners, brothers Pat and Dan Conway. King said 35 percent of the brewery’s revenue is from its on-site business.
When the initial shelter-in-place order hit, brewpubs closed and many breweries had to dump beer worth thousands of dollars. Great Lakes laid off 80 of 225 employees - about a third of the workforce, King said. With subsequent restaurant re-openings, they hired folks back on a limited capacity. But with weather turning colder, “we probably are doing to have to pare our workforce down to 150 people.”
When the pandemic struck, the brewery had just completed an overhaul of its brewpub in Cleveland’s Ohio City neighborhood and was in the midst of opening a 67,000 square-foot canning facility in Strongsville. But King also alluded to another ramification of Covid: Great Lakes Brewing Co. donated more than $400,000 in philanthropy initiatives in 2019. Great Lakes – the state’s first craft brewery - has long been a supporter of multiple Cleveland charities and especially clean-water initiatives.
“Those people aren’t benefiting any longer because we simply don’t have that type of money to go ahead and give back to the community any longer,” he said.
Several of the panelists said layoffs would be the ultimate result if the tax hike kicks in.
When the lower rates were put in place, brewers funneled it back into their businesses and created 25,000 jobs, said Bob Pease of the Brewers Association.
“This is really in our view a job-creation bill,” he said. “To allow it to expire right now during Covid would be extremely detrimental to the industry and to 8,300 small businesses across the country.”
“Detrimental” can be defined by the organization’s research that shows “only 54 percent of small breweries are very confident they are going to be open in a year; that’s a pretty sobering statistic,” said Pease, who added 70 percent of those 8,300 also are brewpubs or taprooms.
If relief doesn’t come, jobs are going away, said Rick Goddard of Southern Brewing Co. in Athens, Georgia.
“The tax increase, if it were to happen, would unequivocally cost one, maybe two good (full-time) jobs in our breweries,” Goddard said. “The taxes we pay a month already with this increase is close to 30 percent of what we pay in payroll.”
Goddard said he doesn’t have a problem paying taxes, but “excise is just extra.”
The issue is apparently hitting the public in a similar way. When polled, 60-plus percent of Americans think this type of relief is important, said Jim McGreevy, president and CEO of the Beer Institute.
With three weeks remaining in the year, brewers – already punched by the economic impact of coronavirus - now can only wait.
“There’s only so many body blows you can take,” said Sam Hendler of Jack’s Abby Craft Lagers in Framingham, Massachusetts.
Related coverage
Great Lakes Brewing Co.’s canning line now operational
Great Lakes set to launch canning line in Strongsville (photos, video)
I am on cleveland.com’s life and culture team and cover food, beer, wine and sports-related topics. If you want to see my stories, here’s a directory on cleveland.com. Bill Wills of WTAM-1100 and I talk food and drink usually at 8:20 a.m. Thursday morning. And tune in at 8:05 a.m. Fridays for “Beer with Bona and Much, Much More” with Munch Bishop on 1350-AM The Gambler.
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