With a 400% Federal Excise Tax increase looming craft spirit distillers and their employees have been quite nervous over the last many months. When the Craft Beverage Modernization & Tax Reform went into effect on January 1, 2018 it was a time to rejoice. But that jubilation always came with a ‘but’ because that tax reduction was only temporary with an expiration date of December 31, 2019. Though the tax reduction did not get permanent status as hoped this week it did officially get a one-year extension through December 31, 2020. We reached out to several craft spirits makers to get their reactions and to see what’s next for the nearly 2,000 craft spirits makers across the United States.
“The extension of this tax credit means that we can continue to innovate, invest, and create wine & spirits that are cutting edge while keeping us relevant in the market place. As of December 19, 2020 we were excited to submit new formulas for both a wine and spirit further expanding our product offerings for 2020. There is still work to do but this extender keeps us moving forward.”
~ Ted Huber Co-Owner & Master Distiller at Huber’s Starlight Distillery and Chairman Craft Advisory Council for DISCUS.
“As we were strategizing what 2020 looked like for our business we were hoping it would pass but paused with the idea that it may fail. We’ve been around for 10 years as a restaurant but we really just started distilling in the last two years so we have never really paid the higher rate. A 400% tax increase has the potential to affect everything we do on the distilled spirits. Our plan is to hire up to six new full-time employees in 2020 but if that FET had not been extended we would have to take a hard look at our production and hiring plans.”
~Bryan Smith Head Distiller and General Manager Hard Truth Distilling.
“The extension enables us to retain and expand our current workforce with the security and peace of mind necessary to fuel continued growth in Kentucky’s signature industry. Additionally, we will now be able to more readily reinvest in Peerless capital projects, such as building additional rick-houses.”
~ Corky Taylor 4th Generation Distiller and CEO of Kentucky Peerless Distilling Co.
“This is another great win for the craft movement, it will be one more year it will be easier for craft distilleries to open and grow. As exciting as this is, it still doesn’t ease future fears of being back in the same place. This tax reduction is great for the industry as a whole and a lot of communities that will benefit from the economic impact as distilleries have more money to invest in their businesses and communities.”
~ Colin Blake Director of Spirits Education at Moonshine University.
“In our company, the tax increase would have amounted to salaries of 1-2 full time employees. Because we have this extension, we’re investing in people to help us grow our sales, and in capital equipment and agricultural products to increase production. This is real job growth, and we’re very excited to be free to move forward this year. We fought hard for the extension of this tax relief, and I won’t rest easy until it is finally permanent.”
~ Becky Harris Founder and Chief Distiller at Catoctin Creek Distillery
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“We are very excited for the extension of the FET reduction. This means a great deal for our business and many other craft distillers. This means we can keep our current production levels and keep all of our current staff members. Had this extension not gone through, we may have had to cut back on production and laid some of our staff members off, something we would have hated to be forced to do. We hope that before this extension ends, the members of Congress will see just how vital this tax reduction is to our industry and will make it permanent.”
~ Autumn Nethery Director of Sales and Marketing Jeptha Creed Distillery
“Southern Distilling Company’s primary business is contract distilling and co-packaging for other brand owners. So, from a national perspective, this is particularly important as we are now able to confidently move forward with planned expansions, as it touches every client that we do business with across the nation.”
“As President of the Distillers Association of North Carolina, I am pleased that the 80+ distilleries in our state came together in a unified plea to Congress to extend the lower FET. As the industry grows in North Carolina, this is important from a jobs perspective, not just for distillery employees, but, for the local farmers who provide our grains and raw materials.”
~ Pete Barger Co-Founder and President at Southern Distilling Company and President of the Distillers Association of North Carolina.
“At Wilderness Trail Distillery we actually are applying the forward savings towards more production barrels and expanding our bottling line with more employees and equipment earlier than if the tax reduction had not been extended. I know of several distilleries that were holding back on future planning until that was understood and there has been a flurry of activity since the announcement.”
~ Shane Baker Co-Founder and Master Distiller at Wilderness Trail Distillery
“The extension immediately preserved jobs. The economy of scale would have worked in reverse for us, as the increase, because of our small size and economics, we were prepared to cut 2.5 FTE’s. We would have slowed production, decreased purchases, cut inventory for distillery spirits production and gift shop, hope we didn’t have any repairs and put any plans of improvement/expansion on the back shelf to collect dust, and finally, we would hope we could stay in business. Remaining staff would have picked up the slack without an increase in work hours and some benefits planning we were working on would be out of the question.”
~ Peg Hays & AJ Jones, Founders and Owners Casey Jones Distillery
“For Spirits of French Lick this extension means having the ability to further age existing stocks and focus on the quality therein while also upping our production, developing new products, and potentially hiring help. For us it is a godsend.”
~ Alan Bishop Head Distiller Spirits of French Lick
“Hopefully gives everyone some breathing room, but it’s not ideal. Everyone kind of thought it was a forgone conclusion that the new rate would be made permanent before expiring, as the original extension bill was written. We effectively doubled our production after the new rate went into effect two years ago with more people and more equipment, but we also kept ourselves insulated just in case the reduced rate did expire without passage of an extension bill. There wouldn’t have been any layoffs or price increases from us, but we would have halted expansion and cut spending elsewhere, possibly even the animal rescue program we started when the new rate went into effect. One thing I actually had to do in advance was to cancel the sales agreement on the purchase of a 13,000 square foot building in late November I was hoping to use for a much needed expansion. An extension of the rate at that point started to seem pretty questionable and an inspection we did on the building showed some unanticipated repair costs that I knew I couldn’t manage if my excise taxes alone were going to increase $8,000 to $10,000 per month. My inspection contingency was set to expire before a decision on extending the rate had been made, so I canceled the purchase.”
“It is great that the extension of our rate appears to have gone through, but the fact that it was reduced to only a twelve month extension instead of being made permanent has me kind of skeptical going forward. I mean, it took Congress eleven months just to pass this extender bill since its introduction. It’s hard to commit to a huge expansion loan when I feel like I may need to spend this coming year just saving money to prepare for another rate expiration possibility.”
~ Tim Russell Founder and Head Distiller Maggie’s Farm Rum
“We are extremely grateful for the extension. Much of our investment, which has been significant, was predicated on the economic benefits of the relief. The passing of the extension, if only for one year, helps us breathe easier, and without it would have likely had very negative consequences overall. We now hope that the legislation is made permanent, small business is the economic engine of America, and Craft Spirits are the epitome of successful small business in America.”
~ Joe Herron Co-Founder Copper & Kings American Brandy Co.
“With a huge sigh of relief, I can now make plans to do some upgrades to my tasting room and I won’t have to cut back on my employees hours.”
~Cayce Kovacs Owner Hill Country Distillers
~ Robert Likarish Co-Founder Ironroot Republic Distillery
The extension of the Craft Beverage Modernization & Tax Reform Act is great news for craft spirits makers, their vendors that provide goods and services, farmers that provide grains and cane and of course the fans that consume the spirits. Their is a new ‘but’ looming with the December 31, 2020 expiration date but for now it’s time to celebrate this major win and then double down on the grass roots effort to get this reduction made permanent. Cheers!