The Craft Beverage Modernization and Tax Reform Act, H.R. 747, originally introduced in 2015 was reintroduced January 30, 2017 by Rep. Erik Paulsen (R-MN) and Rep. Ron Kind (D-WI). The bill seeks to amend the Internal Revenue Code, with respect to the tax treatment of certain alcoholic beverages. For the first time, the bill has crossed the majority threshold in the U.S. House of Representatives, with more than 226 co-sponsors signed onto the bill, representing a clear, bipartisan majority in the U.S. House. The Senate, with a companion bill S. 236, introduced by Sen. Ron Wyden (D-OR) and Sen. Roy Blunt (R-MN) is just shy of a majority as well.
What’s in HR 747 for Craft Spirits Distillers?
The craft distilling industry is growing, with, on average, one distillery opening per day. There are more than 1,400 craft spirits distilleries operating in the U.S., employing well more than 12,000 people. Investments in the industry in the last decade have now reached over $300 million.
There are several things in the bill but by far, the biggest single item for craft distillers is the reduction in the Federal Excise Tax (FET) rate. The bill is asking for a reduction from $13.50 to $2.70 for the first 100,000 proof gallons of spirits. This would provide parity with craft brewers and small vintners, who have enjoyed a reduced FET based on their smaller size for many years.
Comparing Federal Excise Tax for Beer, Wine & Distilled Spirits
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I spoke with Mark Shilling, Co-Founder and CEO of Revolution Spirits in Austin, TX and recently elected President of the American Craft Spirits Association (ACSA) for some insight into the proposal. Mark said that this change would have a major impact on all of the associations members. He pointed out that from a study the Association completed last year that of the nearly 1,400 U.S. craft producers, 92% are classified as small producers distilling less than 10,000 proof gallons of spirits per year.
The proposed change in the FET rates is a game changer. For small craft spirits makers it can mean the difference between making payroll or not. It could mean the difference between taking one of your part-time employees and making them a full time employee. It could mean the difference in continuing to do things by hand or purchasing a new piece of equipment that will help with efficiency and profitability. This bill can have a significant impact on craft distillers. If you’re a numbers person, take a look at the chart at the bottom of the story for the impact on your distillery.
Mark said, “This House majority landmark of support for the Craft Modernization and Tax Reform Act represents a resounding recognition by Congress that parity in the tax code for craft distillers is both critical to the future growth of our industry and is the right, fair thing to do. Our industry is growing, but that growth is being held back by a burdensome, dated tax structure. We are confident this vast support in the House, as well as the continued momentum in the Senate, makes both of these bills more likely to reach the President’s desk.”
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What’s in the Craft Beverage Modernization and Tax Reform Act?
Here’s a summary of all the things the Craft Beverage Modernization and Tax Reform Act bill seeks to do.
- Exclude the aging period from the production period for beer, wine, or distilled spirits for purposes of determining whether a taxpayer can expense, rather than capitalize, interest costs paid or incurred during the production period
- Reduce excise tax rates on beer and distilled spirits
- Modify the small wine producer tax credit to increase the amount of the credit, expand the producers that are covered, and specify an adjustment for hard cider
- Modify the alcohol content limitations that apply to certain wines for tax purposes
- Specify definitions for “mead” and “low alcohol by volume wine;”
- Modify requirements for records, statements, and returns for certain breweries
- Permit the transfer of beer between bonded facilities without payment of tax
You can read the entire Craft Beverage Modernization and Tax Reform Act here.
Margie A.S. Lehrman, Executive Director of ACSA, said, “The Association will continue to press the Congress to pass this bill to enable our small business entrepreneurs to succeed. A thriving craft spirits industry means a healthy labor force — from the farmers who plant the grain, to the manufacturers who create the stills, to the graphic designers who produce the labels, to the trucks that haul the products – as well as the continued growth of distillery tourism. There are multiple stakeholders impacted by a reduction in the FET, and we will continue to urge action by the House on this issue during our annual Congressional fly-in in on July 25 in D.C.”
Annual ACSA Legislative Fly-In
To support the bill, ACSA is hosting a Congressional Legislative Fly-In to focus on reducing the Federal Excise Tax as part of the Craft Beverage Modernization and Tax Reform Act. Distillers are encouraged to join with the Associations leadership on Monday, July 24th, 2016 in Washington, D.C for an orientation session, evening reception. This will be followed on Tuesday, July 25th with a day of lobbying and a fund raising lunch for Hon. Kevin Brady, with an evening congressional reception.
The Impact on Craft Spirits Makers
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*FET is paid semi-weekly.