Tapped out: Tax relief bill for craft breweries goes further than it seems

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Advocates are feeling "positive" that the relief will go through this year.

ROCHESTER, N.Y. (WROC) — The Craft Beverage Modernization and Tax Reform Act of 2019 slashes the federal excise tax on beer barrels in half. That tax relief goes a long way in making sure that breweries are healthy and can continue to grow.

To find out more about this legislation, and how it will impact local businesses, we went to the experts directly.

We spoke with Paul Leone, the executive director of the New York State Brewers Association. The organization was founded in 2003, and Leone started in 2013 as the executive director. We also spoke with Geoff Dale, the Minister of Mayhem at Three Heads Brewing.

What is the NYSBA?

PL — It’s the trade association for craft beer in New York State. Our main job is to lobby for better beer laws, monitor industry for the state, and track craft beer in New York.

What makes something a craft brewery?

PL — Six million barrels or less produced a year, and you have to own more than 25% to be considered a “craft brewery.”

That gives you the “independence seal,” and you’re viewed as a smaller craft brewery.

Saranac is a classic example of a craft brewery, Southern Tier, Three Heads Brewing is a craft brewery.

Some of the other breweries like ROC or Fifth Frame would be micro breweries.

Why is the craft brewery industry doing so well in New York?

PL — The consumer is really driving this, millennials were the ones who really got into craft, they like everything local, they like to know where their food comes from, where their beer come from …

I know the consumer would rather be at a brewery. They’re meeting places, they’re social places, they’re neighborhood places, and they’re very appealing to be into.

The consumer is driving it, but industries need government help. What has New York state done to help this industry?

PL — I always say, regardless of your politics, Governor Cuomo has been an amazing governor for the craft beverage industry as a whole. I think he learned the lessons from his father, Mario Cuomo, who in 1985 saved the wine industry from really being extinct in New York state. It was on life support.

[Andrew] Cuomo was able to see in 2012 and 2013 when the NYSBA was really advocating for better craft beer laws, and those laws were getting better, he was able to see the industry start to grow.

And five years ago, he signed the Craft Act, which allowed tasting rooms to exist, because before that, you couldn’t pour and sell your own beer in your tasting rooms. That opened it up.

Along the way, the NYSBA has been able to pass meaning legislation to see the industry grow.

Last year we did our first economic impact study in over five years, and we found that we’re a $5.4 billion industry, just craft beer in New York state. And for the first time, there are more breweries and wineries in the state.

There’s 464 breweries in New York now, we’re second most in the entire country.

You mentioned “better laws” a couple times. What does that actually mean?

PL — We follow and track the industry. When I was hired, there were 135 breweries. When the Craft Act was passed, we were opening a brewery every week in New York.

Tracking that, finding out where breweries are opening, and listening to breweries and their needs, and how we can expand business.

We take that and create meaningful legislation, and to keep the industry on track, and growing constructively.

How do the accomplishments feel so far?

PL — We have eleven board of directors regionally placed around the state, that gives us an advantage because the state is so big, and it’s very diverse. How brewers handle things in Long Island are very different than how they handle things in Rochester and in Western New York.

We’re able to take all of that information and use our smart board of directors and say “this piece of legislation would work for the whole state.”

When we talk about the state side of things, the governor’s office and the legislature, we also look at the national side of things as well. We have two state senators who are extremely supportive of the craft beverage industry, and they carry quite a bit of weight in Washington, D.C.

What I love the most about this industry is that it’s bipartisan. As divided as the country is right now, Republicans and Democrats are both supportive of craft beer. It’s a great place to be in.

Beer is a unifying thing. There’s never any tension when you go to a congressmember about it; they’re just happy to see you.

So this tax is a head-scratcher to all of us in the newsroom …

PL — The Craft Beverage Modernization and Tax Reform Act was passed two years ago to lower the federal excise tax from $7 a barrel to $3.5 a barrel, for most small breweries; over 90% paid $7 a barrel.

A barrel is two half kegs. Most breweries measure themselves by how many barrels they produce, and it’s a measure of how big the brewery is. Again, we were able to get that down to $3.5 a barrel.

The issue is that it was only signed for two years, and it’s going to expire by the end of this month, if not signed permanently or extended.

We’ve been able to achieve so much with that tax reduction, and if it goes away, you might see job losses, you might see breweries that aren’t expanding anymore.

How much does this tax relief help breweries on a practical level?

GD — For someone like us, that could get up in the neighborhood of a $30,000 increase in taxes, which becomes an extra employee. So we’re trying to hire people and keep growing, that’s just a huge hit that can impact the business.

PL — The one thing people have to understand is that when you can save breweries money, they don’t buy a new car, they don’t buy a bigger house, they don’t go on vacations, they re-invest in their business. It’s the nature of what they do.

This tax cut to them is like being able to hire that one person they need in the tap room, or a brewer to get over that hump to grow a little bit, or I needed that one more frementer.

If they lose that money, the easiest thing would they can’t just give that fermenter back, they might have to let that person go that they hired with that tax break. They have to make some tough decisions.

There’s this impression that most breweries are printing money, making money hand over fist, and the reality is that most of them are not, they run on really tight margins because they are constantly re-investing.

Even if you save a brewery $2,000 a year, which might not seem like a big deal, that could be the difference of some breweries whether or not they stay open or not.

Do you have a sense that this will be signed then?

PL — Let me back up so I can give you a road map. This bill is the most heavily co-sponsored bill in all of Congress. There are 74 Senators that cosign this bill, and there are over 370 members of Congress out of the 485.

The problem is that its very small in the grand scheme of things. So in order to get it passed, it needs to be attached to a bigger bill. That’s been the challenge all along. It just so happens that we’re getting to year end that the government’s going to run out of money on Friday. So there has to be an omnibus bill signed by the President to fund the government to the end of September next year.

So we were able to get this bill attached to tax extender package, that’s going to go to the bigger bill. Now it’s got a parent, it passed the Senate finance committee, and the ways and means committee, it got out of committee Tuesday, and was passed by the House Wednesday, so now it just needs to go to the Senate and the President.

It looks very positive that we’re going to get a one year extension. It will give us one more year to get it permanently extended.

The reason it was never made permanent to begin with is when it was scored, it was scored differently by two different groups. Scoring is basically what it’s going to cost the government to give it.

Because the numbers were so different, they only made it for two years. That has never been reconciled. We’ll take an extension until we can make it permanent.

The crazy thing about the federal excise tax on alcohol was that it was a tax that was created to fund the Civil War, and it never went away. It’s really a tax that’s unnecessary on the craft beverage industry, because it affects wine, it affects cider, the distilled beverage industry.

We’ll be happy with $3.5 tax, but it should have went away — the Civil War is over as far as I know — it’s done. They don’t need that tax anymore.

But please, reduce it to $3.5 because it helps breweries. We feel very good that it will be extended.

Learn more about Leone here:

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