Examining the Two Craft Beer Tax Bills: What Brewers Need to Know About the Fair BEER Act and the Small BREW Act

Beer tax law is on the table, and lawmakers will be evaluating two different beer tax positions. The good news is, should either bill become law, it will spell breaks for the majority of US craft breweries.
Beer tax law is on the table, and lawmakers will be evaluating federal beer tax policy. The good news is, should either bill become law, it will spell breaks for US craft brewers.

 

 

 

 

 

 

 

 

 

 

 

Edit: 2/15/2015 at 8:55pm PST. Thanks to journalist and Twitter comrade @WSJbeerbaron (Chris Drosner) who is working on a piece for The Beer Baron column relating to beer tax reform, he spotted a correction for the article. I had read language in the Fair BEER Act to maintain certain production rate carveouts for smaller producers. ‘Tis not the case. I have updated the article and calculations to reflect this. Cheers to Chris for taking on this heady issue to get the word out; I’ll link to his article when it’s in. I anticipate he’ll have a lot of great analysis coming your way.

Beer tax reform might be on the horizon, as two competing bills are teed up for debate in Congress. On the one side is the Beer Institute, which advocates for all sizes of breweries but is known for having Anheuser-Busch InBev and MillerCoors among its interested parties. They’re standing behind the Fair BEER Act and, as we’ll get to in a minute, the majority of breweries out there may be the biggest fans of what this act would offer. Another bill out there is the Small BREW Act, which the Brewers Association is behind. The Brewers Association advocates for the interests of those brewing under 6 million bbl per year. As we all know, that 6 million bbl distinction is big enough to sweep in a brewery like Boston Beer Co. (Sam Adams), but small enough to keep the two big guys out. As you’ll soon see, the Small BREW Act spells tax breaks across the board, including advantageous ones for the pretty-big-but-still-craft breweries, but not as dramatic of breaks for the majority of breweries in America. The Fair BEER Act would provide lowest tax rates of all.

What do the federal beer tax bills look like, whose interests are we looking at here, and why should you care? Let’s start with how federal brewery tax law operates right now. Then, I’ll walk through each of the proposed bills, and wrap up with examples comparing tax rates for different-sized brewing operations under all three schemes. Let’s dig in.

Brewery TTB Tax Law Part I

How Beer is Taxed Right Now at the Federal level

Presently, the Alcohol and Tobacco Tax and Trade Bureau taxes beer at two different per-barrel rates. There’s the Regular Rate of $18. Then, there’s the Reduced Rate of $7. Here’s how those rates are applied:

Small Breweries60,000 bbl or less? Pay $7/bbl
If you brew 60,000 bbl or less in a year, like the vast majority of breweries, you pay the Reduced Rate of $7/bbl (in addition to whatever your state tax rate may be).

Medium Breweries
If you brew more than 60,000 bbl but less than 2 million bbl (such as a brewery like New Belgium or Dogfish Head, for example), you pay a mixed rate. You get to take advantage of the $7/bbl rate for your first 60,000 bbl ($420,000, which is up to a discount of $660,000 off the regular rate). After that, you must pay the Regular Rate of $18/bbl for the rest of your lot.

Large Breweries
If you brew more than 2 million bbl (so, the two big guys, and also a brewery like Boston Beer Co. (Sam Adams) or D.G. Yuengling & Son (Yuengling)), you pay the Regular Rate of $18 for everything. The prime point being, they’re paying $11 more per barrel on the first 60,000 bbl than everyone else (that’s $660,000 more on those barrels).

As we all know, everyone would love to pay less, and that’s what this is about.

Brewery TTB Tax Law Part II

Fair BEER Act – Backed by the Beer Institute (Which includes the interests of Anheuser-Busch InBev and MillerCoors)

This bill would offer the most tax advantages to the vast majority of breweries out there, eliminating federal excise tax altogether for the typical neighborhood brewery and most that are engaged in community-wide distribution. At the same time, this bill would make even the biggest of brewers eligible for tax breaks. Essentially, it’s a graduated scale that applies to all breweries—and almost all breweries (90%) are at the bottom of the scale, which would mean zero excise taxes. Take a look.

The first 7143 bbl: Pay $0/bbl.
-Thus, if you brew under 7,144 bbl/year, you’d pay no federal excise tax. $0. This would mean roughly 90% of American breweries would pay no federal excise tax. This sounds pretty good for all of the small breweries and start-ups out there. Keep in mind that 7,144 bbl/year is more than 137 bbl produced per week. That’s a lot of headroom for most of our breweries today. Indeed, likely far more than the wildest dreams of many of the family-owned breweries we’re seeing nestle into our neighborhoods. Just to ground the numbers, that’s more than 13 brew days a week on a 10bbl system. Not possible.

The 7144th bbl/year to 60,000th bbl: Pay $3.50/bbl. 
-If you brew more than 7144 bbl/year and up to 60,000 bbl/year, you’d see your federal excise taxes cut in half. It’d be just $3.50/bbl. To ground that bbl/year figure, 60,000 bbl/year would translate to more than 1153 bbl/week. If you had a 100bbl system, that’d be more than 11 brew days a week. Again, not possible.

From the 60,001 bbl/year to 2 million bbl: Pay $16/bbl.
-So, this is a cut for the “medium” breweries noted above—eligibility for the lower breaks, with $2 off per barrel thereafter up until the two millionth bbl.

Everything after the 2 millionth bbl in a year? Pay $18/bbl.

-No change. This is the current rate, just that it only starts applying at your 2 millionth bbl. Before that, all breweries are eligible for the reduced rates on initial bbl leading up to it.

The Wrap-up on the Fair BEER Act:

Federal excise tax would be eliminated for nearly all craft breweries, putting an extra $7/bbl back into the brewery’s pocket. Most notably, huge breweries would get a break on beer leading up to the two millionth bbl. We’ll see how this plays out when we crunch the numbers later.

Brewery TTB Tax Law Part III

The Small BREW Act backed by the Brewers Association:

Craft Breweries – <6,000,000 bbl/year
-Change the definition of Small Brewery from those that produce under 2 million bbl/year to those that produce under 6 million bbl/year. So, sweep in folks like Boston Beer Co., just like the Brewers Association definition does by its definition.
-Create the following tax structure for all Small Breweries:
$3.50/bbl on the first 60,000 bbl (That’s the current reduced rate cut in half)
$16/bbl on the next bbl leading up to 1,940,000 bbl (a reduction of $2/bbl, but also a reduction on the quantity of barrels it applies to.)
$18/bbl on everything beyond 1,940,000 bbl.

Not Craft Breweries – >6,000,000 bbl/year
-$18/bbl on everything.

The Wrap-up on the Small BREW Act:

For most breweries, federal excise tax would be cut in half. The biggest winners are the folks like Boston Beer Co., who would become eligible for the reduced rate on the first 60,000 bbl and also a $2/bbl cut on a bunch of beer, too. Huge savings here, as we’ll walk through in a second. Though, again, for the majority of breweries in the United States, the tax breaks are not as dramatic under the Small BREW Act as they are under the Fair BEER Act.

Brewery TTB Tax Law Part IV

The three tax programs compared (Current, Fair BEER Act, and Small BREW Act):

Before providing a look at real numbers below, the gist is this. The Fair BEER Act would result in the lowest taxes of all strategies, and it impacts the majority of breweries in the United States by eliminating federal excise tax entirely. The biggest difference in federal brewery tax policy with the Fair BEER Act is that the biggest of the big remain eligible for significant tax breaks. In contrast, the Small BREW Act would result in more even-handed savings for craft breweries, no matter the size, but provide no benefits to the big guys. Nevertheless, the Small BREW Act lets a swath of extremely-big-but-still-considered-to-be-craft brewers get in on the tax breaks, while keeping things the same for the biggest of the big. (Side note here about conglomerates, just so no one is confused. These are called “controlled groups” and tax rate eligibility is calculated by adding up all of the production rates of all of the breweries within the group. So, just because A-B InBev owns Elysian now, they wouldn’t get tax benefits off of Elysian’s production rate.)

Check out the numbers below—note that I’m using formulas, but they were formulas made by this human whose best skills undoubtedly tip on the verbal side. The figures should give you the big picture of the competing bills, what’s at stake, and why different breweries at different sizes feel the way they do. If you spot any errors, please let me know—and I invite someone to make a fluid graph of all of the equations, which is beyond the time I have for this project at the moment:

If you brew 100 bbl/year:

Current Federal Excise Taxes on Beer: $700
Federal Taxes Under the Fair BEER Act (FBA): $0
Federal Taxes Under the Small BREW Act (SBA): $350

If you brew 500 bbl/year:

Current: $3,500
FBA: $0
SBA: $1,750

If you brew 1,000 bbl/year:

Current: $7,000
FBA: $0
SBA: $3,500

If you brew 5,000 bbl/year:

Current: $35,000
FBA: $0
SBA: $17,500

If you brew 7,000 bbl/year:

Current: $49,000
FBA: $0
SBA: $24,500

If you brew 7,143 bbl/year:

Current: $50,001
FBA: $0
SBA: $25,000.50

If you brew 7,145 bbl/year:

Current: $50,015
FBA: $7
SBA: $25,007.50

If you brew 10,000 bbl/year:

Current: $70,000
FBA: $9999.50
SBA: $35,000

If you brew 20,000 bbl/year:

Current: $140,000
FBA: $44,999.50
SBA: $70,000

If you brew 50,000 bbl/year:

Current: $350,000
FBA: $149,999.50
SBA: $175,000

If you brew 59,999 bbl/year:

Current: $419,993
FBA: $184,996
SBA: $209,996.50

If you brew 60,001 bbl/year:

Current: $420,018
FBA: $185,015.50
SBA: $210,016

If you brew 80,000 bbl/year: (Deschutes at approx. 89,000 bbl)

Current: $780,000
FBA: $504,999.50
SBA: $530,000 

If you brew 100,000 bbl/year:

Current: $1.14 million
FBA: $824,999.50
SBA: $850,000

If you brew 150,000 bbl/year: (Dogfish Head at approx. 175,000 bbl)

Current: $2.04 million
FBA: $1.62 million
SBA: $1.65 million

If you brew 200,000 bbl/year:

Current: $2.94 million
FBA: $2.42 million
SBA: $2.45 million

If you brew 250,000 bbl/year:

Current: $3.84 million
FBA: $3.24 million
SBA: $3.25 million

If you brew 300,000 bbl/year:

Current: $4.74 million
FBA: $4.02 million
SBA: $4.05 million

If you brew 500,000 bbl/year: (New Belgium at approx. 712,000 bbl; Sierra Nevada at approx. 800,000 bbl)

Current: $8.34 million
FBA: $7.22 million
SBA: $7.25 million

If you brew 1,000,000 bbl/year:

Current: $17.34 million
FBA: $15.22 million
SBA: $15.25 million

If you brew 1,500,000 bbl/year:

Current: $26.34 million
FBA: $23.22 million
SBA: $23.25 million

If you brew 1,939,999 bbl/year:

Current: $34.26 million
FBA: $30.26 million
SBA: $30.29 million

If you brew 1,940,001 bbl/year:

Current: $34.26 million
FBA: $30.26 million
SBA: $30.29 million

If you brew 1,999,999 bbl/year:

Current: $35.33 million
FBA: $31.22 million
SBA: $31.37 million

If you brew 2,000,001 bbl/year:

Current: $36 million
FBA: $31.22 million
SBA: $31.37 million

If you brew 2,500,000 bbl/year: (approximately Boston Beer Company)

Current: $45 million
FBA: $40.22 million
SBA: $40.37 million

If you brew 5,999,999 bbl/year:

Current: $108 million
FBA: $103.22 million
SBA: $103.37 million

If you brew 6,000,001 bbl/year:

Current: $108 million
FBA: $103.22 million
SBA: $108 million

If you brew 67,000,000 bbl/year: (approximately MillerCoors)

Current: $1.206 billion
FBA: $1.201 billion
SBA: $1.206 billion

If you brew 100,000,000 bbl/year:

Current: $1.8 billion
FBA: $1.795 billion
SBA: $1.8 billion

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