While the craft beverage industry has grown significantly over the past decade, it has the potential to grow to new heights if small producers weren’t burdened by federal regulations that have failed to keep pace. This could all change, however, if Congress passes a bill now pending titled the Craft Beverage Modernization and Tax Reform Act (“CBMTA”). If passed, the bill would decrease taxes on craft brewers in order to help small businesses profit and encourage continued growth in the booming sectors. (Note: the CBMTA also cuts federal excise taxes on distillers, vintners and cider makers)
Under current law, a tax is imposed on all beer brewed or produced in, or imported into, the United States. The excise tax rate is $18/barrel (about $0.05 per 12 oz. bottle/can). Brewers that make less than 2,000,000 barrels per year may qualify for a lower excise tax rate on its first 60,000 barrels. If a brewery qualifies for this lower rate, its first 60,000 barrels of beer sold will be taxed at $7/barrel (about $0.02 per 12 oz. bottle/can).
Breweries are required to pay excise taxes semi-monthly (24 payments per year); however, a smaller brewery can qualify for quarterly payments. To qualify for quarterly payments, the estimated annual tax liable for the brewery must not exceed $50,000 (~7143 barrels) and their excise tax for the previous year must not have exceeded $50,000. It is important to note that paying quarterly taxes may greatly increase the amount of a brewer’s bond.
Under CBMTA, the federal excise tax on the first 60,000 barrels will be reduced to $3.50/barrel for domestic brewers producing less than 2 million barrels annually. It also reduces the federal excise tax to $16/barrel on the first 6 million barrels for all other brewers and importers. The excise tax of $18/barrel would remain for breweries producing more than 6 million barrels annually.
Lowering the excise tax is important to small brewers, the majority of who operate on tight margins. Unlike large multinational brewers who enjoy the benefit of economies of scale, small brewers maintain higher costs for raw materials, production, packaging, marketing and distribution. Adjusting the excise tax would allow small brewers nationwide to reinvest more than $70 million annually into growing their businesses. Passing this bill is crucial to sustain the continued growth of the craft beer industry, so if you’re a craft beer fan please contact your congressional leaders and tell them to support the Craft Beverage Modernization and Tax Reform Act.