Bill Butcher, the owner of Port City Brewing Company in Alexandria, Virginia, has a wish list of investments he’d like to make in his growing brewery.
There’s the equipment to improve Port City’s quality control program and upgrade its lab capabilities. There are the retirement plans, with employer-matching funds, that Port City set up for its full-time employees last year that Butcher hopes to continue.
But those wish list items remain unchecked and business plans remain on hold as Butcher waits for Congress to decide whether it will extend or make permanent lower federal excise tax rates on beer and distilled spirits.
“We’re not going to pull the trigger on any of these investments until we find out what the fate of the tax cut is,” Butcher said. “If it goes away, we need to scrap all those plans for further investment and retrench our future plans.”
When Congress passed and President Trump signed into law a tax reform package at the end of 2017, it included a provision that cut federal excise taxes for breweries that produce less than 2 million barrels from $7 per barrel to $3.50 per barrel on the first 60,000 barrels they make.
But the provision will sunset at the end of 2019, leaving the craft beverage industry on edge as it awaits word on whether the relief businesses received for the last two years will continue.
“With uncertainty and doubling our tax rate, that gives us pause in making any big business decisions until we understand what the situation is going to be,” Butcher said.
When Congress was debating whether to lower the tax rate for small breweries, many craft brewers reassured lawmakers they would take the extra money from the reduced rate and reinvest in their businesses by purchasing new equipment, hiring more workers, and increasing employer benefits, said Bob Pease, president of the Brewers Association, a trade group representing small and independent craft brewers.
“We told members of Congress for years that this bill, if enacted, would be felt in job creation, and that’s exactly what happened,” Pease said.
In 2018 alone, small and independent breweries created 15,000 new jobs, he said, and craft brewers provided more than 150,000 jobs, an 11% increase from 2017.
The industry as a whole has also continued to grow. An April report from the Brewers Association found more than 1,000 new breweries opened in 2018, while just 219 closed.
At Port City, which opened in 2011 and is the oldest packaging brewery in the Washington, D.C.-area, the lower rate amounted to annual savings of roughly $50,000, Butcher said. With that money, Port City was able to pay its employees more, provide them with better benefits, including the employer match for retirement, and add more tanks and automation, he said.
“All those things have become much easier with this lower tax rate,” Butcher said.
At Right Proper Brewing Company in Washington, D.C., the tax cut saved the company more than $13,000. The brewery produces roughly 600 barrels annually at its restaurant and another 3,200 barrels at its production house in Northeast D.C., which opened in December 2015, co-owner Leah Cheston said.
With the rate of $3.50 per barrel, the reduced federal excise taxes have allowed Cheston to keep prices at Right Proper’s brewpub low, especially when compared with other restaurants in the area.
“It’s prevented us from having to raise prices because everything increases constantly,” she said. “To get that break is great. As a small business, every little bit counts.”
In addition to keeping its prices the same at its restaurant, Right Proper was able to boost the hours of one employee to full time and hire another part-time worker.
If Congress does not make permanent or extend the lower federal excise tax rate, Cheston predicts the brewpub will be able to absorb the added cost but said the pain would be felt at its production house.
“If costs are going to go up by $12,000 in a year, where are we going to get $12,000 from and how are we going to cut it?” she said. “That’s either a part-time employee’s hours or selling a piece of equipment, not having the ability to expand as we otherwise might.”
While the clock on the lower tax rate continues to wind down, there have been bipartisan efforts in Congress to support the craft beverage industry.
Sens. Ron Wyden, D-Oregon, and Roy Blunt, R-Missouri, introduced the Craft Beverage Modernization and Tax Reform Act in February, which would make the reduced federal excise tax rate permanent. Seventy senators from both parties back the measure, and a version of the bill introduced in the House won support from 287 members.
Last month, a Senate Finance Committee task force backed the extension of the tax cut and called for it to be enacted permanently.
Wyden’s measure could be attached to a piece of must-pass legislation, such as a package that extends tax provisions set to expire at the end of the year, ensuring it’s codified before the lower rate sunsets.
But despite the broad support for making the relief permanent, Butcher said the political environment has made it difficult for businesses like Port City to receive assurances from lawmakers.
Still, Pease said the craft brewing industry is one of the few in the country that can prove the lower excise taxes will lead to job creation.
“We know there is a cost to the federal government for foregone revenue,” he said. “But we firmly believe that comes back.”
