Save The Martini: Why Congress Needs To Listen
By Joseph V Micallef, Contributor
April 23, 2018
Booze and government taxes seem inexorably joined at the hip. Indeed, it is hard to find a government that didn’t see its domestic spirits industry as a lucrative source of cash. This has been the historic pattern going all the way back to the spread of distillation in the 15th century.
Great Britain imposed taxes on malted barley and, later, distillery capacity to fund its wars with France—from the time of Louis XIV to Napoleon more than a century later. The Russian Czar Peter the Great nationalized the Russian vodka industry to obtain the funds to modernize his army and build Russia’s first navy. The pattern has been true of other countries as well, including the United States.
In recent years, the US spirits industry has been in a state of unprecedented expansion. There are now around 1,500 operating distilleries in the United States, and over 90% of those distilleries would be considered craft distilleries. Many of them are family owned.
Craft distilling has now spread to all 50 states. Texas alone has around a hundred. There would be even more operating distilleries were it not for the fact that stills are in short supply. Waiting periods of one to two years to obtain stills for distillation are not uncommon.
In the meantime, America’s homegrown spirit, bourbon, has undergone an unprecedented revival. From an almost moribund state several decades ago, bourbon demand both domestically and internationally has skyrocketed. In addition, classic American spirits like rye whiskey have also staged an even more impressive comeback. With sales growing over 400% over the last two decades.
In total, the US spirits industry generated more than $159 billion in economic activity in 2017, with exports of $1.645 billion. Collectively the industry employees over 1.5 million people and provides more than $21.1 billion in tax revenues to local and state government. The US government collected more than $6 billion in federal excise taxes (FET) on alcohol in 2017.
Until just recently the federal government imposed a tax of $13.50 on each equivalent gallon of pure alcohol, termed a proof gallon, produced. States also impose their own taxes on alcohol. In some states, like Washington for example, these taxes are even higher than the federal excise taxes.
These alcohol taxes are in addition to local property taxes or the taxes levied by state and federal governments on a distillery’s profits. On balance, roughly $2 of every $3 in retail spirits sales go to local, state or the federal government in various excise taxes, income taxes and fees.
The Craft Beverage Modernization Act (CBMA), which was passed as part of the Tax Cuts and Jobs Act of 2017 (TCJA), reduced the federal excise tax of alcohol on a producer’s first 100,000 proof gallons from $13.50 to $2.70.
This was the first reduction in FET since the Civil War. The tax reduction was a godsend to craft distillers, many of which are still in the process of getting established. 100,000 proof gallons is the equivalent of about 1.2 million bottles of alcohol at an alcoholic strength by volume (ABV) of 40%.
Production between 100,000 proof gallons and 22,130,000 proof gallons was taxed at $13.34 per proof gallon while any higher production levels were taxed at the old rate of $13.50 per proof gallon. In addition, the CBMA allowed the transfer of spirits between bonded premises in both bulk and bottled form. Previously only bulk spirits could be transferred in this way.
The original CBMA had authorized a permanent reduction in the FET. That reduction was later capped at two years as part of the legislative compromises that led to the passage of the TCJA. That reduction is slated to expire in 2020.
Because the tax is imposed on the amount of alcohol in a bottle and not on the bottle’s retail selling price, it has a bigger impact on low priced spirits than on expensive ones.
The American Craft Spirits Association, along with the Beer Institute, Brewers Association, Wine Institute, Wine America and the Distillers Council of the US (DISCUS), is lobbying Congress to extend, or ideally make permanent, the reduction in excise taxes mandated by the CBMA.
DISCUS is organizing a lobbying effort by American distillers on Capitol Hill from May 14 to May 16. The other trade organizations involved with this effort are also planning to have their members descend on Capitol Hill and lobby Congress at different times.
You probably have better things to do than writing to your local Congressman or Senator and urging them not to raise taxes on your favorite tipple. Then again, you probably don’t want to see your booze costs go up either. To find the email address of your Congressman or Senator go here. Who knows, the martini you save might be your own!