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A keg up: Tester backs bill to slash excise taxes on brewers and distillers

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A small half-moon of light spills through the open office door into Montgomery Distillery's tasting room. It's 9 a.m., three hours before opening, and co-owner Ryan Montgomery is sitting at the back of the office beneath the only lit bulb in the place, having just signed a very big check.

Exactly how big he doesn't say, but big enough. He writes this check twice a month, to the United States Treasury, for federal excise tax. The rate is currently $13.40 per proof gallon, which is... well, it's a complicated federal formula. Let's just say it's around $120 per case of 80-proof liquor, like Montgomery's Quicksilver vodka or Whyte Laydie gin.

"It's more than we pay in rent," he says. "It's more than we pay in payroll most months."

If the distillery could save even a little on excise taxes, Montgomery's got a lot of ideas where that money could go. New hires, pay raises, expanded production. The distillery could make and age more whiskey, he says, which in the craft spirits world is its own form of investment. Depending on how Congress receives the Craft Beverage Modernization Act, that "if" might become a "when." And distilling isn't the only industry that stands to gain.

Sen. Jon Tester signed on to co-sponsor the act during this month's National Small Business Week, though it was introduced earlier this year by ranking Senate Finance Committee member Ron Wyden of Oregon. The measure would not only slash the existing excise tax for craft distillers to $2.70 per proof gallon, but cut in half the excise tax rate for craft brewers (from $7 to $3.50 per barrel on the first 60,000 barrels produced). It would also revise or simplify a number of regulations relating to bookkeeping, ingredients and the transfer of beer between facilities.

Tester believes the bill would be a boon for Montana's breweries and distilleries, freeing up money for expansion and employment.

"Whether you're dealing with the tanks or the taproom or whatever, it's going to allow them to have some extra resources to hopefully invest back into their business," Tester tells the Indy.

Missoula distiller Ryan Montgomery is hopeful that Sen. Jon Tester's pitch for an excise tax reduction on craft spirits will gain traction in Congress. - PHOTO BY CHAD HARDER
  • photo by Chad Harder
  • Missoula distiller Ryan Montgomery is hopeful that Sen. Jon Tester's pitch for an excise tax reduction on craft spirits will gain traction in Congress.

Trade organizations representing brewers and distillers—as well as wine makers, who would also enjoy an excise tax reduction—have increasingly rallied behind the notion of a tax reduction since it first cropped up in Congress two years ago. The Washington, D.C.-based Beer Institute claims federal excise tax collection on beer sales is more than twice the size of state excise tax collections, and estimates that the bill Tester is co-sponsoring would save the craft brewing industry $130 million annually.

"We're currently in better shape than we ever have been to pass tax relief for brewers of all sizes," a Beer Institute spokesperson wrote via email. "We hope that with tax reform being discussed on Capitol Hill, providing tax relief for brewers and beer importers will be part of that discussion."

Tester acknowledges that the current tax rate hasn't exactly stymied growth in the craft beer industry. Here in Missoula, Draught Works just installed a canning line. Local stalwarts KettleHouse and Big Sky are both in the process of building outdoor amphitheaters. But even if the industry is doing well, he says, "it can do even better." And giving a similar break to the state's still-budding craft spirits industry will help "get that established the same way."

Margie Lehrman, executive director of the American Craft Spirits Association, says parity is long overdue. Small breweries won a federal excise tax discount decades ago, but craft distillers are still paying the same rate as their larger counterparts. Montgomery, too, believes the time for a break is now. The distillery's main avenue for future growth is not in the tasting room, but in wholesale, he says. (The Missoula distillery just picked up distribution in its sixth state—Tennessee—this month.) With taxes and Montana's 20 percent markup on sales outside the tasting room and the costs associated with increased production, any savings at all would help.

"It's not like this reduction, or the extra cash that distillers have because of this, is going to go in someone's pockets," Montgomery says. "All of this is going to go back into business and into community, building more capacity, hiring more employees, upgrading things. I think this is a good example of a tax cut going right back into growing the business."

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