Brewers, spirits distillers and wine makers, are toasting changes in the new tax law that reduces their excise tax per barrel and offers tax breaks on sparkling wines, increased alcohol content, and more carbonated wines.
Included in the Tax Cut and Jobs Act is the Craft Beverage Modernization and Tax Reform Act, designed to boost production at craft breweries, vineyards, and spirit distilleries.
Under the law, the federal excise tax on beer will be reduced to $3.50 a barrel — from $7 a barrel — on the first 60,000 barrels for domestic brewers producing less than 2 million barrels annually, and reduced to $16 barrel — from $18 a barrel — on the first 6 million barrels for all other brewers and all beer importers.
The bill maintains the current $18 barrel rate for production over 6 million barrels. In total, this represents more than $142 million in annual savings, according to the Brewers Association, which represents small brewers.
In Connecticut, the number of breweries and vineyards has been growing annually, with many rehabilitating obsolete factory and warehouse space. The Connecticut Wine Trail is a successful part of the state’s tourism campaign. A new Spirit Trail was recently founded for micro distillers.
In Southington, two new breweries have opened near the Farmington Canal Linear Trail in the past two years.
“(Tax breaks) are definitely a boost to us,” said Greg Caucci, owner of the Kinsmen Brewing Co., 409 Canal St. “For a smaller business, that will help free up some cash. It’s definitely a great incentive to take some of those dollars and invest in brewing.”
The Kinsmen Brewing Co. employs about 20 workers, including two full-time employees. Any reinvestment will go toward boosting production and adding employees. The company now produces about 1,000 barrels per year and hopes to double that.
“We’re hoping to reinvest it into capacity,” Caucci said.
The bill makes the first reduction in wine excise taxes in over 80 years and only the second reduction in the nation’s history, and followed heavy lobbying from the wine industry.
“The Craft Beverage bill will help propel the growth of wineries across the nation, including the nearly 5,000 in California, most of which are small and family owned,” said Robert P. “Bobby” Koch, president of the Wine Institute. “Wineries are some of the most heavily taxed and regulated businesses in the country and this will provide meaningful relief from some of these burdens.”
The legislation will reduce excise tax payments for every winery in the country by expanding the value of the existing producer credit and doing away with the phase-out that currently prohibits many wineries from receiving any benefit. The excise tax burden for small- and medium-sized wineries will be reduced by 55 percent to 70 percent. The bill will also allow for the innovation of new products. The wine provisions go into effect on Jan. 1, 2018.
The tax reform bill also expands the excise tax credit for wineries and allows sparkling wine to qualify for it; increases the maximum alcohol by volume allowed for drinks to be eligible for a reduced tax rate; and increases the carbonation allowed in some low-alcohol wines.
Wallingford has two successful wineries that are included on the Connecticut Wine Trail. Joseph Gouveia, owner of Gouveia Vineyards said Thursday he wasn’t familiar enough with the legislation to comment. Representatives from Paradise Hills Vineyard & Winery could not be reached for comment.
Craft distillers are also getting some sizeable breaks, including a drop in the federal excise tax from $13.50 to $2.70 per proof gallon for the first 100,000 gallons per year for a two-year period, a savings of up to $2.16 million.
For the little guy, the benefit far exceeds the average annual yield, and craft distillers finally join the ranks of small production wineries and breweries who have long enjoyed similar benefits. Taxes on distilled spirits are among the nation’s highest, averaging about 54% of a typical product’s purchase price.
The Craft Spirits Data Project reports that the craft industry continues to skyrocket, employing close to 20,000 people and investing over $600 million over the last decade. American Craft Spirits Association President Mark Shilling sees lots of room for growth with the tax break.
“For years, we have fought for excise tax fairness, and with this change, our industry will see immediate benefits, including the ability to hire more Americans and increase production with new equipment,” says Shilling. “We look forward to reinvesting these critical and long overdue savings into growing our workforce, production capabilities, and tourism experiences and supporting local agriculture.”
Although still outnumbered by brewers, distillers are also cropping up in the state. Tom Dubay, the chief executive of the Hartford Flavor Co., created a coalition of about 12 other small distillers to form the Connecticut Spirit Trail, modeled after the wine and beer trails.
“It certainly lets us plow money back into our operation, and offer incentives to grow our overall operation,” said Dubay, who produces a line of artisanal liquors, Wild Moon, with his wife, Lelaneia.
Hartford Flavor Co. has been in business for two and a half years and has about a dozen employees, most of which are part-time. Spirit production is governed by size, meaning there is a limit to how much smaller businesses can generate, and windfalls will go toward increased hours or more employees for trade events.
Larger distillers, on the other hand will burn through the tax benefits in a very short time. “It’s really meant to help the small craft distiller,” Dubay said. “Every little bit helps.”