Growing pains tax craft beer

A brewing battle over excise taxes divides the beer industry and shows just how much some small brewers have grown.

By Jason Notte Mar 27, 2013 4:01PM
Two pints of beer on barrel (© Adermark Media/Flickr/Getty Images)
When Boston Beer Company (SAM) founder Jim Koch started brewing Samuel Adams in his kitchen in the late 1980s, there weren't “craft brewers” and “macro brewers,” just big brewers and small brewers.
 

Today, Samuel Adams still sits on the craft side of the wall along with other craft beer pioneers like Chico, Calif.-based Sierra Nevada and Fort Collins, Colo.-based New Belgium Brewing, but it's taken a little tweaking to keep it there. As craft beer's old-timers age and expand, that “craft” label becomes an increasingly snug fit.
 

That may seem like a cosmetic problem at best, but when the federal government determines taxes on brewers by their output, suddenly the definitions of “small” and “craft” carry a whole lot more weight. As the Craft Brewers Conference began Tuesday in Washington, D.C., that tax question created a rift in the beer industry that could signal last call for the “craft" title.


At issue, according to political news site The Hill, are two pieces of similar beer-specific legislation making their way toward Congress right now. The Brewer’s Employment and Excise Relief (BEER) Act, which is promoted by Washington-based beer industry group The Beer Institute, is expected to be introduced later this year and would reduce excise taxes on beer produced by brewers large and small. Past versions of the bill recommended cutting the tax from $18 per barrel to $9 for large brewers while also cutting the tax for small brewers from $7 per barrel to $3.50.

 

The competing Small Brewer Reinvestment and Expanding Workforce, or Small BREW Act, promoted by craft beer industry group The Brewers Association would cut the federal excise tax on beer from $7 a barrel to $3.50, which is placed on a small brewer’s first 60,000 barrels produced per year. After that initial 60,000 barrels, small brewers must pay $18 per barrel, which would be lowered to $16 under the bill. More importantly, it would expand the tax code definition for a “small brewer” from one that produces 2 million barrels or less to one that produces 6 million or less.
 

The Beer Institute, which features big brewers like Anheuser-Busch InBev (BUD) and MolsonCoors (TAP) as well as smaller ones like Boston Beer and Sierra Nevada, balked at that proposal and vowed to “actively oppose” it, calling it “a giveaway to a handful of brewers that each are worth more than a billion dollars.” The Brewers Association vows to push on.
 

Average beer lovers, meanwhile, can't taste the difference and don't usually have the stats on hand to determine who's “small” or “craft” and who isn't. Based on the latest numbers from Beer Marketer's Insights, there are exactly three brewers sitting on that threshold between 2 million and 5 million barrels: Boston Beer (2.7 million in 2012), North American Breweries (2.725 million of Magic Hat, Pyramid, Portland Brewing and Genesee) and D.G. Yuengling & Son (2.79 million).

 

The Brewer's Association discounts the latter two because of NAB's fluctuating ownership and the use of adjunct ingredients like corn in Genessee and the maize found in Yuengling's traditional recipe. The BA did, however, expand its definition of a “craft” brewer in 2011 to “any independent brewery that produces up to 6 million barrels of traditional beer” just to accommodate Boston Beer.
 

It's going to continue bumping into this problem, as Lyons, Colo.-based Oskar Blues has expanded into an East Coast brewery in Asheville, N.C., and will increase production to nearly 1 million barrels. Similar Asheville expansion plans by Sierra Nevada and New Belgium will also push those brewers over the 1-million-barrel mark, while plans by California-based breweries Lagunitas and Green Flash to open brewing facilities in Chicago and Virginia Beach, respectively, should boost their growth as well.

 

None of those breweries, however, match the three brewing facilities owned by Boston Beer -- a research facility in Boston and two larger operations in Pennsylvania and Ohio -- or that funny little SAM stock ticker that follows its name. Boston Beer's status as a publicly traded company, its production of malt beverages like Twisted Tea and its enormous growth have always presented challenges to its “craft” status. But the rift its growth is creating between two beer industry organizations -- both of which include the company on their membership rolls -- puts the brewer in an even tougher position.

 

What makes this even dicier is the larger beer companies' recognition of craft beer's growth and their adaption to it. MolsonCoors' fastest-growing brand in the U.S. isn't Coors, Coors Light or Killian's Red, but its Blue Moon wheat beer, which has served as a gateway to craft beer for drinkers since the 1990s. Anheuser-Busch InBev, meanwhile, has not only rolled out premium versions of its Bud and Bud Light brands, but outright purchased Chicago-based craft brewer Goose Island last year. Though that company's barrel-aged Bourbon County Stout was long a beer geek favorite, the purchase has produced no small amount of hand wringing among craft beer lovers wondering if Goose Island will still retain its flavor under new ownership. 

 

If you want to know how all of this will play out, a look at Goose Island's former owners may offer an answer. Goose Island was formerly part of the Craft Brew Alliance (BREW), a publicly traded collective of breweries formed in 2008 through the merger of Woodinville, Wash.-based Redhook and Portland, Ore.-based Widmer Brothers. The collective sold Anheuser-Busch a 32.2% stake in the company in exchange for the use of the big brewer's sprawling distribution system. As a result, A-B doesn't get a whole lot of the Alliance's profits while the Alliance gets a coast-to-coast network to carry its beers from facilities in Woodinville, Portland and Portsmouth, N.H.

 

This deal also meant that Redhook and Widmer Brothers were deemed “not craft” by the Brewers Association for partnering with A-B. Never mind that Redhook was founded in Seattle in 1981 before most BA members existed or that Rob and Kurt Widmer, who started their Portland operation in 1985, are still active in the beer industry and have been at it longer than Boston Beer's Koch or New Belgium head Kim Jordan. They're not craft, but with fewer than 700,000 barrels of production (fewer than Boston Beer, Sierra Nevada, and New Belgium), they're not exactly macro either. 

 

They're just beer, and that may have to be enough for growing and increasingly corporatized craft brewers.


More on 
moneyNOW

74Comments
Mar 27, 2013 9:07PM
avatar
All similar products should be taxed the same or not taxed at all.  The government should not be picking winners or playing favorites.
Mar 27, 2013 10:24PM
avatar
It would be interesting to see what the founding fathers would have to say about the tax system we have today, when you consider how we are taxed from the cradle to the grave and when you die inheritance tax gobbles up a considerable slice of what you've been paying taxes on most of your life, they might not consider this the land of the free....
Mar 27, 2013 9:15PM
avatar
Another example of 'lowering' taxes but the only ones who benefit are the breweries and politicians. And I like beer!!!! Main problem in the good ol' USA is that NOBODY wants to pay any taxes, least of all corporations!!
Mar 27, 2013 10:28PM
avatar

I am going to start homebrewing my own beer soon, I've always wanted to try it and I kind of like the thought of the government getting even less of my money

 

Mar 27, 2013 9:27PM
avatar
This article started off about cutting taxes in half, then it went on about nothingness.  And why in the HELL, would a company oppose paying less in taxes, in fact paying half of what they currently pay.  What did I miss here?  Do they not want to pay less just so that the can continue to charge $12 bucks for a damn 6 pack?  Somebody help me out with this, as I just don't get it.
Mar 27, 2013 10:13PM
avatar
phuck TAXES and leave my BEER alone !!! nasty politicians
Mar 27, 2013 11:29PM
avatar
Too bad they can't tax stupid. We would be the richest nation on earth. The main argument I read here is they tax mine so they should tax yours. If the government would police theirselves, control their spending and crack down on fraud, there would be no need to raise taxes.
Mar 27, 2013 10:32PM
avatar
It is my sincere desire that the sponsors of this bill drown in rancid puke.
Mar 27, 2013 10:56PM
avatar
Here's an idea. Let's get rid of the barrel tax all together and leave the taxes to the states to handle.
Mar 27, 2013 9:03PM
avatar
Cut beer tax, the smokers will pick it up, douche bag Washington DC.
Mar 27, 2013 10:45PM
avatar
it is a matter of time before the taxes on beer and every other grain alcohol start doubling.  That is due to the fact the governments both at state and federal level require the taxes generated from cigarettes and they keep falling lower in sales every year. So in turn the taxes keep escalating for cigarettes to maintain their dollars of income. Point being the taxes now need to be generated from elsewhere so guess who is next? That is right those breweries and distilleries that cause all those health problems with drinkers.  Watch for the outrage from Washington in the coming years about it. And the corresponding tax increases to line the coffers.
Mar 27, 2013 10:42PM
avatar

lower taxes on beer

whats the problem with this? i dont see one

Mar 27, 2013 11:15PM
avatar
Tax Tax Tax....tax everything and everybody...just tax away.... rofl - you folks just don't get it.
Mar 27, 2013 11:51PM
avatar
Whats up with INBEV going from 18 to 9, but if the smaller guys start growing, they have to pay 16 while the big boys pay 9? How about make it fair and give them the 9 dollar rate as well.
Mar 27, 2013 11:27PM
avatar
Anouther excuse to raise the price.
Mar 27, 2013 11:33PM
avatar

WHERE IS IN THE BILL OF RIGHTS THIS BS!!!

REVOLT AGAINST THE DAMNSIRS TAX FOLKS!

Mar 27, 2013 10:35PM
avatar
how about some air tax in the future!!??


Mar 27, 2013 10:51PM
avatar

The tax should be equated to the Alcohol content,

 

I used to brew my own stash every year.

Its fun but a lot of work.

Kind of like cooking from scratch when Mike Dees is just around the corner.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

Trending NOW

What’s this?

MARKET UPDATE

[BRIEFING.COM] Equity indices closed out the month of August on a modestly higher note. The Russell 2000 (+0.6%) and Nasdaq Composite (+0.5%) finished ahead of the S&P 500 (+0.3%), which extended its August gain to 3.8%. Blue chips lagged with the Dow Jones Industrial Average (+0.1%) spending the bulk of the session in the red.

The final week of August represented one of the quietest stretches for the stock market so far this year. The first four sessions of the week produced the ... More

MSN MONEY'S