If you have ever stopped to read the tax disclaimer stickers on a gas station pump, you’d know that a sizeable percentage of the price you pay for gas—$0.28 per gallon in Minnesota—goes towards covering something called “excise taxes.”
If you are wondering what gasoline and excise taxes have to do with the enjoyment of craft beer, the answer is: a lot. In fact, a law amending excise taxes on gasoline for agricultural aircraft helped set the stage for today’s craft beer revolution.
Excise taxes, which are different than sales taxes, are indirect taxes levied on the producer or seller of certain goods. Most consumers are unaware they are paying additional taxes because the excise tax is usually already calculated into the purchase price. Some examples of common excise taxes include taxes on gasoline, sporting goods, cigarettes, and alcohol.
Back in 1959, Congress tried to amend the federal tax code to allow states to provide refunds of federal excise taxes on gasoline used in farming operations. Various versions of the bill were considered between 1959 and 1977, but none gained much traction until, in 1978, the House and Senate passed a multi-faceted tax bill that also included a provision to deregulate homebrewing and amend excise taxes for small brewers. With the single stroke of a pen, President Jimmy Carter, the former peanut farmer and Nobel Peace Prize recipient, became the patron saint of aerial crop sprayers and the godfather of homebrewing.
Prior to the passage of the law, brewers were charged an excise tax of $9.00 for every barrel of beer they produced. H.R. 1337 provided a reduced excise tax of $7.00 per barrel on the first 60,000 barrels for any brewery that produced less than two million barrels annually. The $7.00 per barrel tax for small brewers is still in effect, even though the present non-reduced excise tax has been increased to $18.00 a barrel. But perhaps more importantly, H.R. 1337 rescinded the excise tax on homebrewed beer for quantities up to 200 gallons per household with two drinking-age adults per year.
For the first time since Prohibition, homebrewers were free to experiment with different ingredients and techniques without the concerns of unnecessary regulation and taxation. They brewed what they wanted to drink—big, flavorful beers that were antithetical to the light lagers produced by Anheuser-Busch and Miller.
And thanks to H.R. 1337’s lower tax rates on small brewers, many ambitious homebrewers were encouraged to take their recipes out of the kitchen and go professional. These early pioneering craft breweries laid the foundation for a craft beer revolution, which has exploded to a total of over 5,200 craft breweries in operation by the end of 2016.
While the 1978 law has been a major factor in craft beer’s recent growth, the industry is seeking further tax reforms to propel it into the future.
The Craft Beverage Modernization and Tax Reform Act
In January 2017, Rep. Erik Paulsen (R-MN) and Sen. Ron Wyden (D-OR) reintroduced the Craft Beverage Modernization and Tax Reform Act in Congress. The bill, which has been referred to the Senate Committee on Finance and the House Ways and Means Committee, would reduce the federal excise tax rate from $7.00 to $3.50 per barrel on the first 60,000 barrels for small brewers. All brewers, regardless of production size, would also be eligible for a reduced rate of $16.00 per barrel on the first 6 million barrels annually. The bill also seeks to reduce excise taxes on America’s winemakers and distillers.
Besides reducing excise taxes, the Craft Beverage Modernization and Tax Reform Act would bring federal regulation of the craft beer industry into the 21st century. The Alcohol and Tobacco Tax and Trade Bureau (TTB) currently requires that a brewer submit a recipe for approval by the TTB whenever the brewer intends to brew using “non-traditional” methods or ingredients. The Craft Beverage Modernization and Tax Reform Act would allow brewers to use any wholesome fruits, vegetables, or spices suitable for human food consumption without needing further approval. (For reference, although using oysters in a brew recipe does not require TTB approval, brewing with squid ink does.)
Regardless of your preferences regarding exotic fruit or animal ingredients, the Craft Beverage Modernization and Tax Reform Act would lessen the tax and regulatory burdens on craft brewers. Proponents of the bill argue that fewer taxes and regulations will allow small craft brewers to be more competitive in the beer industry, which is still dominated by a few large brewers whose economies of scale and distribution market shares significantly outweigh that of America’s 5,200 craft brewers combined.