By JASON NOTTE
Mar 1, 2017
There are a whole lot of taxes behind the price of your six-pack of beer. But how much you pay depends largely on where you live, and how beer-friendly your state is in general.
Before you even purchase a pint, six-pack or case of beer, excise taxes are imposed on that beer on both the federal and state levels. In the untamed corners of state beer law, excise taxes range from a scant 2 cents per gallon in Wisconsin to $1.29 in Tennessee, more than double the federal levy.
Currently, the federal beer excise tax sits at $18 a barrel, or 58 cents per gallon. That translates to roughly 5 cents for every 12-ounce bottle or can. However, there's a provision that limits the hit to $7 for every barrel for breweries that produce 60,000 barrels or fewer. As noted by Bart Watson, economist for the Boulder, Colo.-based Brewers Association craft beer industry group, 91.8% of the breweries that existed at the end of 2015 brewed 7,500 barrels or fewer, meaning they paid just 22 cents per gallon, or 2 cents per 12-ounce serving.
Even if a brewer makes up to 2 million barrels - which applies to every brewer other than Boston Beer Co. SAM, +1.36% Diageo-Guinness DEO, -0.52% Pabst, Heineken, North American Breweries (Genesee, Magic Hat), Constellation Brands STZ, +0.50% (Corona, Ballast Point), MillerCoors and Anheuser-Busch In-Bev BUD, +0.41% - it receives the $7-a-barrel rate on the first 60,000 barrels before paying $18 for every barrel thereafter.
However, that rate was set in 1991, when there were only 312 breweries in the United States. Last year, after years of pushing competing legislation designed to cut those excise taxes, the D.C.-based Beer Institute industry lobbying group and the Brewers Association jointly introduced the Craft Beverage Modernization and Tax Reform Act (CBMTRA). The legislation's stated tax goals are to reduce the excise tax on the first 60,000 barrels from $7 to $3.50 for domestic brewers producing fewer than 2 million barrels annually, reduce the standard $18 rate to $16 per barrel on the first 6 million barrels for all brewers and importers, and keep the tax at $18 per barrel for any barrels over 6 million.
With 5,005 breweries in the U.S. at the end of last year, that legislation would have broad, significant impact if passed.
When last year's version was introduced, it seemed like not only a way to lessen the tax levy, but a means of sorting different-sized brewers by the Brewers Association's definition of a craft brewer. At the time, Brewers Association CEO Bob Pease told us that he saw the CBMTRA as a means of not just defining smaller brewers, but helping them grow and hire more workers.
"We came very close at the end of the last session of Congress, due in no small part to collective effort of the assembled beverage alcohol coalition," he said at the time. "At the end of the day, we are most interested in achieving tax recalibration for America's small, Main Street brewers. If that means that large brewers, or distillers or wine makers, have their excise taxes recalibrated, too, we are comfortable with that."
This year, the CBMTRA has been reintroduced in both the Senate (S. 236) by Sens. Ron Wyden (D-OR) and Roy Blunt (R-MO) and the House of Representatives (H.R. 747) by Reps. Erik Paulsen (R-MN) and Ron Kind (D-WI). Last year, those bills drew 52 supporters in the Senate and 289 in the House, which would have bode well for its chances if it had actually made it to a vote.
"The Craft Beverage Modernization and Tax Reform Act is common-sense legislation that will keep America's beer industry dynamic and growing," said Jim McGreevy, president and CEO of the Beer Institute, in a statement made after the bill was introduced. "Today, the beer industry supports more than 1.75 million U.S. jobs and generates nearly $253 billion in economic activity, which is equal to about 1.5% of the U.S. GDP."
The Brewers Association's Watson notes that, by his group's 2015 estimates, brewers would save $131 million through those changes in tax law. He posits that brewer growth would quickly offset the change in tax revenue and estimates that the bill would create $8 in GDP growth for every $1 in lost government revenue.
While both the Beer Institute and Brewers Association envision that newfound cash being plowed back into breweries through investments in infrastructure and personnel, there's a strong chance that, in many states, it just helps offset the cost of the state excise tax.
According to the Federation of Tax Administrators, median beer excise tax rates among U.S. states sits at 20 cents per gallon, but the disparity between the excise taxes imposed by various states has tangible consequences for beer's growth in those states.
In Wisconsin (6 cents per gallon), Oregon (8 cents), Colorado (8 cents) and Pennsylvania (8 cents), brewers face a beer excise tax that's well below that of not only neighboring states, but the rest of the nation collectively. Unsurprisingly, Wisconsin (121 breweries in 2015, 2.9 brewers per 100,000), Oregon (228, 7.7 per capita), Colorado (284, 7.3 per capita) and Pennsylvania (178, 1.9 per capita) all rank among the most bustling beer states in the union. Even Wyoming and its 2-cents-per-gallon excise tax - for a state with a population smaller than most major U.S. cities - still manages to have upwards of 23 breweries and 5.5 breweries per capita.
Meanwhile, Alaska ($1.07 per gallon), Hawaii (93 cents, not counting the additional 54 cents per gallon for draft beer), Alabama ($1.02 between state and local taxes), Georgia (85 cents between state and local taxes) and Tennessee ($1.29 between excise and wholesale taxes), impose some of the highest beer taxes in the land. Alaska's 23 breweries are the fewest in the Pacific Northwest (even though it ranks eighth in breweries per capita). Meanwhile, Hawaii's 13 breweries, Alabama's 24, Georgia's 45 and Tennessee's 52 don't seems so bad until you realize it ranks them 37th, 47th, 48th and 40th in breweries per capita, respectively.
Also, since beer excise taxes aren't static, states like Louisiana and Ohio can raise them whenever they're looking for added revenue. This is where it pays for brewers to respond with a strong, politically active brewers' guild.
"As for state issues - that's always in conjunction with the relevant state guild," BA's Watson says. "We certainly help our guilds to tell the story of job creation going on with small brewers and how raising the state excise tax could jeopardize that."
That said, both federal and state beer excise taxes are only part of the broader equation. Washington state imposes a beer excise tax of 26 cents per gallon - more than three times that of neighboring Oregon - yet has more than 300 breweries and nearly 6 per capita (sixth-best in the country). Having friendly laws governing beer sales and distribution in a state with a long craft beer history and mature base of drinkers tends to offset costs a bit. The same applies in Illinois, where a 23-cent state excise tax is enhanced by an additional 29-cent tax in Chicago and 9-cent tax in surrounding Cook County. However, there are 66 breweries in Chicago itself and more than 100 in the surrounding suburbs. That's more than the brewery count in all of neighboring Indiana, where beer excise taxes are a flat 12 cents.
Beer excise taxes, laws governing sales and distribution, and a passionate base of both local brewers and drinkers willing to lobby for changes to both of the above all play a role in making a great beer experience. While it would be nice if it cost you less to drink a beer, there are greater forces influencing the price of every bottle or can you drink than the 2 to 5 cents that Uncle Sam tacks on to each serving.
Jason Notte is a freelance writer based in Portland, Ore. His writing has appeared in The New York Times, The Huffington Post and Esquire. Follow him on Twitter @Notteham.