Former lawmaker hops into top beer advocacy roleAdam Harris talks taproom sales taxes, distribution contracts and the prospect for additional liquor law reforms
When Adam Harris left the state House in November after 16 years in office, he didn't have another job lined up.
His wife told him to wait for the right opportunity. Two weeks later, one of his passions — the craft-beer industry — gave him the perfect post-legislative recipe.
The former Juniata County lawmaker got a call from the Brewers of Pennsylvania asking if he would like to be deputy director of the state’s official brewers guild and oversee advocacy efforts for the 200-member organization.
“I jumped at the chance without any hesitation,” said Harris, who started his new job last month.
The former Republican lawmaker spent his last two years as chairman of the state House Liquor Control Committee during a period of major reform.
But there is still work to be done.
Harris, who now lives in Cumberland County, joins the Brewers of Pennsylvania as its members brace for a state directive to levy sales taxes on taproom sales.
The state Department of Revenue wants breweries to start charging a 6 percent sales tax on all their taproom products, including draft beers served on site and six-packs and growlers sold to go.
The collection effort was slated to begin in January but was pushed back to July after lobbying by the Brewers of Pennsylvania. The guild is hoping for a longer delay.
The other big item on the organization’s agenda is giving breweries more flexibility in distribution agreements with wholesalers.
Current law requires breweries to distribute their products through a single wholesaler in a territory under contracts that are difficult to break, unless the breweries handle their own distribution. The guild wants breweries to be able to buy their way out of existing distribution agreements, achieving what it calls beer equity.
The Business Journal caught up with Harris as he begins touring the state and meeting with brewers.
This interview has been edited for clarity and length.
CPBJ: Where might this sales tax situation go this year? Could it be delayed or modified?
Harris: We’ve been talking to the governor’s office and they seem to be suggesting a legislative fix. Ideally, we would love to see it shelved, at least pushed back maybe another six months or a year to talk about it.
If the Department of Revenue does the tax this way, you will pay four, five, maybe even six times the amount of tax if you go and have a beer at a brewery as opposed to buying it at a restaurant or bar, which we think is completely unfair.
In 2015, when the regulations were relaxed and taprooms were allowed to open, the Department of Revenue said these will be tax-exempt sales. The way this industry is growing we don’t think we should slow that momentum down.
The second fix, if that isn’t possible, is that we just want there to be equity with the way beer is taxed at the wholesale level. For example, if a keg goes to a bar or restaurant, and it’s a $150 keg, they’re going to pay a 6 percent sales tax on that. That’s going to be $9. But the way the Department of Revenue wants to treat brewpubs and taphouses, they want us to do it as an over-the-bar drink tax. So that same barrel of beer taxed at $9 is now being taxed on each pint that comes out. If you’re taxing 6 percent on 120 pints, you’re going to collect something like $35 in taxes.
CPBJ: If this issue is the biggest concern for brewers, why are we still seeing new places opening up and existing breweries expanding?
Harris: I simply think we’re going to get a Y in the road and these businesses are going to have to decide “Am I got to eat that cost or am I going to pass it directly on to the consumer?”
From the bigger picture, it might seem like it’s only a couple of dollars here and there, but just compare it to the example of what happened in Harrisburg city with parking rates. People found other places to go and they found other places to entertain themselves.
We just think we have a great thing going here with making these transactions tax exempt. A lot of these people that jumped in back in 2015, 2016 and 2017, they invested as if they we're going to be tax exempt.
But they are good business people and they’re going to make that adjustment.
CPBJ: Do you think this changes the business model for some breweries?
Harris: I think the brewers that are most in jeopardy are smaller brewers.Those that are just starting out, they're still paying off their business loans, maybe have theirhouse mortgaged or are using credit cards.
That is going to be a big part of my job in the next couple weeks, talking to small, medium and large brewers and asking them how this is going to affect them. I think some of them are absolutely going to answer “We're 100 percent passing this on to the consumer.”
Some are probably going to try to eat what they can but I think the smaller to medium-sized brewers are very concerned about how this is going to change their expansion plans, how they pay their employees, maybe even their hiring for the summer.
CPBJ: Are there any current bills you expect to see move this year to help address the beer equity issue?
Harris: I know our team is actively looking for a co-sponsor.
Quite simply, it's just a freedom issue. If an agreement for whatever reason just simply isn't working out between a wholesaler and a brewer, we feel there needs to be a fair way for that to come to an end. The current system is just too expensive and it takes too long. We feel like a change is needed, particularly in a state like Pennsylvania, where we have so many blossoming craft brewers. A lot that I've talked to are really reluctant to make that jump with a wholesaler because a lot of the men and women who have been doing this for a long time say you're going to be in that contract in perpetuity, unless the wholesaler wants to let you out.
CPBJ: After leaving the House and the committee, how do you think lawmakers will proceed this year with other liquor law changes?
Harris: Obviously, the two last big changes were Act 39 and Act 166. After we did that, the consistent feedback we got from the governor's office was “OK, let's take a deep breath now and let some of these sort of sink in and see what the positive effects are.”
I think we've had enough time for those two big changes to settle in. I think this legislative session we’re willing and ready to probably do some new things and hopefully the governor will be on board.
I was quite surprised that we were able pass two major liquor bills in that short of a time frame. I don't think it all sank in until I started to see retailers, grocery stores and beer distributors advertising the changes and wine was showing up on grocery-store shelves. It was incredibly satisfying to see the concepts we talked about actually change the way people bought adult beverages in PA.
CPBJ: What additional changes might crop up?
Harris: The one item that I think was left on the table when I left the legislature was the idea of some type of spirits-to-go proposal that would increase consumer access to spirits.
However, I can say from experience that when we discussed this proposal, members of the House tended to have a very different opinion of spirits as opposed to beer and wine. Because it generally has a much higher alcohol content, many members didn't feel comfortable increasing its availability and preferred keeping its distribution within the PLCB.
This decision probably also benefited our PA craft distillers who are selling direct to consumers. I'll be watching closely to see if this opinion has shifted at all in the new legislative session.
Harris: Not only do I think it's not the greatest way to fund government, you're guessing how much people are going to partake in each of these things. From my experience, we usually overestimate how much is going to come in. But unfortunately we're sort of in a strange place in Pennsylvania. You have a pretty strong Republican legislature and a Democratic governor and it's kind of been decided that there will be nothing on sales and income taxes, which is the giant chunk, probably 70 percent of the budget. When you don't have any agreement on altering either one of those two, you have to get creative and I think we've been doing that for a number of years.
CPBJ: What is your favorite style of beer and favorite brewery to visit in Pennsylvania?
Harris: I love Troegs and Victory Brewing. Actually one in my former legislative district just opened up: Shy Bear Brewing, in Lewistown.
I'm more of an IPA drinker, but I'm starting to get more into the porters and the darker beers.