PA Brewers face 100% tax increase unless Congress acts

Brian Pedersen//December 11, 2019

PA Brewers face 100% tax increase unless Congress acts

Brian Pedersen//December 11, 2019

In fewer than 30 days, the revised federal excise tax rate for more than 350 small and independent brewers in Pennsylvania will expire, which would increase taxes for these businesses. (Thinkstock)

In fewer than 30 days, the revised federal excise tax rate for more than 350 small and independent brewers in Pennsylvania will expire. If that occurs, it would mean higher taxes for brewers across the state and potentially, higher prices for consumers.

If Congress does not act on the legislation, the $3.50 per barrel tax will return to its original $7 rate, placing a financial burden on American and Pennsylvania brewers, according to Brewers of Pennsylvania, an industry group. Hardest hit, will be the more than 2,000 brewers who opened after Jan. 1, 2018, who will see a 100-percent tax increase.

If Congress allows the current rate to expire, the tax increase may have a negative effect on job creation, Harris added.

“Most of the brewers we looked to are taking those dollars and investing them back into their business,” Harris said. “The craft beer industry has experienced sustained growth in Pennsylvania, and the current FET rate has gone a long way to empower our brewers to make significant investments into their businesses, supplying more than 10,000 jobs and generating $2.2 billion in wages and benefits annually.”

America’s beer industry supports more than 2.1 million jobs, more than a quarter from the craft industry, he said.

The 2017 Craft Beverage Act had strong bipartisan support, but Harris  feels the issue could be caught in a logjam in Congress.

“We had a standalone bill that would have made the tax deduction permanent that has all the co-sponsors,” he said.

Harris said there are two potential solutions: extend the tax deductions through a tax extender package, or fund the U.S. government beyond Dec. 20 to avoid a federal shutdown. If that were to happen, a tax deduction for brewers could be included in that, he said.

Having a reduced level of taxes could encourage growth in the industry, and assure brewers that the excise tax will not change, Harris said. “A lot of our brewers are sitting back kind of waiting to see how it plays out,” Harris said.

Ted Zeller, general counsel for the Brewers of Pennsylvania, said there is no excise tax for companies that make wine and spirits in Pennsylvania, but there is one for brewers.

“In Pennsylvania, the lower alcohol volume that you produce, the more regulation and tax you face for beer than you do for wine and spirits,” he  said.

Zeller, an attorney for Norris McLaughlin in Allentown, said the increased federal excise tax would affect 99 percent of the breweries in the state.

“Really, doubling this tax has a significant effect on small business, the larger breweries are certainly more capable of absorbing the tax,” Zeller said.

Zeller hopes the excise tax remains at $3.50 per barrel in the short term.

Craft brewers have seen success in Pennsylvania and continue to grow.

“Manufacturing jobs are gold to any industry,” he said. “A lot of the companies I represent are contemplating starting to export to other countries.”

For two years, brewers have benefited from knowing what their tax rate was going to be and what they were going to do with the savings, said Beer Institute President and CEO Jim McGreevy.

“We think it’s good for both big and small brewers,” McGreevy said.

Tax extender discussions in Washington often go down to the wire before they are approved, he said.

“We think it will be extended,” McGreevy said. “We know that in our case, almost the entire delegation of house members are co-signers of the bill. We have almost everybody from the Pennsylvania delegation.”

Supporters include U.S. Senators Pat Toomey, a Republican; and Bob Casey, a Democrat.

McGreevy estimated that brewing contributes about $11.5 billion to the state’s economy. An increase in the excise tax could be especially onerous for brewers who are just starting out.

“It’s very important to keep this relief,” McGreevy said. “Any of those brewers would see an immediate doubling of their excise tax.”

The Brewers of Pennsylvania lobbied Congress to pass the Craft Beverage Modernization and Tax Reform Act, or extend the current excise tax rates before Dec. 31.

The Tax Cuts and Jobs Act, passed by Congress in December 2017, provided a temporary reduction in federal excise taxes on beer, according to The Beer Institute, a national trade association based in Washington, D.C.

For craft beer in Pennsylvania, the federal excise tax before the 2017 reduction was $7 per barrel, Harris said. The federal government reduced that tax to $3.50 per barrel as of Jan. 1 2018. If Congress doesn’t act, that tax will go back up to $7 per barrel on Jan. 1, 2020.

The reduced federal excise tax rate has allowed small and independent brewers across the state to reinvest in their businesses, hire employees and grow their breweries, Harris said.