Bill would cut excise tax, help small breweries, supporters say
Scott Smith believes small breweries like his East End Brewery could save thousands of dollars annually if antiquated federal excise taxes laws were revamped to help make them more competitive.
East End Brewery is growing and in November moved from Homewood to new quarters in Larimer, where Smith hopes to produce 4,000 barrels of beer this year, up from 2,500 last year.
If he hits that goal, and an excise tax cut is adopted by Congress, he could save about $14,000.
“That would be enough to buy a new fermenter,” a microbrewery's most important piece of equipment, Smith said on Thursday.
Under a bill co-sponsored by 30 members of Congress and in the Senate Finance Committee, the per-barrel excise tax that brewers pay to federal coffers, would be cut in half for small breweries. The tax went into effect in 1976.
East End Brewery has grown 40 percent to 60 percent each year since Smith started it in 2004. A tax cut would help that continue.
“We're lucky in the brewing world to have this growth, but it's not without its challenges,” said Smith, who employs six workers.
Nationwide, there are about 2,500 small brewers, defined as producing less than 2 million barrels each year, and about 100 in Pennsylvania, said Sen. Bob Casey Jr., D-Scranton, one of the co-sponsors of the bill during a tour Thursday of East End Brewery.
Area brewers say there are about 32 microbreweries in Western Pennsylvania, from Erie to State College to West Virginia, and they say they would benefit from the proposed tax cut.
Bob McCafferty said his North Country Brewing Co. in Slippery Rock produced 1,651 barrels last year and is set to startup a 5,000-barrel expansion. Matt Allyn's Voodoo Brewing Co. in Meadville brewed 1,200 barrels. Matt Katase's TheBrewGentleman Beer Co. in Braddock is setting up to start production.
“This excise tax was created during the Civil War, not that anyone minds paying, but if structured differently, it would create more jobs,” said McCafferty, who recently added 10 jobs, bringing total employment to 82 — because of a change in state law.
In November 2011, Pennsylvania changed rules to allow a brewer to open a satellite brewing site away from its original licensed location, he said.
“We outgrew our original site on Slippery Rock's main drag,” McCafferty said. The change allowed him to build another brewery at a nearby industrial park. That added 10 jobs. “Now we will be able to distribute to Western Pennsylvania (and) eastern Ohio and hit markets that have been requesting our products.”
Casey said the excise tax-cut legislation would help small breweries compete with larger competitors, create jobs and add to the nation's and Pennsylvania's economy. “We want to give them the tools to do that,” he said.
A March study by Harvard University determined the legislation would add 5,000 jobs nationwide in the first 18 months and 400 per year after that. The total tax reduction over 10 years would be $324 million, Casey said.
Small brewers like Smith and McCafferty are paying an excise tax of $7 per barrel on the first 60,000 barrels they brew each year. After the first 60,000, brewers pay an $18 excise tax on each additional barrel, up to 2 million. One barrel is 31 gallons.
The bill would reduce the excise tax in two ways. First, the tax rate on the first 60,000 barrels would be reduced to $3.50 per barrel. Second, the tax rate on additional barrels below 2 million per year would be reduced from $18 to $16.
The ceiling that defines small breweries would be increased to 6 million barrels, to more accurately reflect growth and consolidation of the brewing industry. Since the 1970s, the annual production of America's largest brewery increased from 45 million barrels to 105 million barrels, according to Casey's office.
“Smaller breweries like East End Brewing are attracting customers ... and it's critical that our tax system supports that,” Casey said.
Casey said he hopes to get the bill out of committee and on the Senate floor this year. It likely would be combined with other legislation, and supporters have more than a year to push it through Congress, he said.
The bill was introduced in the last Congress by former Sen. John Kerry, D-Mass., but failed to advance, Casey said. The current version was introduced by Sen. Ben Cardin, D-Maryland.
John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or firstname.lastname@example.org.