Pennsylvania lowers sales tax on taproom craft beers, pushes start to Oct. 1

Some craft beer brewers will adjust prices.

Others are considering options to offset any additional cost associated with a state requirement that they must collect sales tax starting Oct. 1 — after a July 1 start date was delayed — on beers sold at their taprooms and to-go purchases.

John Lasher at Cellar Works Brewing in Buffalo Township is planning to add a note on the bottom of receipts letting customers know where the extra money they’re being charged is going.

But brewers all hope the change doesn’t hurt business.

“I’m hoping not, but that’ll tell in time,” said Mark Pavlik, owner of Four Seasons Brewing Co. & Pub in Latrobe. “Do I raise my prices to counteract the sales tax, or is that just a cost that I have to eat?”

There is one silver lining: Craft breweries won’t have to charge as much as initially thought.

State legislators and Gov. Tom Wolf on Friday approved a bill that would update the tax code and adjust how much sales tax craft brewers have to pay on each beer sold — 6% sales tax on 25% of the retail value. The legislation was drafted by state Rep. Natalie Mihalek, R-Allegheny/Washington, with the help of trade group Brewers of Pennsylvania, in response to a sales tax bulletin issued last year by the state Department of Revenue.

Craft brewers have been waiting for months to see what would happen with the legislation. A July 2018 bulletin issued by the Department of Revenue reminded craft brewers they are required to collect a 6% sales tax on beers. That bulletin has been rescinded.

The department is expected to issue further guidance to brewers in the future.

“We recognized the changes made to the law in recent years as part of liquor reform created confusion and some lingering issues for both consumers and the beer industry,” department spokesman Jeffrey Johnson said. “That’s why we were willing to sit down with legislators and members of the industry to hear their concerns and work toward an equitable solution, which is what this legislation provides.”

At an April public hearing in Pittsburgh, brewers expressed confusion and fear about the prospect of collecting 6% sales tax. Brewery owners believe the tax should be applied at the wholesale level in the same manner it is collected from distributors and retailers.

Greg Kamerdze is considering options ranging from changing prices to changing production levels at his small brewery in Spring Hill on Pittsburgh’s North Side.

“It’s been kind of hard to wrap my head around,” he said.

On a $6 beer, 6% sales tax would have been 36 cents.

Under the new legislation, 6% sales tax would be applied on 25% of the $6 beer, meaning the sales tax would be 9 cents.

Ian Staab, owner and founder of Yellow Bridge Brewing Co. in Delmont, said he was planning to adjust serving sizes of some types of beers anyway, so any sales tax requirement could be worked into new prices.

“As long as the extra amount we’re charging per pint doesn’t affect our foot traffic, which I don’t think it will,” then business should be OK, Staab said.

The tax may result in drinkers spending less, but it’s hard to predict how business might be affected, Lasher said.

“I think that charging a per-pint tax is ludicrous,” he said.

Staab collects about $12 in sales tax on a half-barrel keg — which holds 124 pints — of his beer. He would have charged about $44 in 6% sales tax in his tap room on each of those 124 pints under the Department of Revenue’s initial requirement.

Under the new rules, it would be about $11 total in sales tax on those pints, nearly equal to the total he charges distributors on the half-barrel keg.

State officials expect to bring in about $1 million in sales tax during the 2019-20 fiscal year under the new legislation, according to a House Committee on Appropriations fiscal note.

The reduction called for in the bill from craft breweries that already pay 6% sales tax would be offset by the increased income from craft breweries that currently aren’t in compliance.

Brewers expressed confusion throughout the process, citing a lack of communication from the Department of Revenue that left them with questions. State and local organizations were helpful in educating brewers about the potential impact on a product for which they already pay excise taxes, they said.

“At the end of the day,” Pavlik said, “it’s unfair to the customer.”