The Brewers Association, the national trade group for craft breweries, helped pass the Craft Beverage Modernization and Tax Reform Act (CBMTRA) in 2017, after ten years of effort, as part of the larger Republican tax bill. The legislation lowered the federal excise tax on the first 60,000 barrels (bbl) for breweries producing under 2,000,000 bbl per year from $7.00/bbl to $3.50/bbl.
The excise tax reductions in the CBMTRA are due to expire at the end of this year, so the Brewers Association is working to renew the legislation, including a “Hill climb” during SAVOR Week.
Introduced this past February, the 2019 CBMTRA would extend the $3.50/BBL excise tax reduction and expand the list of ingredients and processes that breweries could use without obtaining prior approval from the Tax and Trade Bureau (TTB). The legislation would also make it easier to transfer beer between different brewery facilities.
The bill has received overwhelming support in both the House of Representatives, where it has 299 co-sponsors and the Senate, with 70 co-sponsors. However, it has yet to move forward.
In addition to the CBMTRA, there are a number of current or proposed tariffs that are creating headwinds for the craft brewing industry, particularly those on aluminum sheeting used for canning and kegs from Canada/Mexico/China, and on steel.
We recently sat down with Bob Pease, President of the Brewers Association, to talk about the Act and current tariff issues and what it all means for the craft beer industry.
DC Beer: It’s been a couple of years since the 2017 CBMTRA passed. Are there any success stories you can share from the original excise tax cut?
Bob Pease: Absolutely. For ten years leading up to the passage of the bill, myself and the BA positioned the act as a piece of job creation legislation. Five months after the bill was passed we surveyed members, and what we heard back was music to our ears. Most breweries were taking the savings and putting it into capital investments for brewery expansions or improvements. Two key examples would be the addition of a canning line to a brewery and the second improvement or creation of a QC lab.
The second most common answer was to create new positions and hire new workers. Left Hand Brewing, for example, immediately hired four new salespeople. Every year we survey our members on employment and production levels and at the end of 2018, the members came back and said they had created fifteen thousand new jobs. That is significant because in the previous years the average job creation was closer to five thousand.
DCB: So that would suggest the new employee numbers weren’t just tied to the growth in the number of breweries alone?
BP: Yes, exactly. What will be of interest is all the new market entrants. What happens to the two thousand new breweries [between December 2017 and now] who have never had to deal with the higher federal excise tax rate?
Besides what I mentioned before, the third and fourth most common answers from the member survey were that they used the excise tax reduction to extend or improve employee benefits and make more charitable contributions. We take that message consistently to our supporters in Congress.
DCB: The bill is called the Craft Beverage Modernization and Tax Reform Act (CBMTRA) and there are provisions that also benefit the wine and spirit industries. Was this an intentional pooling of resources?
BP: Yes, cooperating across the beverage industry helps to achieve results for everyone. We have worked closely with our counterparts in the winery and distillery associations.
DCB: In addition to the excise tax reduction, there are a number of other provisions. What is the most important thing for people to focus on?
BP: What’s most important to us is saving $80 million for the craft beer industry in excise taxes. Those have been the annual savings over the past two years. The “ingredient” exemption list [for beer formula approval] would also be expanded.
Writer’s Note: Under federal law, all beer that is produced, regardless of whether or not it crosses state lines, has to obtain formula approval prior to being sold if it contains any ingredients or is made with any process that the TTB considers to be “non-traditional.”
There is a long and complex list of what sorts of ingredients and processes are exempted from formula approval, however; even if an ingredient is on that list there can be inconsistencies in whether or not a particular TTB agent deems it to be exempted based on physical form. For example, whole acorns may require approval, but acorn flour does not.
This can cause some unnecessary and frustrating regulatory hurdles for a brewery to make beer that in reality is perfectly fine to consume. The CBMTRA would make it so that any wholesome fruit, vegetable, or spice that is suitable for human consumption and doesn’t have any alcohol added to it, would be considered “traditional” and therefore exempt for formula approval requirements.)
DCB: What’s the current status of the legislation? Why has there been no movement since the initial introduction and committee referrals?
BP: We currently have 299 co-sponsors in the House and 70 in the Senate. There are 80 days left in the year (minus the recess time), and we are working with allies in Congress to get it included some year-end legislation. The hope is to have the provisions passed in either a tax extenders package or an omnibus appropriation bill.
DCB: Why wouldn’t it go forward as a stand alone?
BP: It technically could, there is nothing stopping that. However, Congress has generally been loath in the past to consider industry specific tax legislation outside of a broader framework.
DCB: Given the divided Congress, has the process been much different this time around?
BP: From the perspective of the BA, this time around hasn’t been much different. Getting tax legislation passed is never easy, but we primarily deal with the committee staff in the (House) Ways and Means and (Senate) Finance Committees, and their main goal is to get things done.
DCB: Given the number of legislative days remaining before the end of the year, what is the most likely scenario?
BP: We’re not handicapping ourselves now and believe in the work the BA and our partners have done. I will be traveling to DC at least two more times before the end of the year to meet with the Congressional leadership to tell them how important this legislation is. Messaging will now shift to how detrimental things can be if the old rates return. Breweries are an example of domestic manufacturing success. Individual brewers in key states/districts will travel with me, and the BA always encourages breweries to invite their representatives for visits.
DCB: On tariffs there are a number of issues, so I’m going to break it down into three separate issues.
(1) Tariffs on steel and aluminum sheeting?
BP: The tariffs on the can sheet aluminum has caused significant impact on members. Initially, members had contracts that extended beyond initial prices increases. As time has gone by, suppliers have begun to increase rates, pricing tariff costs to [breweries]. From what I’ve heard from members the increases have been anywhere from 6-13% per order and those are ramping up.
It’s another reason for Congress to pass the Craft Beverage Modernization and Tax Reform Act.
DCB: Have you been lobbying the administration or filing for a formal exemption request with the Department of Commerce?
BP: We’ve been required to lobby the Commerce Department and White House, but there has not been a lot of willingness to give up on [the tariffs]. No official filing yet, but we are planning to file a formal exemption request.
(2) Tariffs on finished steel brewing equipment from China, and kegs from Germany, Mexico, and China. What will be the overall impact on the kegs that members are using?
BP: No breweries are directly buying kegs from abroad, but their US suppliers often buy kegs from Mexico, Germany, Spain and lower down on the list China. No current impact, but down the line there will be price increases.
Members are starting to see price increases from the Chinese suppliers. Although there is minimal interest in Chinese brew houses, often because of quality issues, some breweries will still go for the cheapest vendor. We try to inform members as much and consistently as we can about what is happening with the tariffs and how to make an informed purchasing decision.
(3) Retaliatory tariffs. There have been retaliatory tariffs placed on American whiskey and wine in the European Union and China. Have there been any concerns about similar retaliation against American craft beer?
BP: The BA is concerned about it, but there are minimal rumblings at this point. Some of that is because the volume of exports [of American beer] is lower. The BA has a Department of Agriculture program for promoting US craft beer exports, so any headwind would be bad.
DC Beer would like to thank Bob Pease and the Brewers Association for taking the time to sit down with us to discuss these important issues. We will continue to closely follow the progress of the Craft Beverage Modernization and Tax Reform Act, as well as the tariffs impacting the brewing industry, and keep readers updated.
