Federal taxes on craft beverage producers like Prison City Pub & Brewery in Auburn could rise in 2020 if Congress doesn't act before the end of the year.
A provision in the 2017 tax law reduced federal excise taxes for beer, wine and distilled spirits. For breweries that produce less than 2 million barrels of beer in a calendar year, taxes fell from $7 to $3.50 on the first 60,000 barrels. The lower tax rates for wine vary depending on the amount of wine produced and its alcohol by volume.
But the tax rates were only in place for 2018 and 2019. With the possibility of a tax hike in 2020, craft beverage producers are urging Congress to act.
Prison City used its social media accounts to ask Cayuga County's federal representatives — U.S. Sens. Kirsten Gillibrand and Chuck Schumer, along with U.S. Rep. John Katko — to support the Craft Beverage Modernization and Tax Reform Act, which would make the lower excise tax rates permanent. The posts were part of a larger campaign supported by the Brewers Association, a national industry group.
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The legislation has bipartisan support in Congress. As of Monday, 324 House members and 73 senators cosponsored the bill. Gillibrand, Katko and Schumer are listed as cosponsors. But the measure hasn't progressed through the committee phase.
Dawn Schulz, co-owner of Prison City Pub & Brewery, said taxes would double if Congress doesn't act.
"It's an impact on us, it's an impact on employees and unfortunately, it's an impact on pricing of beer," she said.
Prison City brews about 650 barrels of beer a year, Schulz said. Once its expansion project is complete, the brewery will produce about 2,000 barrels of beer annually with a plan to increase production to 10,000 barrels over a five years.
If the tax cuts aren't extended, the Brewers Association believes it could have a "chilling effect" on small and independent breweries.
Katie Marisic, federal affairs manager for the Brewers Association, told The Citizen Monday that 99% of the group's nearly 8,000 members face a 100% increase in their federal excise taxes if Congress doesn't act.
Breweries, Marisic explained, benefited from the tax reduction and used the money saved to invest in economic redevelopment and hiring new employees. A survey found that 15,000 new employees were hired by the brewing industry in 2018. In prior years, the average was 5,000 new employees.
Breweries also invested in employees by increasing 401(k) contributions, covering more of health insurance costs and paying higher wages. But with the fate of the excise tax reductions unknown, it could threaten the hirings and investments made by breweries.
"Breweries really thrive on certainty like any small business does," Marisic said. "Not knowing what's going to happen on Jan. 1, 2020 does have an impact on them."
Congressional leaders are negotiating a spending bill to fund the government and other measures, including the annual defense policy legislation. It's possible an extension or language making the tax cuts permanent could be included in a larger bill.
Marisic said the Brewers Association supports the legislation to make the excise tax reductions permanent but would accept an extension.
Schumer, the top Democrat in the Senate, is hopeful that Congress will act to prevent a tax hike on breweries.
"Small breweries throughout central New York, like award-winning Prison City, not only serve up great beer, they also pour jobs into our local communities," Schumer said. "By maintaining fair tax rates for these businesses, we can help them expand our local economies by buying new equipment, increasing production, hiring new employees and allowing them to capitalize on the booming craft beer industry throughout upstate New York. Putting more money back into these businesses will ensure that we can tap into their full potential."
Online producer Robert Harding can be reached at (315) 282-2220 or robert.harding@lee.net. Follow him on Twitter @robertharding.