An excise tax cut was passed in 2017, but is set to expire at the end of 2020.
Congress’ proposed stimulus deal includes a tax cut that, if signed into law, could have major implications for local breweries and distilleries.
The alcohol production industry has benefitted from an excise tax cut since the start of 2018, which reduces the tax burden for small businesses that produce beer and spirits by about 80%. However, that tax reduction is set to expire at the end of the year, which would result in a 400% tax increase for most local craft brewers and distilleries.
Maria Cabre is the head brewer at J. Wakefield Brewing in Wynwood.
The omnibus bill that passed the U.S. House of Representatives and Senate would make that tax cut permanent for businesses that produce under a certain threshold. President Donald Trump recently expressed disappointment over the bill, however, so its future remains uncertain.
In the midst of a pandemic that has already crippled these businesses, Jonathan Wakefield, owner of J. Wakefield Brewing in Miami, said the tax cut would be welcome aid for businesses like his. The tax cuts scale based on the amount of beer produced, and Wakefield said that his company’s excise taxes were halved when the initial cut went into effect in 2018.
Having to pay double the rate in January would be devastating for the business, he said.
“I’m feeling a sigh of relief,” Wakefield said, “because I think [a tax increase] is the last thing we needed right now. We’re trying to make ends meet as it is.”
Robert Lewis, founding partner of Coral Gables-based Spiritus Law, said the last three years of tax relief has helped grow South Florida’s brewing and distilling industry. Many owners have put the money saved back into their businesses, allowing them to hire more employees, expand taprooms and increase production.
“It was like a lifeline for this growing industry to help it grow even more,” Lewis said.
Additionally, the uncertainty of the tax cuts hurt these businesses’ ability to secure loans and other funds. He said brewery and distillery owners he works with have been hesitant to take out major loans not knowing whether they’d have a major tax expense at the start of 2021.
Lewis said the cut lowered the production excise tax for breweries from $7 a barrel to just $3.50 a barrel for the first 60,000 barrels produced in the calendar year. Distillers saw the tax drop from $13.50 a proof gallon to $2.70 for the first 100,000 proof gallons produced each year.
The language specifically benefits small-scale producers, he said.
Wakefield said the brewing industry continues to struggle through the pandemic, even though Miami-Dade County taprooms are now allowed to operate at 50% capacity. Patrons aren’t flocking to his establishment, and he said he believes many are still hesitant to socialize in spaces such as tasting rooms and taprooms.
The wide distribution of a vaccine could be the solution, but until then, measures like the tax cut could go a long way to help keep the industry afloat through the pandemic.
“We are still far from normal,” Wakefield said.
Also included in the bill is the ability for businesses with fewer than 300 employees to apply for a second forgivable Paycheck Protection Program loan.
About Spiritus Law:
Spiritus Law is an entrepreneurial law firm focused on business regulatory licensing, trade practice compliance and business conflict resolution for highly regulated industries including those dealing in alcohol production and distribution, hospitality services, commercial development and international business transactions. The Firm is founded on traditional principles of client counseling and teamwork with a cutting-edge twist on regulatory innovation and modern problem-solving. We focus on the business needs of individual clients and leading industry members so we can advance business objectives and influence regulatory changes that guide our clients’ business operations. Spiritus Law combines a unique blend of professionals, including attorneys, government consultants, licensing assistants and paralegals to assist its diverse clients. We leverage our unparalleled experience working with government agencies and judicial courts on the federal, state and local level to develop compliance business operation strategies and resolve business conflicts and disputes. Our modern approach to transparent client representation and employee engagement defines our collaborative spirit and progressive energy.
Primary service areas include Alcohol Licensing & Regulatory Compliance, Alcohol Production & Distribution Transactions, Food & Hospitality Industry Compliance, and Administrative Enforcement Defense. The Alcohol Industry Group focuses on providing complete business licensing and regulatory services and business operational guidelines for the manufacturing, importation, purchase and retail sale and service of alcoholic beverages and other regulated products. Our firm services an array of industries, including alcohol producers, sports teams, hotels, restaurants, theme parks, movie theaters, grocery stores, liquor stores, bars, commercial developers, security service providers, firearms suppliers and more.