The temporary federal excise tax cuts enjoyed by brewers and importers over the last three years are on the verge of being made permanent.
Congress has included language from the Craft Beverage Modernization and Tax Reform Act (CBMTRA) in the $900 billion COVID-19 relief package that is expected to pass in the coming days.
The U.S. House of Representatives is expected to vote on the package today, with the Senate to follow as soon as Tuesday. President Donald Trump is also expected to sign off on the bill.
A coalition of beverage alcohol trade groups — including the Brewers Association (BA), Beer Institute (BI) the Distilled Spirits Council of the United States, American Craft Spirits Association, Wine America, Wine Institute and American Cider Association — had lobbied to make permanent the two years of cuts that were first included in the 2017 Tax Cuts and Jobs Act and later extended for a year. The reduction in federal excise taxes was slated to sunset at the end of 2020.
The lowered excise tax rate of $3.50 per barrel (a reduction from $7 per barrel) on the first 60,000 barrels for domestic brewers producing fewer than 2 million barrels annually will become permanent. For all other brewers and beer importers, the federal excise tax rate will remain $16 per barrel on the first 6 million barrels while maintaining the $18 per barrel excise tax for brewers producing more than 6 million barrels.
Bob Pease, president and CEO of the BA, hailed the passage as a victory for the nation’s 8,300 small and independent craft brewers, brewpubs and taprooms.The excise tax cuts represent a collective savings of $80 million annually for craft beer makers, he added.
Pease, who The Hill recently recognized along with federal affairs manager Katie Marisic as among the most influential lobbyists in Washington, D.C., also thanked CBMTRA’s “legislative champions,” Reps. Ron Kind (D-WI) and Mike Kelly (R-PA), Chairman Richie Neal (D-MA), and Sens. Ron Wyden (D-OR), Roy Blunt (R-MO), and Rob Portman (R-OH). The tax cuts were popular among members of Congress, with support from 77 senators and 351 representatives as of mid-December.
In separate conversations, Beer Institute president and CEO Jim McGreevy and Pease said they don’t anticipate any roadblocks to passage.
“This bill was negotiated over the last few days and agreed to by the four legislative leaders, so this bill is as cooked as it’s going to get,” McGreevy said. “I think that this is a victory for the hospitality industry. This is a victory for small businesses, everywhere. This could not come at a better time for those businesses struggling through the COVID-19 pandemic. To create the certainty of permanent tax relief is very important.”
Pease added that passage of the legislation will be a “huge victory for craft brewers — for all brewers, and then a nice government affairs win for the Brewers Association.”
The legislation comes after a year of struggle for many small brewers who have received little in the way of government assistance while facing state and local restrictions that forced them to shutter own-premise sales, as well as the loss of draft sales in bars and restaurants.
“Like other small businesses, many small breweries, brewpubs and taprooms have been devastated by the economic fallout from the COVID-19 pandemic,” Pease said in a press release. “This legislation and programs like the Paycheck Protection Program are vital lifelines to help small brewers weather this unprecedented health and economic challenge. We strongly believe that America’s small-brewing industry can return to its incredible growth and vitality, but we need to get through these immediate challenges. This bipartisan legislation will help our members do so, and we deeply appreciate Congress recognizing this.”
Beyond excise tax relief, the relief package includes $325 billion for small businesses, including $284 billion in Paycheck Protection Program (PPP) loans, $20 billion for low-income communities and $15 billion for venues, movie theaters and movie theaters, according to Politico. The bill will also provide a one-time direct payment to individuals or couples under certain income thresholds, as well as enhanced unemployment benefits through mid-March.
Pease told Brewbound that relief efforts such as the PPP and Economic Injury Disaster Loan program may be more important in the short-term to small brewers.
“In the short term, the PPP program hopefully will bridge breweries through the next three to six months, get them to the other side of the abyss, and then hopefully things come back to normal,” he said.
Pease added that the extension of the PPP program to 501c (6) organizations could help state brewers guilds, which have also struggled financially with the loss of revenue generating events such as festivals.
“We know that they’re hurting, as well,” he said.
McGreevy emphasized the stability that permanence will create for beer companies and importers.
“In a world of uncertainty for small businesses, this permanency creates some certainty,” he said.
Several small craft brewers shared how the federal excise tax cuts helped their businesses in an early December meeting hosted by the BI.
Julie Veratti, co-founder, and chief brand officer of Silver Spring, Maryland-based Denizens Brewing, said the cuts saved her company around $25,000 over the last two years and has allowed it to expand before the pandemic and make adjustments over the last nine months.
Great Lakes Brewing Company CEO Mark King said reverting to the old tax rate would cost the Cleveland-headquartered craft brewery more than $350,000 annually, which he called “a significant hit.”
Larry Horwitz, head of brewing operations at Louisville, Kentucky-based Ten20 Brewery, said the company was “hanging on by a thread” as it was during the pandemic.
“We feel confident that we can make it, but without an extender, it’s going to make it more difficult for us to do what we plan to do,” he said.
With CBMTRA likely nearing the finish line, beer industry trade groups likely will turn their efforts to the Restaurants Act and a tax credit for perishable food and beer.
“A lot of beer has ended up down the drain,” Pease said. “A tax credit would certainly help address that.”
Pease added that the BA will also work with guild leaders on a state level to make permanent provisions enacted during the pandemic to give brewers better access to market, including to-go sales and shipping and delivery programs.
“Small brewers, they need every path, every avenue to market to get them through this,” he said.
UPDATE December 21, 4:20 p.m. ET: Here’s an updated list, via the Brewers Association, of additional relief within the $900 billion package.
- “Allowing the hardest-hit small businesses to receive a second forgivable PPP loan. Eligibility would be limited to small businesses with 300 or fewer employees that can demonstrate at least a 25 percent reduction in gross receipts in the first, second, third or fourth quarter of 2020 relative to the same 2019 quarter. Stipulations are in place for businesses who were not open in 2019. Businesses must also show that they have or will used the full amount of their first PPP loan. Maximum amount of a ‘second draw’ PPP loan is $2 million.
- “Expansion of PPP eligibility to small 501(c)(6) organizations who employ fewer than 300 people and whose lobbying activities do not comprise more than 15 percent of overall activity. State brewers guilds who fit these criteria would be able to apply for PPP loans.
- “Businesses that received PPP loans and had them forgiven will be allowed to deduct the costs covered by those loans on their federal tax returns, consistent with congressional intent in the CARES Act.
- “Repealing the CARES Act provision that requires PPP borrowers to deduct their EIDL advance from their PPP loan forgiveness amount.
- “Creating a process to give existing EIDL grant recipients who received less than the full $10,000 grant amount to reapply for the difference.
- “Forgivable expenses are expanded to include supplier costs and investments in facility modifications and personal protective equipment to operate safely.
- “Loan forgiveness process is simplified for borrowers with PPP loans of $150,000 or less.
- “Provides an additional $3.5 billion for Section 1112 of the CARES Act, which covered payment of principal, interest, and associated fees on qualifying SBA 7(a), 504, and microloans.
- “Restaurants and hospitality industry businesses in NAICS code group 72 who qualify for PPP loans will be eligible for 3.5 times the monthly payroll (an increase from the 2.5 times monthly payroll in the CARES Act).;”
Jess Infante contributed reporting to this report.