A proposed bill in Maryland aims to erase the disparity in health along economic and racial lines in the state, and would do so by raising taxes on alcohol to 10%.
The Maryland Health Equity Resource Act, which was introduced in the Maryland House of Delegates last month and referred to the Health & Government Operations Committee on February 2, would raise the 9% sales tax on alcoholic beverages by 1%. If passed, the new tax would go into effect at off-premise retailers on October 1, 2021.
On-premise locations, including breweries that sell directly to consumers for on-site consumption and to-go, would have a two-year grace period before the increase goes into effect. Those businesses are still struggling to regain their footing amid closures and reduced capacity restrictions during the COVID-19 pandemic.
In a press conference to discuss the proposed increase and other struggles Maryland brewers are facing, Heavy Seas Beer director of marketing and hospitality Sarah West said breweries will be forced to pass the tax increase onto consumers.
“Just as we’re trying to recover this, on top of everything else, is not going to benefit us, and as a brewer, we can’t say how to fix healthcare,” she said. “We just know that this is not going to contribute to us being able to come out of this positively in the next few years.”
Due to the pandemic, 25-year-old Heavy Seas’ business “pretty much changed overnight,” West explained. The company took hits in volume (-15%) and revenue (-20%) in 2020 when it lost draft sales in its own taproom and at other on-premise accounts and ended the year “not anywhere close to whole,” she added.
“While it may appear on the outside that the off-premise business is making up that loss because everyone’s shifted to drinking at home, I can assure you that’s not the case,” West said.
Heavy Seas isn’t alone. In normal times, Maryland’s 176 breweries generate $4 billion in economic output, Beer Institute president and CEO Jim McGreevy said.
“We estimate through our analysis that the pandemic has created a $540 million decline in retail beer sales in the state of Maryland,” he said. “That translates to, at least temporarily, the loss of 11,000 jobs supported by the industry.”
Pandemic-related closures have led to a $400 million decline in wages, McGreevy added.
“The pandemic has had a great impact on the day-to-day operations of brewers in the state, and certainly has had an impact on places where beer is sold, restaurants and bars in particular,” he said. “And that obviously continues.”
Waldorf, Maryland-based Patuxent Brewing opened in August 2019 and was just finding its footing when the pandemic upended the industry, co-owner and business manager Tranice Watts said. Patuxent is one of the only 100% Black-owned breweries in Maryland, and one of about 60 in the country.
“Unfortunately, we have seen some of the worst times,” she said. “But again, we are trying to remain positive, because we do have a community that is very supportive of us, very loving of us.”
Due to steel and aluminum tariffs, Patuxent hasn’t been able to order necessary equipment because “it just cost too much to ship,” Watts said.
“We’re not really going to see the cash retention that we need, the liquidity that we need, the income we need to continue to employ people and to have an income for ourselves,” Watts said. “Currently we are foregoing our own income, which will be two years going on now, so that we can continue to reinvest into our brewery and make sure that the people who are working for us are paid.”
For 2021, Patuxent’s sales are 67% below projections, and its business model relies heavily on sales in its taproom, which has had to operate at reduced capacity.
“It’s been an uphill battle, yes, and we continue to remain optimistic absolutely,” Watts said. “I’m really, really hoping that we make some type of leeway with keeping the taxes as they are.”
The Maryland bill’s future is uncertain, but McGreevy said the BI and breweries will continue to advocate against the tax hike.
“There’s been some swirling about this idea that may or may not happen, but I think until the legislative session ends and we know that it hasn’t, there’s always an opportunity for this to go through,” he said. “Obviously, funding, healthcare in the correct way, equitably in communities is important. But I think, as others have said in the Legislature, maybe there’s a different way to do this than putting it all on brewers and other producers of alcohol.”