Sugar-based hard seltzers are now considered malt beverages in Oregon and will be taxed accordingly, ending the state’s discrepancy with the federal government’s classification of the popular bubbly beverages.
Gov. Kate Brown signed HB 2264 into law last week, which adjusted the state’s definition for malt beverages to include sugar as a malt substitute, in addition to “rice, grain, bran, glucose… or molasses.” At the federal level, the Internal Revenue Code of 1986, which classifies products for tax purposes, includes sugar as a substitute for malt.
“The definition alignment with the federal is a win-win across the board,” Oregon Brewers Guild executive director Christina LaRue told Brewbound. “It’s a win for our members; it’s a win for any brewers outside of Oregon that are importing their hard seltzer into the state.”
The guild engaged in “multiple meetings and multiple conversations to make sure that, especially around the malt beverage definition change, it was beneficial to all stakeholders,” she said.
“Some of our brewers were running into the issue of, if they were making hard seltzers, which many had turned to during the pandemic as an additional avenue for generating revenue, there wasn’t clear guidance on hard seltzer until about last December from [the Oregon Liquor Control Commission (OLCC)],” LaRue said. “When that guidance came out, if it was made with cane sugar, it should have been considered wine on the tax code, which in turn was going to lead to a higher tax rate for members.”
The new law is “just making it easier across the board, so that there was no confusion, especially around what is considered a substitution for malt, because the Oregon definition up until now didn’t really clarify that,” LaRue said.
Because of the strict nature of the state’s previous malt beverage definition (which only allowed for “barley, canola, corn, flaxseed, mixed grain, oats, rye, sorghum, soybeans, sunflower seed, triticale and wheat”), hard seltzers containing cane sugar — a popular base for seltzer producers — would likely have been classified and taxed as wine. Oregon brewers producing hard seltzer would have paid $0.67 per gallon in state excise taxes and would have needed to obtain a winery license from the state for $500.
“The OLCC was going to have to go back through all of their records, and there would have been an amount due on anything previously made,” LaRue said.
The hard seltzer segment has reached $4.5 billion in off-premise sales in the 52 weeks ending May 22, according to market research firm IRI. None of the segment’s major players (Mark Anthony Brands’ White Claw, Boston Beer’s Truly Hard Seltzer, Anheuser-Busch InBev’s Bud Light Seltzer) are based in Oregon. However, several Beaver State breweries have launched hard seltzer brands, including Eugene, Oregon-based Ninkasi Brewing’s Pacific Sparkling Craft Seltzer.
Non-Profit Fundraising Changes
In addition to adjusting the state’s definition of malt beverages, Oregon also adjusted the way non-profit organizations, such as the Oregon Brewers Guild, can involve alcohol in their fundraising.
“A non-profit can now sell alcohol, without having to pull a permit, for up to 45 days in a calendar year,” LaRue said, adding that the prior law limited organizations to one raffle or auction license in a 12-month period.
Before the COVID-19 pandemic, the guild relied on hosting in-person events and festivals to supplement the dues it collected from members. When events became infeasible, LaRue organized a virtual fundraiser to raffle off a box of specialty Oregon beers, which “went really well,” she said. The guild can now also sell collaboration beers it produces with member breweries.
“It’s big, especially for nonprofits across the state that are just again are still dealing with the inability to hold our large fundraising events,” LaRue said. “This is a great opportunity to keep revenue coming in.”
Bill Proposes Task Force to Study Alcohol Tax
After a bill that proposed raising taxes on malt beverages by $70 per barrel failed to gain traction, the state Legislature is considering a second bill backed by the same organization that would establish a task force to study minimum prices for alcoholic beverages.
House Bill 3377 would establish and direct the use of the state’s Addiction Crisis Recovery Fund, review the expansion of addiction treatment services and “study optimum minimum pricing of malt beverages, wine and cider to allow consumer access and discourage overconsumption.”
“Our biggest issue with this is that it really has a predetermined outcome of finding either a way to raise alcohol taxes, or to set minimum pricing, so we are against it,” LaRue said.
The task force prescribed in HB 3377 would only have three members to represent the alcoholic beverage industry.
“One seat will be for a representative of all industries, so we have to choose one person that will represent beer, wine, cider and distilleries; one person to represent all off-premise; one person to represent all on-premise,” LaRue said.
The state’s beer industry “fully supports the premise behind these bills,” she said.
“We fully understand that the services are not where they need to be in this state,” LaRue continued. “But what we continue to push for is, let’s take a look at the current funding.
“There needs to be a deep dive into where current alcohol taxes are being allocated, because the current percentage is less than 3% that are going into these services, so why don’t we figure out where the rest of that money is going and see if there’s an avenue for reallocating those funds before we raise alcohol taxes or setting minimum pricing.”
HB 3377 was referred to the House Ways and Means Committee, which has not moved it forward. The Legislature’s current session is slated to end June 27, so the bill would have to be passed by both chambers before then.
“I don’t know if it’s going to move or go anywhere,” LaRue said. “If not, though, I do foresee it coming back next session.”