Craft brewery owners in Pennsylvania are attempting to restructure the collection of a forthcoming sales tax that is slated to begin next July and would increase the cost of beer sold directly to consumers for on- and off-premise consumption at the state’s nearly 300 taprooms, tasting rooms and brewpubs.
As of July 1, 2019, the Pennsylvania Department of Revenue (DOR) will begin collecting a 6 percent sales tax for every dollar of beer sold directly to consumers via brewery taprooms, tasting rooms and brewpubs. The tax would be in addition to the $2.48 per barrel state excise tax that Pennsylvania breweries already pay. However, the new tax would not apply to sales to wholesalers or traditional bars and restaurants.
The point of contention for brewery owners is not the implementation of the tax itself, but rather when it is collected. As it is currently written, breweries who bypass wholesalers and sell beer directly to consumers in their tasting rooms and retail storefronts would be required to issue the tax at the point of sale.
Instead, brewery owners are arguing that the tax should be applied at the wholesale level, which is already the case for transactions between distributors and retailers.
Other Pennsylvania businesses have been required to issue a 6 percent sales tax on consumer transactions ranging from hotel room reservations to everyday marketplace sales for nearly 50 years, but the DOR had not previously collected a sales tax from the state’s manufacturing breweries.
In 2015, the Brewers of Pennsylvania, the state guild, asked the DOR for clarification on whether breweries were required to collect sales tax from on-site transactions. At the time, the DOR ruled that breweries were exempt from collecting and remitting sales tax from direct-to-consumer sales.
However, the DOR reversed course in late July 2018, issuing a tax bulletin mandating that manufacturing breweries collect tax on products sold at their facilities beginning in 2019.
“The Tax Reform Code of 1971 specifically states that a manufacturer of beer shall collect and remit sales tax on sales of beer to any person for any purpose except to distributors or importing distributors,” DOR spokesman Jeffrey Johnson told the Daily Item.
The sales tax issue is “a ticking time bomb” and a major priority for the Brewers of PA heading into 2019, according to Trevor Prichett, CEO of Yards Brewing and chair of the guild’s sales tax committee.
Chris Lampe, co-owner of Weyerbacher Brewing Company and president of the Brewers of PA, estimated that “90 percent” of the state’s 300 brewing locations would be affected by the implementation of the sales tax.
“In the past six years, the Brewers of Pennsylvania has gone from 12 members to 250 members and a large portion of those newer members of the Brewers of Pennsylvania have based their business models around taprooms,” he said.
Prichett and Lampe said breweries have no problem paying a sales tax, but they want to be treated the same as other retailers who are taxed 6 percent at the wholesale level. In Pennsylvania, beer is taxed when a wholesaler sells it to a bar or restaurant, not on over-the-bar retail sales.
For example, a bar owner would pay about $9 in taxes on a $150 keg purchased from a wholesaler. However, that same keg of beer sold inside a brewery taproom for $5 a pint, at 120 pints, would net $36 in taxes.
“What we’re looking for is parity,” Lampe said.
If the sales tax is implemented in its current form, Prichett said consumers who purchase beer directly from breweries would pay “four-to-five times the amount of sales tax” for a beer than they would at the state’s bars or restaurants. And consumers would pay even more at breweries located in Pittsburgh and Philadelphia, where consumers already pay a “poured drink tax” of 7 percent and 10 percent respectively, on top of a 1 and 2 percent local sales tax in each respective city. Meaning, if the tax goes forward as planned, consumers at brewery taprooms in Philadelphia would pay 18 percent in taxes and 14 percent in Pittsburgh.
Lampe and Prichett agreed that the sales tax, if implemented, would almost assuredly be passed along to consumers.
“I can tell you at Weyerbacher it certainly would be passed on and there would be a sign up saying this is exactly why,” Lampe said.
If a solution cannot be reached with the DOR, Lampe and Prichett said the state’s brewers would lobby lawmakers for reform when the state’s legislative session resumes in January.
The additional tax on beer sold in Pennsylvania’s taprooms comes as breweries across the country have turned to direct-to-consumer sales in an effort to grow sales and generate additional profits on higher margin transactions.
Brewers Association chief economist Bart Watson estimates that about 3 million barrels of beer will be sold directly to consumers nationwide via brewery taprooms and brewpubs by the end of 2018.