Consumers with a taste for craft beer may take a hit this summer, unless state lawmakers enact a tax credit for brewers before the legislative session ends June 21.
The impact per pint or bottle varies depending on who’s talking, but some local breweries are facing additional tax bills of $20,000 to $25,000 that may be passed on to consumers.
“For me alone, it’s a $25,000 tax,” said John Carr, founder of Adirondack Pub & Brewery on Canada Street in Lake George. “It’s a ton of money, and it’s an out-of-nowhere kind of thing.”
Carr estimated at his restaurant, the new tax will add 25 cents to the cost of a pint. It’s either that, or he’d have to roll back a recent expansion of health benefits to his employees.
He has 40 on staff now and 12 year-round in the brewery, he said.
The new burden comes after an out-of-state brewing firm filed a lawsuit challenging a state exemption that sheltered most of the state’s brewers from the $4.34-per-barrel state excise tax. The state Supreme Court ruled in favor of the out-of-state brewer earlier this year, ending the exemption.
The exemption didn’t apply to brewers who made more than 200,000 barrels per year, but few New York operations break that threshold.
Now, brewers will have to pay the tax retroactive to March of this year. They’re hoping the new tax credit can be enacted before the new tax bills are due: hence their efforts to urge action in Albany.
At the Albany Pump Station on Wednesday, legislators and brewers from around the state gathered to pressure Albany to expedite passage of a tax credit to offset the unexpected burden.
“This unexpected tax increase, brought about not to raise revenue but as a result of a lawsuit, will negatively impact the ability of every brewer in the state to grow, hire new workers and keep prices competitive,” said David Katleski, owner of Empire Brewing Co. in Syracuse and president of the New York State Brewers Association, during Wednesday’s event. “We need lawmakers to pass this tax credit before they go home for the summer so that we can continue to bring jobs and economic development back to cities and towns across the state.”
Max Oswald, Northeastern regional sales manager for Olde Saratoga Brewing Co. in Saratoga Springs, said it’s disconcerting to see an additional tax burden levied on a thriving industry that’s already among the most taxed in the state.
His brewery recently invested about $500,000 in new equipment to expand production.
“It’s one of those things where you’re growing and you’re investing, and all of a sudden this thing comes, and it’s a lot of money,” Oswald said.
Another aspect of the proposed tax credit legislation would give brewers some relief from the state’s $150 label registration fee. The charge is especially onerous to brewers who like to create special, small-batch seasonal ales and lagers that come with smaller profit margins.
Patty Bethel, co-owner of Cooper’s Cave Ale Co. in Glens Falls, said the fee has already stifled her brewery’s offerings, to an extent.
“For a little brewery like us that maybe puts out 30 beers, that’s $4,500 a year,” Bethel said. “So, we cut back. That’s the thing I’m most cranky about.”
Morgan Hook, a spokesman for the Brewers Association, said a tax credit wouldn’t create a new burden on taxpayers because the revenue that would be offset was not planned for in the state’s budget.
“If they do end up doing some sort of tax credit ... it’s revenue neutral,” he said. “This isn’t revenue that the state had before.”
While providing a tax credit to offset the unexpected new costs would be helpful, the state could be doing much more to help small businesses, according to Rick Davidson, co-owner of Davidson Brothers Restaurant & Brewery in Glens Falls.
“Obviously, now that we pay the excise tax, our costs have risen, so if they enact some type of legislation that then counteracts that, our costs will decrease again,” Davidson said. “However, in the big scheme of things, it would benefit a company like Davidson Brothers if there were meaningful changes across the board at the state and federal level.
“In New York state, it’s very expensive to do business, so items like the unemployment insurance rates that I pay, the workers’ compensation insurance that I pay, the many multiple levels of state and federal taxation on a business like ours far outweigh that excise tax.”
Oswald, at Olde Saratoga Brewing Co., agreed.
“This (proposed tax credit legislation) is sort of the hot button right now,” he said. “It’s just one after another after another after another tax. If you just stick with beer, you’ve got federal excise tax, New York state excise tax, sales tax. It’s just crazy taxed.
“And that doesn’t even take into consideration all the other business taxes. (My comptroller) just showed me the stack of New York state stuff. It’s like 3 inches thick with the different taxes we’ve got to deal with.”
The chances of the new legislation being passed before the session’s end weren’t clear Wednesday.
State Sen. Roy McDonald, R-Saratoga, attended Wednesday’s rally at the Albany Pump Station.
“Right now, we need to be working to solve the problems small businesses face in New York,” he said. “It’s our responsibility, as we work through these challenging economic times, to help and not hurt these employers so local people have jobs. This tax credit is a solution that will assist these brewers so they can succeed.”
State Sen. Elizabeth Little, R-Queensbury, felt Wednesday afternoon the tax credit legislation had a good chance of being passed by the Senate as early as that afternoon.
“This is a growing industry with a promise to create jobs,” she said. “It has a sponsor in both houses.”
Assemblywoman Teresa Sayward, R-Willsboro, was more cautious.
She’s signed onto the bill and was working, she said, to get it passed, but the Assembly was working to finalize a lot of legislation this week.
Also, she said there was some push-back because some Assembly Democrats had voiced opposition to the use of a tax credit.
“Ironically, the speaker (Sheldon Silver, D-Manhattan) says he doesn’t like to use tax credits for businesses, but he gives a tax credit every year to an actors association down in New York City,” Sayward said. “So, we’re saying this isn’t something new that we’re trying to create in New York state.
“There’s precedent out there for giving tax credits to certain small businesses.”
Carr agreed, saying states like North Carolina have instituted huge incentives to get brewers to relocate there. And those breweries then sell their beer on shelves alongside his in New York state.
“These are all breweries that I have to compete with,” he said. “Adirondack Brewery will never leave New York state. Cooper’s Cave (Ale Co.) will never leave New York state. That’s not the case with a lot of other industries in New York state.
“It makes us a perfect industry to support.”