Wednesday, July 09, 2014

Your beer and excise taxes.

The next time you grumble about the cost of that beer you're holding, remember that, contrary to how much 18th century writer Samuel Johnson may have salivated, there are few in the 'craft' beer business growing "rich beyond the dreams of avarice."

So why is that beer expensive? One reason is taxation. Excise taxes, to be precise: the somewhat hidden, partial cost of a beer.

An excise tax is a Federal or state tax imposed on the manufacture and distribution —not the sale— of certain consumer goods, such as that beer you're holding (or glass of wine or shot of liquor). When you buy a beer, you can easily see —on your receipt— the sales tax you're paying. The excise tax, you won't see; it's already been figured into the cost of that beer.

The Federal Government's Take

The current Federal excise tax on beer is $0.58 per gallon ($18 per barrel). *

In contrast, wine is taxed at $1.07 per gallon, and spirits at $13.50 per 100-proof gallon (i.e., 50% alcohol). Per serving, that's 5¢ for a 12-ounce beer, 4¢ for a 5-ounce glass of wine, and 13¢ for a 1.5 ounce shot of liquor.1

In 2012, federal excise (and import) taxes on beer procured $3.6 billion for the U.S. government's coffers, $1.036 billion from wine, and $5.4 billion from liquor. As much as that might appear, excise taxes accounted for only 9% of the total Federal taxes collected that year.2

Don't Forget The States' Cut

The states want in on that money pile. Under the Constitution, they cannot impose tariffs on goods brought in from other states. But they can charge excise taxes on those goods —like beer, wine, and spirits— if they're made in the state or distributed within the state (a distinction which might seem a bit like constitutional semantics, except that, unlike excise taxes, tariffs can only be levied by the Feds, and only on foreign goods, sometimes selectively or punitively).

Tennessee has the highest beer excise tax rate of any state in the country: $1.17 per gallon. Wyoming, the lowest: 2¢ per gallon.3 YFGF's home territory is Washington, D.C., Maryland, and Virginia. In those jurisdictions:
  • The District of Columbia excise tax on beer is $0.56 per gallon, one of the higher rates in the country.
  • The Maryland excise tax on beer is $0.44 per gallon, also high, but less than D.C.'s.
  • The Virginia excise tax on beer is $0.26 per gallon, lower than its neighbors, and right in the middle, nationally. (In contrast, Virginia's excise tax on wine, and on liquor, is $20.91 per gallon. Both of those rates are the third highest respectively, among all states.)
So, doing some back-of-the-bottle calculations, when you pay for a bottle of beer in Washington, D.C., 10¢ of that cost is for excise taxes —Federal and city— and this excludes the sales tax. In Maryland, the total of Federal and state is 9¢; in Virginia, 7¢.

Except not. You're actually paying more, even though not all to the government.

The Multiplier Effect

When a brewery sells a beer to a wholesaler, it marks up (increases) the total cost of the beer, including the taxes, by a certain percentage, to cover costs and make a profit, i.e., pay the brewers, etc. The wholesaler does the same, by a certain percentage. And a store or restaurant does the same. It's a multiplier effect (a non-governmental Value-Added Tax, if you will) which can add 40¢ or more (or much more, as in Tennessee) to the price of that bottle of beer, just from the excise taxes alone.

Size Matters

* I stated, above, that the Federal excise tax rate was $18 per every barrel of beer that a brewery produces. That statement was not precisely correct.

If a brewery produces fewer than two million barrels of beer per year, its Federal marginal excise tax rate is $7.00 per barrel for the first 60,000 barrels it brews that year, but $18 per barrel for any production above that. But, if that brewery produces more than 2 million barrels, its rate is $18 for each and every barrel.

Thus, by tax rates, the U.S. government can be said to define a small brewery as producing fewer than 2 million barrels of beer. In contrast, the Brewers Association —the advocacy association for small, 'craft' U.S. breweries— defines a small brewery as producing 6 million barrels or fewer.4 (Among 'craft' brewers, only Boston Beer (maker of Sam Adams) and Yuengling produce in excess of 2 million barrels.)

Excise Tax Reduction

There are moves afoot to reduce those beer-excise taxes, at least on the Federal level.

The Brewers Association supports what is known as the Small BREW Act, excise tax relief for small breweries.
The Small Brewer Reinvestment and Expanding Workforce Act (Small BREW Act), HR 494 , was introduced in the 113th Congress, on February 5, 2013, by Representatives Jim Gerlach (R-PA) and Richard E. Neal (D-MA). Joining as original co-sponsors of the bill were Representatives Peter De Fazio (D-OR), Erik Paulsen (R-MN), Earl Blumenauer (D-OR) and Patrick McHenry (R-NC).

On May 9, U.S. Senators Ben Cardin (D-Maryland) and Susan Collins (R-Maine) introduced S. 917, and were joined by 16 of their Senate colleagues who signed on as original co-sponsors.

The Small BREW Act seeks to reduce the small brewer federal excise tax rate on the first 60,000 barrels by 50 percent (from $7.00 to $3.50/barrel) and institute a new rate of $16.00 per barrel on beer production above 60,000 barrels up to 2 million barrels. Breweries with an annual production of 6 million barrels or less would qualify for these tax rates.

Then, there's the BEER Act (Brewers Excise and Economic Relief Act), an excise tax reduction for all breweries, large and small. It's promoted and supported by the Beer Institute, a trade association putatively for and of all U.S. breweries and beer import companies, but founded by the large brewing companies in 1986 (whose dues are still its major driver).
The Beer Institute supports the Brewers Excise and Economic Relief Act of 2013 (BEER Act). This bipartisan, bicameral legislation would reduce excise taxes for all brewers and beer importers, and ultimately reduce taxes for all beer drinkers.
  • Small brewers would pay no federal excise tax on the first 15,000 barrels;
  • Small brewers would pay $3.50 on barrels 15,001 to 60,000;
  • Small brewers would pay $9 per barrel for every barrel over 60,000 and up to 2 million barrels;
  • For brewers producing more than 2 million barrels annually, and for all beer importers regardless of size, the federal excise tax rate would be $9 per barrel for every barrel.

These bills have been in front of Congress for a few years now, and nothing has come of them. If you believe that such excise tax reductions would be a good thing for breweries —and for you, the beer consumer— contact your Representative and Senators about supporting one of these provisions.

Taxes, revenues, mark-ups. After all of these, I think that now would be a good time for a beer.

  • 1 Source for excise tax rate: U.S. Department of the Treasury, Alcohol & Tobacco Tax & Trade Bureau. (TTB)
  • 2 Sources for revenue collections: Center on Budget Policy & Priorities, Tax Policy Center
  • 3 Source for state-by-state excise tax rates: Tax
  • 4 The Brewers Association defines a 'craft' brewer as "small, independent, and traditional." Read the full definition: here.

  • A U.S. liquid barrel, as used in beer measurements, is not a physical thing. It's a unit of volume, equal to 31 U.S. gallons, the equivalent of 13.7 cases, each containing twenty-four 12-ounce beers. A common size for a beer keg in the U.S. is 15.5 gallons, that is, half a barrel.
  • Serious Eats looks at the how and why of beer-pricing beer at bars.
  • In an earlier post, I looked at statistics on the beer business worldwide. One of those was which nations have the highest average beer prices, a figure that is partially dependent on excise rates. Read: What nation drinks the most beer? And other fun global beer biz stats.

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