It’s good news for Arizona breweries: the tax reprieve will extend another year.
A 2018 federal tax break was set to expire at the end of this year on Dec. 31, 2019. The Craft Beverage Modernization and Tax Reform Act of 2017 is part of the Tax Cuts and Jobs Act, which was signed into law on Dec. 22, 2017.
On Dec. 16, congressional leaders came to an agreement on a tax extender package that included a one-year extension of the federal excise tax rates for breweries and the ability to transfer beer between bonded facilities.
The Craft Beverage Modernization and Tax Reform Act of 2017 reduces excise taxes (fees imposed on producers of specific goods and services including alcohol on beer, wine and spirit producers.) The tax was $7/barrel and has been $3.50/barrel for the past two years.
The extension will help Arizona’s booming brewing industry continue to thrive, as there are 90 registered breweries in Arizona. Brewers contribute $5.4 billion annually to the state’s economy and support nearly 44,000 Arizona jobs.
PHX Beer Co., a brewery that’s been open for 2.5 months, created their business plan for 2020, and the continued tax break can help them focus on growing their business and in turn sell more beer. “We’re 2.5 months in, so we’re looking to scale up with employees, with sales reps and adding people inside our brewery space to create more beer for selling,” said Adam Wojcik, brewery director of PHX Beer Co.
Rob Fullmer, director of the Arizona Craft Brewer’s Guild, said the excise tax means breweries have to pay the tax as soon as they produce the product, and doesn’t require them to sell the product.
“The tax has been $7 since the 1970s, and the cut to $3.50 happened just a few years ago. In the 70s, they wrote the tax structure around the hundred breweries that were around, and almost all of them were very large breweries,” Fullmer said. “Today we have about 8,000 breweries in the United States, some of them very small, others large.
“We were given a two-year window on the bill, so the federal government could find out what the impact is. We’ve done a very good job of establishing the savings on those barrels of beer goes right back into the business, it takes the form of maybe buying more kegs, tanks or directly towards someone’s salary.”
If the tax break was not extended past Dec. 31, Fullmer thinks it could have stunted a lot of growth in the beer industry in Arizona.
Wojcik said the current tax break has opened opportunity and has increased the rate of breweries opening over the last few years. “A lot of these breweries are still in infancy stages of trying to establish their brewery and their business.” Fullmer said 60 percent of Arizona breweries are six years old or newer.
During the last few years, Wojcik said there has been around 11-12 percent growth in jobs due to the increased number of breweries opening around the country. “From our business standpoint with equipment and employment correlate directly towards our production, so if we continue to grow we need to continue to invest in our business; especially in Arizona where we are still a developing craft market.”
Arizona Senators have introduced S. 362, the Craft Beverage Modernization and Tax Reform Act, if it’s enacted, the legislation would make the reduced excise tax rates permanent on beer, wine and spirit producers. It would also modernize additional regulations including alcohol content limitations for certain wines for tax purposes and permitting the transfer of beer between bonded facilities without taxation.
S. 362 supporters say the reduced tax rate under the 2017 tax law allowed small brewers to reinvest in their businesses and create new jobs and should be permanent. S. 362 opponents say the bill will limit the federal government’s ability to quickly generate revenue when necessary and will contribute to the growing federal deficit.