Opinion: WA: 2013 House Budget punishes craft beer and rewards wine, cider, and distilled spirits. Our thoughts and your call to action.

Raise your hand if you’ve been to a party and been too drunk to drive home, let alone hail a cab or ride a bus. Quite a few of you for sure.

For this writer I recall at least one occasion where I spent the night at a friend’s house, passed out on his couch. I took the sane route. I didn’t walk home and risk being found in the middle of the road. I didn’t hail a cab and potentially cause a scene. I stayed at my friend’s place.

Sure the couch was lumpy, filled with soiled Cheetos, and the cushions reeked of cheap beer. But at least I was safe and only had the funk of day-old clothing to remind me of my prior mistake. But I appreciated my friend letting me ‘crash at his place’.

That’s what we call borrowing someone else’s space. It’s a courtesy bestowed to us reminding us to trust one another when we are impaired chemically, physically, or emotionally.

So imagine my amazement, a few weeks ago, when I heard Governor Jay Inslee of Washington State had chosen to make a budget short fall by including a higher taxes on beer. I’ll stop you right there and tell you that the current tax is scheduled to ‘sunset’ in the summer of this year.

Remember that cute little intro? This is the equivalent of letting that drunk friend spend the night, leave him sleeping on the couch in the morning, and come home to find the door locks have been changed.

This is pretty much what the elected officials did to us when they told us that a beer tax imposed was temporary. In fact they went as far as trying to sell it like it was a select group of breweries would be impacted. Instead they are removing the exemptions on small-production breweries (under 60,000) and including all other breweries that are registered in Washington state.

Adding insult to injury they are proposing a tripling in cost to small-production craft breweries in Washington state.

Now there are some that would use terms like open market or consumer choice. But ask yourself a simple question, do you want to drive to Bend (Oregon), Paso Robles (California), Fort Collins (Colorado), or San Diego (California) for your India Pale Ale, your Porter, or your Amber? Fact is Washington state already has one of the highest excise taxes in the nation. With this House Budge Proposal we would be number one for the wrong reason, taxes on beer.

Another question I am scratching my head over is associated with Wine, Distilled Sprits, and Cider. Why aren’t they included in this bill? Honestly I have no clue. I’m neither a board member with the Washington Beer Commission, Washington Brewers Guild, the Wine Commission, or other organization associated with lobbying against taxes on alcohol. I can only speculate that several elected officials sat down and hypothesized about why beer should be taxed and others excluded.

Who really knows why beer is the only alcohol listed amongst the taxes in the budget?!

Fact is this our State is looking for someone to literally pay for the revenue shortfalls. In fact our elected officials have been so reckless with taxes that they took a beer excise rate of $.26 per gallon or $4.03 per keg (in 2011) and raised it to 192% to $.76 (as of 01/2013) or $11.78 per gallon. This while Oregon hasn’t raised their $.08 per gallon or $1.24 beer excise tax, in 26 years!

So what is at stake here? 1. A group of small businesses which produce a local product in Washington state stand to see their business erode, with each check mailed to Olympia. 2. Breweries which sell most of their beer elsewhere will simply choose to avoid doing business in Washington state, if they can’t afford it. 3. breweries which can afford to operate will be more attractive to alehouses, festivals, sports arenas, and restaurants. 4. Olympia sends a strong message to local brewers that they do not value small-businesses in Washington state.

Footnote

As of today, April 10th, the House and Senate have different budget proposals; one for and one against the new beer tax. I understand if you want to cite SB 5039 as ‘not currently including small breweries’. But this budget temporarily taxes breweries with barrel production greater than 60,000 barrel per year (or 120,000 kegs per year). The new proposal from the House would apply somewhere in the realm of an estimated %300 increase in taxes on the small-production brewery.

I leave you with this quote from 36th District House Democrat Reuven Carlyle, followed by a longer quote from Elysian co-Founder and Brewers Association member, Dick Cantwell.

Let’s take a look at the governor’s proposed numbers, breaking down the beer tax into its two parts.

The first part is the state’s base beer tax. When a brewery produces more than 60,000 barrels per year, it pays a per barrel tax of $8.08 above that threshold, and $4.78 on everything else. No one has suggested any changes to this tax.

The second part – the part that’s so contentious – is a $.50 / gallon surcharge. This number works out to $15.50 per barrel. As it currently stands, only large breweries pay this tax above the 60,000 barrel threshold. Small, micro, and nano breweries are exempt. Governor Inslee suggested that microbreweries also pay the tax, raising the total per barrel tax from $4.78 to $20.28. This is too much. Still, keep in mind that the current state tax level translates into a tax of: At the grocery store, a total 42.7 cents tax/six-pack and 8.3 cents/pint for macro breweries. Total 8.6 cents/six-pack and 1.7 cents/pint for microbreweries. -sourced from Washingtonbeerblogs.com Comments section

Reuven Carlyle is a Democratic member of the Washington House of Representatives, representing the 36th district since 2009. Source, Wikipedia

Washington was one of the states in which craft brewing was born.  With over 200 small breweries it remains one of its cradles of civilization.  The Governor’s proposed quadrupling of sales-based excise tax to small brewers will likely send our state’s small brewers the way of the Sumerians.  Even the proposal by the House, to make things supposedly more equable by lowering taxes on large brewers while substantially raising them on small brewers, will cause fundamental damage to a growing industry.
A basic, statistical look at the debate over raising the rate of state excise tax on Washington’s small craft brewers.
•Big Beer (non-Craft beer, dominated by Anheuser-Busch InBev and SAB MillerCoors) employs around 25,000 people in the US.  Many other employees live and work abroad, as these are multi-national companies.

•With approximately 6.5% of the domestic market by volume, craft breweries employ over 108,000 people nationwide, and around 3900 in the state of Washington.

•With over 200 breweries (as verified by LCB 211), Washington is second only to California among all the United States.  There are approximately 2400 craft breweries in the US; of these, 1/12 of these are in Washington.

•Big Beer produced 159 million barrels of beer in the US in 2012; of this, about 3 million barrels were sold in Washington

•Washington craft brewers produced 294 thousand barrels in 2012.  With overall craft at around 1 million barrels, or 25% of total beer sales in the state, our segment of total craft sales represents an in-state market share of approximately 8%.

Which is the better investment when it comes to jobs creation?  With their advantages connected with both economies of scale and efficiency of labor, should the big breweries be paying the same rate of tax as our smallest brewers?  Oh, and by the way, there are no big brewers in Washington.  With the possible exception of Redhook (partially owned by Anheuser-Busch InBev), not a single person in Washington is employed by Big Beer.  Is lowering the rate of tax on ¾ of the beer sold in our state, as some have proposed, while raising that of our state’s smallest entrepreneurs, going to even balance out?

Where the creation of jobs over time on the state level is concerned:

•3499 people were employed by craft brewers in Washington at the end of 2011; by the end of 2012 that number had risen to 3859, an increase of over 10%

•In one year, 360 jobs were created in a climate fostering the founding and expansion of small brewing businesses, while still paying one of the highest rate of brewers excise tax in the country.

•Further, breweries that operate pubs and tasting rooms pay their servers and kitchen staff (at least) the highest minimum wage in the country.

We hear from members of the Washington House of Representatives that the plan is to achieve “parity,” raising microbrewery tax rates $.15/ gallon instead of the Governor’s proposed $.50/gallon, while also lowering the proposed rate for the macros, thereby “equalizing” the rate of tax. Tell your friends and neighbors who work in small craft breweries why the House wants to lower the tax rate for multi-national corporations while raising it for in-state, locally owned small businesses? Our profits are reinvested in our local economy, including with barley and hop farmers within our own state; their profits go back to Belgium, Brazil, South Africa, and Canada (ABInBev, SABMiller, MolsonCoors, et al).

A tax hike of $.15/ gallon approximately doubles our tax rate. While this is better than the more than quadrupling proposed by the Governor (who has himself suggested that the complaints of small brewers regarding the advantages in the market enjoyed by large brewers are “overstated”) is favoring multi-national corporations over demonstrated at-home jobs growth really the message that the House, the Senate and the Governor want to send to Washingtonians, justifiably proud of the cultural and business successes embodied in our small craft brewers?

All our legislators claim to value the culture and entrepreneurial spirit of Washington’s small craft brewers, yet they propose a crippling, and unprecedented, tax increase that has not been adequately studied as to its longer term economic effect, both on the state budget and on our small brewers.  By driving small producers out of the market, by incentivizing out-of-state sales with an in-state tax rate more than double that of the state (Alaska) closest to the Governor’s proposed level, by pulling a fast one on breweries who have already undertaken loans for recent expansion, our state government is taking solid steps toward ensuring that only passion will sustain what will remain of Washington’s craft brewing industry.

For or against it, we encourage you to contact your local House & Senate Representative.

http://app.leg.wa.gov/DistrictFinder/

Heck you can even include your other reps. by simply checking the option “Check here if you wish to send a copy of this message to your other legislators, … “ after entering your address.

As for me I’ve already done my part to tell my rep. how I feel about this proposal. If you don’t share your opinion with your elected officials, then you can’t complain when action is taken on your behalf. Get out there and voice your opinion, PRO or CON!

Cheers

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