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Federal Tax Reform To Help Craft Brewers

By Christina Haley O'Neal, posted Jan 26, 2018
Wilmington Brewing Co. owners Michelle and John Savard say the newly approved federal tax reform bill, which includes a two-year cut in excise taxes for craft breweries, will help their operation. (photo by Chris Brehmer)
Some in the local craft brew scene say they’re expecting a small boost in business because of the recent federal tax reform that slashes the levy on a single barrel of beer by half for smaller brewers.
 
The sweeping Tax Cuts and Jobs Act, signed into law at the end of 2017, included a provision titled the Craft Beverage Modernization and Tax Reform Act.
 
Part of that reform is on the excise tax, which was lowered from $7 a barrel to $3.50 a barrel (or 31 gallons). The change applies to the first 60,000 barrels for domestic brewers who make less than 2 million barrels a year, explained Jeremy Tomlinson, president of Cape Fear Craft Beer Alliance, a regional organization formed in 2016.
 
According to the legislation, the new rate sunsets Jan. 1, 2020.
 
“That is going to help every brewery in town,” Tomlinson said. “All of our breweries are on the smaller side … I can’t speak to the specifics of what individual breweries will do, but I think for an industry that is highly taxed, the fact that they cut a little bit of those taxes, it can only help.”
 
Some of the larger breweries in the Cape Fear Craft Beer Alliance, which includes those in New Hanover, Pender and Brunswick counties, produce on average between about 1,000 to 1,500 barrels a year.
 
There are more than a dozen locally owned breweries in Southeastern North Carolina, and some breweries new to the Cape Fear Region this year, such as Salty Turtle Beer Co., will see the tax breaks in their very first year.
 
Dan Callender, owner and general manager of the Surf City brewery, said the cuts came as a nice surprise for the business, which opened Dec. 29, and its bottom line projection this year.
 
“It’s definitely beneficial, especially for us as a nanobrewery,” Callender said. “That $3.50 will give us about $1,200, almost $1,300 in savings as we plan to hopefully hit that 350-barrel mark for the first year, and that’s being conservative with the numbers.”
 
While the savings might not be mind-blowing, other local brewers who are years into their businesses share the same sentiment.
 
Wilmington Brewing Co.’s Michelle Savard, who co-owns the company with her husband, John, said the new tax cuts would benefit the business, which in mid-January began an expansion of its brewery by adding four additional brew tanks.
 
The company is also gearing up to expand its distribution, and recently, it formed a canning line for its brews that will allow more packaging than in past years, she said.
 
Wilmington Brewing Co. is one of the larger producers out of the breweries in the region, Tomlinson said. According to Michelle Savard, the company made about 2,000 barrels of beer in the last year and predicts it will reach 3,500 barrels this year.
 
While the decision to expand the equipment line came before the tax reform, Michelle Savard said the savings could help them pay off the recent purchase or be invested back into the business.
 
“Anything helps really. Any little bit of savings will help fund our hard-working employees, maybe another driver. We’re just excited to have a little more wiggle room with our expansion,” she said. “If you do the math it’s not a huge number in the big scheme of things. But again, it’s super helpful to have any kind of savings when you are growing and trying to make it all work.”
 
Rob Robinson, founder and president of Waterline Brewing Co., said paying fewer federal taxes “will affect us, and we will definitely be rolling that money back into the brewery at some point.”
 
While savings will depend on how much the company makes this year, Robinson said it will still save several thousand dollars.
 
“The national Brewers Association has been advocating for this, and it finally got to where there were enough senators and congressmen who would approve it as part of that budgetary process,” he said. “Maybe in the next couple of years they might see that it’s something they want to keep long term.”
 
In 2017, Waterline produced about 1,000 barrels of beer, up from 400 barrels during the previous year. The brewery and taproom, which opened in December 2015, continues to grow with plans for new beers in 2018. Noah Goldman, founding partner and CEO of Check Six Brewing Co. in Southport, said company officials are currently working with their accountant to estimate how much less the company will spend in taxes this year. The business is projected to produce more than 1,000 barrels in 2018.
 
“The bite the government is going to take off for excise taxes is going to be significant. Also, the tax breaks for the percentage that corporations have to pay down to the new rate is also going to be a boon to cash flow,” Goldman said. “With that – it’s expansion either way – we’ll get new equipment, hire another salesperson or possibly more people in the brewery, that kind of thing. The money is going to go right back into the business.”
 
Brewers across the region, however, said there’s still work to be done on the state level because North Carolina has an excise tax rate of $19.13 a barrel.
 
“If we can only get North Carolina to lower their excise tax, we would be in a lot better shape,” Goldman said. “It’s one of the highest in the country.”
 
Jud Watkins, co-owner of Wrightsville Beach Brewery, said that while the company is pleased to see the tax cut, it’s not enough to have a major impact on its business.
 
“In fact, our local and state tax burdens are exponentially higher than our federal tax responsibility. In order for tax cuts to impact a small business of our size, we would really need to see cuts on all three levels,” he said. “If and when that happens, we have lots of exciting plans for how we can grow and hire new people.”
 
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