Tennessee’s wholesale beer producers, supported by a coalition of businesses and consumers wanting to keep revenue from leaving the Volunteer State, are heralding the merits of the Beer Tax Reform Act of 2013, a bill that would shift a lofty tax on beer sales over to volume produced.
A rally to raise awareness about how state laws are hurting local businesses is set for Friday at 5 p.m. at One 12 Downtown in Johnson City. The statewide “Fix the Beer Tax” campaign was launched Jan. 30 in Nashville in reaction to Tennessee’s nation-leading beer tax rate which is 12 percent higher than second-ranked Alaska and rising higher every year, regardless of whether beer sales rise.
Proponents say reforming the way beer is taxed would preserve the current levels of funding received by Tennessee’s local governments, while making the product easier for wholesalers to produce and more affordable for consumers.
“This effect is the result, likely unintended, from beer-tax policy established by the state of Tennessee in 1954,” said Rich Foge, Tennessee Malt Beverage Association president. “Since that time, Tennessee has blown past every state to be the nation’s highest taxer of beer. The goal is to raise awareness and to ask people to contact their legislators and ask them to support the bill.”
The bill, sponsored by Sen. Brian Kelsey, R-Germantown, and Rep. Cameron Sexton, R-Crossville, will be in the House Local Government Subcommittee next week. State Rep. Matthew Hill, R-Jonesborough, a member of that subcommittee and chairman of the House Local Government Committee, was not immediately available for comment.
“I am for cutting taxes, but as far as any specifics on this, I can’t comment on them right now,” said state Rep. Micah Van Huss R-Jonesborough said Tuesday. “I do know my email box is flooded, and I will be communicating with my constituents on this.”
State Sen. Rusty Crowe, R-Johnson City, also said he was not familiar with the bill and that he may be able to learn more “when it gets over to the Senate side.”
Let’s take it from the top: if you manufacture beer in Tennessee — anything from what is called “sub-premium” to the most expensive ales — you automatically owe Uncle Sam $18 in excise tax for every 31-gallon barrel produced. This is the point where brewers begin “building” the cost of the product price to cover the added expenses. Tennessee tacks on another $4.29 for that same barrel. So, the wholesaler also has to build this in to the price. Add to that the state-imposed 17 percent tax incurred when the product is sold to retailers, and combine.
“This price then gets passed on to the consumer, who also must pay a nearly 10 percent sales tax,” Foge said. “Demand for beer in Tennessee is down 5 percent to 10 percent, but revenue from beer has increased more than 30 percent. Back when the taxes were set in place beer was maybe $2.50-$3 a six pack and you had vastly fewer brands.”
Tennessee’s 17 percent local wholesale beer tax has generated more than $2.2 billion in tax revenue since it was established more than 50 years ago, according to the Tennessee Malt Beverage Association. But revenues from the 17 percent tax continue to increase, because rising brewery and wholesaler operational costs cause the wholesale price of beer to go up.
“This bill is just a check,” said Michael Foster, owner of Jonesborough’s Depot Street Brewery. “It would stabilize the price for consumers, and I would be able to sell my product at a more reasonable price. That, in turn, would help increase sales.
“We’re trying to make a higher quality beer here — that’s what ‘craft brewing’ is. In the past, people would think only of bland products. Our cost is higher, because we use more expensive ingredients. We bottle six different beers and sell to about 20 counties in Tennessee and about 20 counties in Virginia. We also sell kegs.”
In 2008, Tennessee caught and passed Alaska as the top state taxer of beer. If the Tennessee taxes keep rising at the current average annual price increase of $1.15, in 5 years the average tax rate will be $42.75 per barrel — 29 percent higher than Alaska; in 10 years it will be $48.50 — 46 percent higher; in 15 years, it will be $54.25 per barrel — 64 percent higher, according to Foge.
“My wife and I still live in Erwin,” said Kyle Williams, a brewer who decided to open Brevard Brewing Co. in Brevard, N.C., instead of forking over Tennessee taxes. “In October 2011 we finally had the opportunity to open our own brewery. Because we were already settled here, our first choice would have been to open in Johnson City, Erwin or another local area. However, we were quickly deterred by the state taxes.”
Williams said he also has friends trying to open breweries in Tennessee, but he doubts they will stay here unless things change. He and his wife Elizabeth plan to stay in Erwin until she completes her graduate degree at East Tennessee State University. After that, they plan to stay in North Carolina.
“The thing is, you have to pay tax on how much you produce,” he said. “I make whatever I need; it’s supply and demand. You have to keep track of how much you make and report it and pay taxes on it. They’ll come by and audit you once in a while, but moving to North Carolina has saved me at least $1,000 a week.”
He also said that by opening his business elsewhere, he’s been able to contribute to local and state tax revenue, help grow the local economy via increased tourism, as well as creating three new jobs, with more positions planned in the future.
“Although it has worked out well for us, Tennessee lost the opportunity for our business because of the state beer taxes,” he said.
For more information, go to www.fixthebeertax.com or email Rich Foge at firstname.lastname@example.org.