For the past two years, wine, spirits and beer producers have benefited from substantial alcohol excise tax cuts, using their savings to advance their businesses. But these cuts are set to expire Dec. 31 unless Congress takes action. Producers and advocates on Capitol Hill are fighting to get the cuts extended or, even better, make them permanent.
The tax cuts were part of the Tax Cuts and Jobs Act of 2017, a sweeping bill that reshaped the U.S. tax code. The alcohol excise taxes were only a small part of the bill, added during congressional deliberations. The final law expanded the tax credits liquor producers can take on every gallon of alcohol made, resulting in significant savings.
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"It's meant tens, if not hundreds of thousands of dollars to our business over the last couple of years," said Brian McKenzie, president of Finger Lakes Distilling, who makes various spirits and also has a winery license for his vermouth brand. McKenzie chose to put the extra cash into hiring people in sales and marketing. He added staff, and reports that his sales were up 25 percent this year. "All of a sudden we've invested in those jobs, and it's helped our business considerably," he said.
"It was unbelievably timely because we were just coming off those fires of 2017," said Robin Baggett, who owns Alpha Omega winery in California’s Napa Valley. He used the tax savings to invest in equipment and employee raises.
The cuts had two major parts—decreases on the amount taxed per gallon and an adjustment on the amount taxed on wines of differing alcohol levels. Before the bill, wine over 14 percent in alcohol (very common in California) fell into in a higher tax bracket, and Baggett said this led to people consciously making wine just under that threshold to avoid it. "We don't have to fiddle around with our wine [anymore]," he said.
"It's given us a little more money to pay bills and buy new equipment," said Scott Osborn, owner of Fox Run Vineyards in the Finger Lakes. He bought two "falcon kites" that are used to scare birds away in the vineyards, which has made a discernible difference. "We're not getting bird damage, and our vineyard manager figures we save a ton of grapes," he said.
Now, producers are looking at the year ahead and are unsure if they can count on the same tax credits. If the cuts sunset, the rates would revert to the previous level. Not knowing ahead of time is causing angst.
"Taxpayer certainty is vital for everyone, including the wine community. If the excise tax reductions in the Craft Act are allowed to expire at the end of the year, wineries will face further uncertainty," said Rep. Mike Thompson of California, whose district includes parts of Napa and Sonoma valleys.
"With the whiskey business, we're making product that's not ready in five years. It's really critical that we know how to plan our business right now," said McKenzie. Osborn had planned on buying new grapevines next year to replace some damaged ones in his vineyard. It would cost him $9,000, an expense he does not yet know he will be able to afford.
Osborn also mentioned a language glitch in the bill that introduced headaches for wineries that use custom-crush facilities or bonded wine cellars. The Alcohol and Tobacco Tax and Trade Bureau (TTB) eventually came up with a Band-Aid solution, but the extra paperwork to deal with it is a real strain on a small business.
What's going on in Washington?
Contrary to the current status quo in Washington, D.C., the obstacles for extending or making the tax cuts permanent do not stem from a lack of support. The bill in question, the Craft Beverage Modernization and Tax Reform Act (CBMTRA), has a majority of cosponsors in both the House and the Senate: 316 and 74, respectively.
"Reducing the tax burden on craft beverage makers has freed up more capital for them to grow and create jobs in communities across the United States," said Sen. Roy Blunt of Missouri, a Republican who introduced the bill with Sen. Ron Wyden of Oregon, a Democrat. "I'm encouraged by the broad, bipartisan support we've seen for the Craft Beverage Modernization and Tax Reform Act and will continue working to make it permanent."
However, cosponsors will only get the bill so far—it needs to get to the floor. The relevant committees took some action over the summer. In June, the House Committee on Ways and Means did a markup of a tax bill that would extend all the credits under review for one year; they managed to pass that out of committee. On the other side of Congress, the Senate Committee on Finance established task forces to look into different parts of the tax code and make recommendations to the full committee. The expiring excise tax cuts on alcohol were the only ones recommended to be made permanent by the corresponding task force.
But year’s end is approaching, and Congress is currently occupied with impeachment proceedings. Throw in budget talks, and there is little time on the calendar to discuss excise taxes.
Proponents of the alcohol tax credits are confident that there will be a resolution by the end of the year, notably because they are not the only tax provisions that are expiring by 2020 or have already expired. Congress knows it has to act, but the chances of getting the CBMTRA passed as a standalone bill are very slim. "We've always known that we're going to have to attach it to something, and the question that is really of concern right now is what's that going to be," said Michael Kaiser, vice president of WineAmerica, a wine industry trade group. He believes the bill will likely be folded into a large year-end omnibus appropriations bill, which will fund the federal government through the end of the 2020 fiscal year.
However, this solution will not make the excise tax credits permanent; rather, it will simply extend them. A fresh standalone bill making the credits permanent would fix the issues with custom crush and bonded wine cellars, as there will be control over that language. "But [with] any simple extension of what exists now, we'll still have all those transfer issues," said Kaiser.
An extension would not help wineries in the long run either, as they will have to face the same uncertainty every time the credits are nearing sunset. "[An extension] has to be at least five years. This idea of doing this every two years isn't fun," said Baggett.
Kaiser says it's not an ideal scenario, but if only an extension is passed, at least the CBMTRA will still be an active bill next year, as the current Congress will have another year in session until it ends in January 2021. Advocates will be able to work on getting it passed as a standalone in 2020, but until then, alcohol producers will likely only enjoy a short extension for now.