Distilleries stared at a giant tax hike – and gained | Consumables

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  Distilleries stared at a big tax hike - and won |  Consumables

Distilleries here and across the country became unlikely heroes in the first few months of last year’s pandemic as they switched their production from liquor to hand sanitizer.

For example, Black Button Distilling in Rochester has temporarily switched all distillation processes to disinfectants. Fairport’s Iron Smoke soon followed. Both outfits sold bottles directly to consumers, but also donated large amounts of disinfectant to healthcare facilities, nursing homes, first aiders and other key employees.

Their thanks from the federal government came on the eleventh hour of 2020, when Congress passed and the President signed a bill that made a temporary – and necessary – tax cut that was about to expire permanent.

“We were really only hoping for a year or two off, but we actually get the most out of it if it’s permanent,” said Jason Barrett, owner of Black Button, who estimated he paid an additional $ 250,000 to $ 300,000 would have had taxes this year, had the relief not gotten through.

The relief in question was a cut in excise duties that Congress first granted alcohol producers in 2017 under the Tax Reduction and Jobs Act. The measure was also a boon to small breweries and wineries, but the distilleries benefited the most.

The tax distillers paid for the first 100,000 proof gallons they produced – the equivalent of a gallon of spirits at 50 percent alcohol – fell from $ 13.50 per gallon to $ 2.70. That means a distillery that originally paid $ 2.16 excise tax on a standard 750ml bottle of 80 percent alcohol was now paying 43 cents.

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  • PHOTO BY JACOB WALSH

  • The Black Button manufacturing facility dispenses over 100,000 bottles per year.

In other words, if Congress hadn’t acted, the distilleries would have sought a 400 percent increase in federal excise taxes. These excise taxes are paid in addition to normal corporate taxes as well as state taxes.

The tax cut was originally supposed to expire last year, but was extended to 2020 at the last minute. While tax breaks are welcome, annual extensions of temporary breaks are fraught with uncertainty in an industry whose product sometimes has to age several years before it can be launched.

“Now we can make long-term plans,” said Barrett. “The whiskey has to be five or six years old. It’s difficult to develop an additional product if you don’t know what the tax situation will be when that product is sold.”

This tax break wasn’t just about making giant alcohol conglomerates more comfortable, although it will certainly have an impact. The relief was necessary so that small artisanal distilleries that have brought so much variety to the liquor market in recent years could survive.

For example, at artisanal distilleries like Black Button and Iron Smoke, the first 100,000 gallons covered by the tax measure exceeded their total annual production. Unlike the giants, who produce millions of gallons annually, the world’s Black Buttons and Iron Smokes are not producing the volume necessary to make up for what they would have lost if the tax were in place.

“The Jack Daniels of the world, they wouldn’t get hurt, they do so much that (100,000 proof gallons) are a slip on the radar,” said Dave Ferguson, chief operating officer at Iron Smoke.

The tax break was made permanent with the passing of the law on the modernization and tax reform of craft beverages a few days before Christmas.

Congressman Joseph Morelle had had close discussions with local alcohol manufacturers, particularly Black Button, about the need for tax reform. He believes the bill serves a critical need for the local industry.

“This is a major win for the growing craft beverage industry, particularly in New York State,” said Morelle. “I am proud to have worked with craft brewers in the state parliament and now in Congress.”

The bill found widespread support in the House and Senate, with nearly two-thirds of the representatives and senators signing as co-sponsors. Dozens of state distillery guilds wrote letters calling for the law to be passed.

“If Congress doesn’t pass the Craft Beverage Modernization and Tax Reform Act by the end of this year, many of us will be forced to lay off or lay off even more employees, or shut our doors permanently,” a letter dated Jan. December at the New York State Distillers Guild Congress.

According to the guild, there are 160 distilleries in New York, the second most common of any state. Many of them suffered sudden and severe sales declines, in part caused by closings of stores, travel-related outlets, bars and restaurants, and tasting rooms, according to the Gilde.

“The distillers are not asking not to pay their fair share,” Barrett told me a few days before the expiry of the measure as he and other distillers sat crossed fingers on needles. “We’re just asking not to pay an obscene amount.”

I drink to that.

Gino Fanelli is a CITY employee. He can be reached at (585) 775-9692 or gino@rochester-citynews.com.

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