NewsCovering Kentucky


Looming tax hike for craft breweries, distilleries adds to pandemic stress

Posted at 8:00 PM, Dec 18, 2020
and last updated 2020-12-18 20:00:10-05

For three years Kentucky's craft breweries and distilleries have reaped the benefits the Craft Beverage Modernization and Tax Reform Act.

The CBMTRA gives craft distillers, brewers, vintners, cider producers and mead makers a tax cut provides them with extra cash to reinvest into their businesses.

One of the provisions states that the CBMTRA reduces the "federal excise tax to $3.50 per barrel on the first 60,000 barrels for domestic brewers producing fewer that 2 million barrels annually," according to the Brewer's Association.

Before, the federal excise tax was double the cost, at $7.00 per barrel.

The CBMTRA is set to expire on December 31. Therefore, on January 1, 2021, businesses would face a tax hike that doubles the federal excise tax on every barrel produced.

"It would essentially just stall our growth in 2021 and prevent us from hiring new employees," Country Boy Brewing co-founder, Daniel "DH" Harisson, said.

Harrison said a tax hike would add more pain to already difficult year caused by pandemic restrictions.

Since Country Boy produces about 15,000 barrels a year, the tax hike would raise his taxes from around $50,000 to around $100,000.

Harrison said the hit would prevent them from continuing to grow the business.

For a smaller operation like Ethereal Brewing, the tax hike would increase their taxes by about $4,500. But even if taxes stay at the current level, owner Andrew Bishop said they may have to close by the end of January if the federal government doesn't offer more relief.

"We have more money coming out than we have coming in," Bishop said. Eventually those funds will dry up and we will have to close."

Pandemic restrictions have not only hurt his bottom line, but also his employees. Right now, Bishop is paying them extra to help them out.

"We are digging into our own pockets to make sure that our employees can pay their bills, pay their rents, their mortgages just to kind of be able to make ends meet," Bishop said.

Now, with the tax hike, the situation becomes more dire, but Bishop is keeping the faith that everything will work out.

"You kind of just need to tell yourself, 'it'll be okay'," Bishop said. "If you don't have that hope, you don't have that goal to push toward, it might become a self-fulfilling prophecy at that point."

Harrison is also remaining hopeful.

"We're trying to stay positive," Harrison said. "That's what we do well in the craft brewing industry and especially here at Country Boy Brewing."

For businesses to keep their lower taxes, Congress must act to pass the CBMTRA.

So far, five Kentucky congressmen and Senator Rand Paul have signed on as co-sponsors.

Rep. John Yarmuth said he is "cautiously optimistic" that it will pass, but with Congress focused on other coronavirus relief measures, he said it may get pushed off until January.

"The more recent information that I have is that it's possible it would get in the year-end package but there's going to have to be a 'tax extender' package," Rep. Yarmuth said. "That's what we call kind of a grab bag of tax provisions that all expire at the end of the year. It may be that we have to wait until January to put that package together."

He said all those provisions would then be retroactive to January 1 so there would be no negative impact from the lapse.

"One way or another I think we're going to get this thing [CBMTRA] extended because virtually every state has an interest in doing it," Rep. Yarmuth said.

He added that the hope is to make the CBMTRA permanent. Right now, it must be extended every year.