Craft alcohol producers excited about federal tax cut

Makers of craft alcohol in North Carolina — whether it’s beer, wine, or liquor — generally agree on some expected benefits of the Tax Cuts and Jobs Act, which the president signed in December.

Mainly, lower excise taxes and some tweaking of alcohol-by-volume limits. The chance to expand and to hire more workers. To make new products and increase capital investments.

This isn’t to say these entrepreneurs, probably much like many Americans, support the act as a whole. They do, however, care about provisions such as a decrease from $7 per barrel to $3.50 per barrel on the first 60,000 barrels for brewers under 2 million barrels. Or, for spirits, the rate falling from a flat $13.50 per gallon produced or imported to a tiered rate of $2.70 per proof gallon on first 100,000 proof gallons.

Put simply, the provisions are good for business.

But what about North Carolina?

Scott Smith is a founder of Outer Banks Distilling in Manteo, which makes rum. The Distilled Spirits Council of the U. S., he says, selected him to serve as a citizen lobbyist for the Craft Beverage Modernization Act. He spent a few days in June lobbying for reductions in federal excise taxes.

“I’m pretty excited that the FET bill passed,” Smith said.

“The main thing I’ve been trying to explain to everyone is that this is real job creation. Freeing up that money to a business like ours will allow us to hire two more employees, which we desperately need.”

He said the distillery runs 4 a.m. to 9 p.m. six days a week.

“Splitting that between four guys is taking its toll. Having two more employees will allow us to expand our production. Another great benefit is that it will allow us to put more money back into our building,” which was built in 1946.

“I know we are not the only distillery … that is in this situation, and it shows that across the state we have created a real and viable industry. The state has been slowly changing it’s laws in our favor, and without federal and state laws continuing to modernize we will not be able to sustain this type of growth.”

It’s a common theme, those ideas of expansion, growth and jobs.

NoDa’s Todd Ford, as I wrote Thursday, said the Charlotte brewery is adding an employee next week, bringing the number of production workers to 12 and the employment roll to 44.

“This saving will also slightly help defray the cost of our company-paid employee health, dental, and vision care, as well as 401(k) contributions,” Ford had said.

Leanne Powell, a founder of Southern Grace Distilleries in Mount Pleasant, home to “Whiskey Prison,” called the reduction in the FET a “game changer.”

“Southern Grace will be able to hire more staff this year because of the excise tax reduction. We are investing the savings in creating jobs and in our process. We couldn’t be happier.”

Ford, too, is happy with the new, albeit temporary, rules.

But, the question lingers: Where’s the state?

“We started with a $1 million initial investment seven years ago saved over many years of private saving,” Ford said. “Our company’s state excise tax burden this year is almost $290,000. Imagine what we might be able to do if we were able to keep half of that money to grow our business. We have already proven we can take a little and make a lot.

He, along with other North Carolina brewers such as John Marrino at Olde Mecklenburg and Kristie Nystedt at Raleigh Brewing Co., lobbied hard to raise state limits on self-distribution, which stand at 25,000 barrels per year.

“At that point you lose all ability to self-distribute beer and must ‘contract’ with a third-party distributor to sale your product,” he said. “This is a state law that mandates that one private business must give up a part of their business to another private business regardless if they chose to do so or not. This distributor will now control the sales, representation, and delivery of the product and will take another 30 percent of the keg price. It is essentially another state mandated ‘tax,’ except this tax goes in the pocket of another private company.”

For their part, the distributors say the three-tiered system works well, so why try to fix something that’s not broken?

Lawmakers tried to raise the distribution limits last year, but that effort failed and wasn’t part of the omnibus legislation that ultimately passed.

“You only have to look at the history of (House Bill 500) last year to see how powerful the beer distributors are at protecting their state mandated monopoly,” Ford said. “Self-distribution was the biggest part of the bill, but it was quickly and completely eliminated due to the influence of the beer wholesalers association and the 10 families that control 96 percent of the states beer.

“Lawmakers should allow beer producers to decide which company sells and delivers their product, just like in every other industry in the country. Shouldn’t a business owner be allowed to choose how to run their business?”

Just 5 percent of the beer consumed in North Carolina is made in North Carolina, Ford said. It’s a telling statistic.

Another part of the legislation left on the cutting-room floor was direct sales from distilleries to customer, as were tastings in ABC stores.

“That would help increase sales for both North Carolina distilleries and ABC boards,” Powell said. “It has to be done responsibly, but other control states like Virginia do it safely and successfully.”

It will be a busy couple years, for North Carolina’s alcohol producers and state lawmakers alike. These issues aren’t going away.