The Case for FET Reduction, the Craft Modernization Bill
Back in 2010, a group of local Portland distillers and I met with Congressman Blumenauer requesting that he sponsor a tax break for distillers that craft beer and winemakers already enjoy. Fast forward to 2016. We are still hoping that it becomes a reality.
What are we talking about as far tax is concerned?
At 10,000 proof gallons, current FET would be $135,000., at a discounted rate the FET would be $27,000. That savings is equal to two new employees or a new still.
At 20,000 proof gallons, current FET would be $270,000., at a discounted rate the FET would be $54,000.
At 100,000 proof gallons, current FET would be $1,350,000., at a discounted rate the FET would be $270,000. That savings is equal to five new jobs/employees, a rick house and full health benefits for staff.
Distillers are simply asking for the same tax treatment as craft beer and wine makers. What do small distilleries all need? More staff and more equipment, meaning all that tax savings will go right back into the local economy.
There is also a huge secondary benefit in relation to when taxes are due.
From the TTB:
If you are a small alcohol excise taxpayer who paid less than $50,000 in beer excise tax in the previous year, you MAY be eligible to file returns and pay excise taxes on a quarterly basis. In a calendar year, you are going to go over $50,000 which is only 3700 proof gallons or roughly 2000 cases; you have to pay semimonthly instead of quarterly.
If this sounds like bureaucratic gobbledygook, here is the simple version: when a distillery grows to only 2000 cases per year their federal tax is due semimonthly instead of quarterly. Product that leaves your bonded space (not necessarily sold) from January 1st thru the 15th will be due on January 21st. What this means is you pay tax on a product you may not receive payment for many weeks or months. The tax paid in advance becomes so large it becomes an asset on your balance sheet. In even plainer terms a huge amount of operating capital becomes tied up in tax payments instead of running the business. I cannot stress what an enormous cash drain this is and continues you to as the business grows.
We are pushing for a 20% of full FET rate for the first 100,000 proof gallons of any distillery production from $13.50 to $2.70 per proof gallon. 30% reduction afterward, from $13.50 to $9 per gallon. Instead of defining a “craft” distillery this discount would apply to every distillery thus giving the bill some chance for success. This FET reduction is a double benefit for small producers; you would have to pay semimonthly then at 18,000 instead of 2000 proof gallons, that alone means years of tax relief for small distillers.
It’s time we take action to help the growing craft spirits industry and support FET reduction. For more info check out the ACSA FET info page here:
http:/www.americancraftspirits.org/government/fet/