Craft beer, whiskey producers hail giant excise tax cut

NASHVILLE — Toasting the nation's booming economy, alcoholic-beverage producers — from craft beer brewers to large whiskey distilleries — are taking advantage of a big tax cut.

The federal excise tax on spirits, wine and beer has been slashed through 2019 under the Craft Beverage Modernization and Tax Reform Act, which supporters say will allow owners to pour those savings back into their businesses. Many alcohol producers hope the tax cut will be extended beyond its two-year lifespan.  

The biggest benefits go to small producers.

The law, passed in Congress with bipartisan support, slashes the excise tax distillers pay per proof gallon of liquor from $13.50 to $2.70 for the first 100,000 gallons produced. Big producers that make more than 100,000 proof gallons in a year — big Tennessee whiskey producers such as Jack Daniels, George Dickel and Ole Smoky — will still save 16 cents per proof gallon for production of 100,000 to 22 million gallons. 

“This is an economic incentive for distilleries to increase production, add more people and buy more supplies,” said Will Cheek, an alcoholic beverage law attorney and partner at Waller Law.

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Craft brewers are also enjoying a significant tax break under the new law.

Breweries that make fewer than 2 million barrels annually — which includes all 60-plus breweries in Tennessee — pay a new excise tax rate of $3.50 per barrel, a 50% reduction, on the first 60,000 barrels produced. Brewers producing more than 2 million barrels annually will pay $16 a barrel, down from $18, on the first 6 million barrels produced. 

The Brewers Association projects the reduced excise taxes will save the U.S. beer industry $142 million annually. 

Kris Tatum, president of the Tennessee Distillers Guild and partner/general manager at Old Forge Distillery in Pigeon Forge, said members of the guild are “ecstatic” to save money on taxes and reinvest in their businesses. He said the East Tennessee distillery he manages plans to use the savings to upgrade equipment and potentially add another staff member to help with a new line of spirits.

“This benefits everyone in the industry. That’s what I think is huge,” Tatum said. “Often tax breaks go to either the big guys or the little guys, but not everybody at one time.”

Whiskey remains one of the Tennessee’s top exports, thanks in large part to megadistiller Jack Daniel’s in Lynchburg, which sells whiskey in 160-plus countries. More than 30 other distilleries now operate in the Volunteer State. 

Meanwhile, the state’s craft beer industry is booming, with 60 breweries churning out 250,247 barrels of craft beer in 2016, per the Brewers Association. Under the new law, that means Tennessee brewers are poised to save nearly $875,900 in taxes this year. 

Linus Hall, owner of Nashville’s Yazoo Brewery, said he’s happy to see the tax break, but he’s not yet making long-term plans to reinvest those savings since it only lasts through 2019. He hopes the temporary tax break will be become permanent.

“It’s hard to hire somebody with the extra margin or launch in new distribution markets or even buy some new equipment when you know it’s a one-time deal,” Hall said, adding the brewery’s property taxes increase significantly this year at its high-profile Gulch location.

Still, Hall said the brewery is poised to save about $80,000 in taxes this year under the new law. Yazoo has an annual production of about 25,000 barrels. 

“We’re just looking at the whole landscape,” Hall said.