Elysian Brewing Speaks Out About the Beer Tax

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All our legislators claim to value the culture and entrepreneurial spirit of Washington’s small craft brewers, yet they propose a crippling, and unprecedented, tax increase that has not been adequately studied as to its longer term economic effect, both on the state budget and on our small brewers.

- Dick Cantwell, Elysian Brewing Company

Dick Cantwell is the head brewer and one of the founders of Elysian Brewing Company. He released a statement yesterday regarding the proposed beer tax. Elysian Brewing has been in business since 1996. With three Seattle brewpubs to its name, the company recently opened a large (by their standards, anyway) production facility in Georgetown. That said, Elysian knows a few things about creating new jobs.

While most of our local brewers live in relative obscurity, Dick Cantwell is recognized nationally, not only for his brewing skill and creativity, but also because of his work with the Brewers Association to help shape the craft beer industry. He is exceedingly well-informed and very much worth listening to.

Here is Dick Cantwell’s statement:

Washington was one of the states in which craft brewing was born.  With over 200 small breweries it remains one of its cradles of civilization.  The Governor’s proposed quadrupling of sales-based excise tax to small brewers will likely send our state’s small brewers the way of the Sumerians.  Even the proposal by the House, to make things supposedly more equable by lowering taxes on large brewers while substantially raising them on small brewers, will cause fundamental damage to a growing industry.

A basic, statistical look at the debate over raising the rate of state excise tax on Washington’s small craft brewers.

  • Big Beer (non-Craft beer, dominated by Anheuser-Busch InBev and SAB MillerCoors) employs around 25,000 people in the US.  Many other employees live and work abroad, as these are multi-national companies.
  • With approximately 6.5% of the domestic market by volume, craft breweries employ over 108,000 people nationwide, and around 3900 in the state of Washington.
  • With over 200 breweries (as verified by LCB 211), Washington is second only to California among all the United States.  There are approximately 2400 craft breweries in the US; of these, 1/12 of these are in Washington.
  • Big Beer produced 159 million barrels of beer in the US in 2012; of this, about 3 million barrels were sold in Washington
  • Washington craft brewers produced 294 thousand barrels in 2012.  With overall craft at around 1 million barrels, or 25% of total beer sales in the state, our segment of total craft sales represents an in-state market share of approximately 8%.

Which is the better investment when it comes to jobs creation?  With their advantages connected with both economies of scale and efficiency of labor, should the big breweries be paying the same rate of tax as our smallest brewers?  Oh, and by the way, there are no big brewers in Washington.  With the possible exception of Redhook (partially owned by Anheuser-Busch InBev), not a single person in Washington is employed by Big Beer.  Is lowering the rate of tax on ¾ of the beer sold in our state, as some have proposed, while raising that of our state’s smallest entrepreneurs, going to even balance out?

Where the creation of jobs over time on the state level is concerned:

  • 3499 people were employed by craft brewers in Washington at the end of 2011; by the end of 2012 that number had risen to 3859, an increase of over 10%
  • In one year, 360 jobs were created in a climate fostering the founding and expansion of small brewing businesses, while still paying one of the highest rate of brewers excise tax in the country.
  • Further, breweries that operate pubs and tasting rooms pay their servers and kitchen staff (at least) the highest minimum wage in the country.

We hear from members of the Washington House of Representatives that the plan is to achieve “parity,” raising microbrewery tax rates $.15/ gallon instead of the Governor’s proposed $.50/gallon, while also lowering the proposed rate for the macros, thereby “equalizing” the rate of tax. Tell your friends and neighbors who work in small craft breweries why the House wants to lower the tax rate for multi-national corporations while raising it for in-state, locally owned small businesses? Our profits are reinvested in our local economy, including with barley and hop farmers within our own state; their profits go back to Belgium, Brazil, South Africa, and Canada (ABInBev, SABMiller, MolsonCoors, et al).

A tax hike of $.15/ gallon approximately doubles our tax rate. While this is better than the more than quadrupling proposed by the Governor (who has himself suggested that the complaints of small brewers regarding the advantages in the market enjoyed by large brewers are “overstated”) is favoring multi-national corporations over demonstrated at-home jobs growth really the message that the House, the Senate and the Governor want to send to Washingtonians, justifiably proud of the cultural and business successes embodied in our small craft brewers?

All our legislators claim to value the culture and entrepreneurial spirit of Washington’s small craft brewers, yet they propose a crippling, and unprecedented, tax increase that has not been adequately studied as to its longer term economic effect, both on the state budget and on our small brewers.  By driving small producers out of the market, by incentivizing out-of-state sales with an in-state tax rate more than double that of the state (Alaska) closest to the Governor’s proposed level, by pulling a fast one on breweries who have already undertaken loans for recent expansion, our state government is taking solid steps toward ensuring that only passion will sustain what will remain of Washington’s craft brewing industry.

Dick Cantwell
Head Brewer, and Co-Founder (1996)
Elysian Brewing Company
Seattle

 

 

16 Responses to Elysian Brewing Speaks Out About the Beer Tax
  1. Stu
    April 11, 2013 | 9:31 am

    Well said. I e-mailed my state legislators last week, but I got a ridiculous form response from senator Sharon Nelson from West Seattle. She (or her staff) didn’t even bother to read my e-mail—I specifically said I was not a brewer and did not own a brewery, but I got a response from her telling me my business is important to our economy, etc.

    Looks like I won’t be voting for her ever again.

  2. Aaron Matson
    April 11, 2013 | 9:32 am

    These are good points but we have to beat them with logic and solid Economics.

    The Economic Repercussions of The New Beer Tax:

    My name is Aaron Matson, owner and operator of The Copper Hog Gastropub in Bellingham. I have a BA in Economics from EWU and obtained an MBA from WWU. I’m going to to discuss, from an economic standpoint, why this taxation on beer in Washington is a bad idea.

    First of all, let’s take a look at how the inflation begins “downstream” in the supply chain. The producers get taxed 50 cents per gallon of beer produced and there are roughly 15 1/2 gallons per keg. With the tax, that raises the price of the keg to the distributor to $7.75. Most of the time, we can assume that the producer is just taking that cost of it and passing it on to the wholesaler.

    I can explain why this assumption is a fair, if not completely accurate, one. In Bellingham, there are a few breweries. Chuckanut Brewery, brewing close to 1800 barrels a year, which translates into 55,800 gallons of beer. This would mean that Chuckanut would have to come up with $27,900 extra in that year of production to make up for the new tax. You can hire a full time employee at a pay rate of about $14 an hour for the same amount, and this just from a small local brewery. To put things into perspective, Pyramid made somewhere between 100,000 barrels and 150,000 barrels in 2010. Therefore, I think my original statement ……is a fair assumption.

    The next step is to look at the new price to the distributor, which has risen about $7.75 per keg. Since distributors tend to work on a margin of 30%, this would mean that the wholesale price has gone up by $2.25, bringing it to $10.00. Again here is another assumption, but I find it is pretty standard practice, that they just don’t eat the cost because that cost ($7.75) does represent roughly 5% of the total wholesale price of the keg (I used $135 wholesale keg price some some are more and few are less). That is a big chunk of their margin so we can safely assume that they will carry it on just like a cost of goods bringing that keg to me, the retailer about $10 more.

    Now in this industry we tend to keep costs of good sold to 33% of the sale price. There are about 124 pints in each keg but we can assume about a 10% loss in that keg so there are more like 110 pints in a keg. Now lets look at that new increase in price from the distributor of $10. We can take the $10 and divide it by 110 pints meaning cost per pint when up 9 cents. Well 9 cents is 33% of 27 cents. Price to customer just went up 27 cents. Lets round that down to 25 cents for easy math and so in the bar we dont need to deal with small change. That is 25 cents increase to the customer and there are 8 pints in a gallon. So the state is going to collect 50 cents in tax but it will cost consumers $2. This is supply chain inflation. This will hurt demand which will drop our biggest source of income to the state SALES TAX. The only way this is averted is if beer is a really inelastic good. I would speculate that it is inelastic but not enough for it to matter.

    Now lets look at this states competitive advantage. We have a massive competitive advantage in the production of beer in this state. if we wanted it to we could make it a huge industry for this state…i mean lets be honest it is, but why? Well we have really good and an abundant supply of water. We also produce huge amounts of Hops and just north in canada is where a huge amount of barley comes from and it mostly malted in Vancouver, wa. Wyeast in as major yeast producer and they’re in oregon. We are in the center of all parts of beer. Why are we going to kill that competitive advantage by making harder for a business to work in our state?

    We have chosen in this state to have a sales tax and only a sales tax as a major stream of revenue for this state. In theory this should be an economic incentive for the state to help business in any way it can to increase sales to increase tax revenue for the state. Don’t get me wrong cut me and i bleed blue, i am not a conservative capitalist but i do understand incentives and this is a very poor incentive for big part of our states economy.

  3. Chris
    April 11, 2013 | 11:12 am

    Hey Aaron,

    Instead of apologizing for having a rational conservative thought, maybe you should re-think your political affiliation and stop voting in these people that endlessly propose new taxes? Do you think the brewing/distilling outfits like the sin taxes? Do you think tobacco growers like the cigarette taxes? Do you think coffee shops like coffee taxes? How about taxes on candy?

    All these taxes hurt local businesses, as you full well know. Until people like you stop voting these people into office, we’re never going to see the end of it. You know you can be socially liberal and fiscally conservative?

  4. Bo
    April 11, 2013 | 11:33 am

    Thanks for the analysis, Aaron – seems more realistic than the Brewers Guild’s assertion that a 50 cents per gallon tax hike would mean an increase of at least $15 per keg wholesale, and up to $1 per pint retail. The effect would be even more minimal with the 15 cents per gallon proposed by the House, not that any tax increase is a good thing, of course.

  5. Kif
    April 11, 2013 | 12:36 pm

    RED ALERT!!!

    Beer Advocate is deleting threads regarding this topic. They say since it is political in nature it is banned and we are not allowed to talk about it. This is total bull, what if politicians wanted to bring back prohibition? Would be banned from talking about it on Beer Advocate? This is getting really bad…

  6. Russell Mann
    April 11, 2013 | 3:19 pm

    Hi Aaron!

    I like how the hospitality industry people veer left of Stalin every day of the week, but when the government wants to tax *them* they’re up in arms.

    My bar is in Idaho so we have Libertarians that just leave everybody alone.

  7. Aaron Matson
    April 11, 2013 | 3:39 pm

    I feel that my post was taken as political. This is not a political issue. It is a mathematics issue. Getting money for school is a “good” thing. That is not political. It is fundamentally a good thing. Inflation is fundamentally a “bad” thing. This causes supply chain inflation. Therefore it’s a bad thing. Kinda simple really.

  8. Bill Sikich
    April 11, 2013 | 5:11 pm

    Those of us who appreciate the products of our state’s microbrew industry, as well as the economic benefit they provide to all Washingtonians, have already formulated a cogent argument against these repressive taxes. Our next step should be organization. If we can vocally demonstrate to state government how widespread the opposition to their plans actually are, as well as the political costs of promoting their plan, we can help our friends in the industry to quench this wrongheaded approach. Let’s form some sort of PAC, and distribute online petitions, to make our feelings known and felt in Olympia.

  9. Good Beer Trips
    April 11, 2013 | 6:55 pm

    Aaron, great comments! Thanks for the breakdown.

  10. Kyle
    April 12, 2013 | 8:57 am

    What’s simple is that it hurts small business. Period.

  11. Kendall Jones
    April 12, 2013 | 9:28 am

    There is a rally planned for next Friday (April 19) at the Capitol building in Olympia.

    https://www.facebook.com/events/520469434675906/

  12. Kendall Jones
    April 12, 2013 | 9:32 am

    Aaron, I went into this knowing that people would eventually reduce it to a red vs blue shouting match. I’m surprised it took this long. Don’t engage.

  13. Steve Codomo
    April 12, 2013 | 7:44 pm

    No more BIG beer vs craft beer please. Dick Cantwell knows that his Elysian products are distributed by AB-INBEV here in King County so let’s not play against each other with this fight for fair taxes, and just all work in the same direction. AB is a strong ally in the world of politics and a united front will help in this fight.

  14. Shawn
    April 13, 2013 | 12:02 pm

    @Steve Codomo

    AB-InBev has been bleeding market-share in this state for years now. Mainly because we have been pro-active at dismantling prohibition-era laws that have reduced their stranglehold on distribution. That is a big reason our craft-beer scene has thrived.

    I would not be surprised at all to find out InBev has actually been lobbying for this change in the beer tax. It will reduce their own tax burden while simultaneously eliminating some of this pesky craft-beer competition that has been eroding their market share.

    InBev is not a friend in this particular fight at all.

  15. Christopher Thorne
    April 17, 2013 | 1:10 pm
  16. jack elgin
    April 19, 2013 | 1:26 pm

    maybe we should push for medicinal beer…organic food,medicinal weed,medicinal beer, wild women…who needs those JERKS in political office…HEY, is my bottle 1/2 empty,or ,am i 1/2 full………………….