The New Beer Tax & Your Pint Price

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Washington_state

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Below, I discuss how the currently proposed beer tax hike is expected to impact the consumer. This is the second post I’ve done about the proposed beer tax increase—the Governor’s proposal to expand and extend the existing excise tax on beer. I strongly urge you to read the first post (and the huge string of comments). Otherwise, you may not understand this one.

Recognize that we are currently only talking about a proposal. Just a plan, just an idea. The Governor aims to amend the existing bill (existing law) to include the changes we are discussing. This has been a source of some confusion. The bill people are seeing online has not yet been modified to include these latest, proposed changes.

The other night I spoke with the Heather McClung, the President of the Washington Brewers Guild. For her, this is not just a conversation on a beer blog. For her, it is a job. It is her business and her livelihood. McClung often needs to calculate how different variables might affect wholesale beer prices.

She crunched some numbers, trying to understand how this beer tax proposal would move through the supply chain. She took into account the reality that all of the players involved need to maintain margins. The last thing anyone wants is to raise taxes and create layoffs, right? Margins must be maintained.

The Numbers

McClung estimates the proposed changes to the beer tax laws would lead to an 11 percent increase in the wholesale price of a keg of Washington-brewed beer. In real numbers, that means a $135 keg would become a $150 keg. Wholesale price is what the bar pays for the beer.

Many of the more-common craft beers we drink at the pub have a wholesale price of about $135 for a standard 1/2 barrel keg. It is a good number with which to work.

Following my conversation with McClung, I contacted two local bar owners. I will not name them here, but they both own and operate well-known, well-loved beer bars in the Seattle area. Both are respected members of the beer business.

I asked a simple question: “If the price of a keg of a certain beer went up from $135 to $150, how would it impact the price of my pint?” They both offered the same reply. Basically, they said, depending on the establishment, it would probably lead to a 25 to 50 cent increase per pint.

There it is. That’s the immediate impact on you. I am not worried about the impact this tax proposal has on the consumer. I worry about the brewing industry and the craft beer “scene” as a whole.

While you and I may be able to absorb the new price of a pint, Washington’s breweries, especially the new and smaller breweries, would be hurt by this tax. This tax increase would be a brutal punch in the gut for our local breweries, limiting their ability to grow, create more jobs, and brew more taxable beer.

This is not about the per-pint price. That increase is just the trickle-down effect. This tax is on the breweries and not the consumers. Any impact on us is indirect. Certain, but it is indirect.

15 Responses to The New Beer Tax & Your Pint Price
  1. kif kanna
    April 3, 2013 | 9:53 am

    CRAFT BEER IS UNDER ATTACK!!!
    Please, everyone fight this…

  2. drool
    April 3, 2013 | 10:00 am

    I’m not nearly as worried at the retail price change but that it puts OUR brewers at a competitive disadvantage. It they wish to levy a tax, fine. We can have that discussion but to single out the brewers in our state only is grossly unfair. I though we were trying to promote business in our state.

  3. Christopher Collier
    April 3, 2013 | 10:01 am

    For those of us that are part of the growing craft brewing movement this is a double smack. Not only does it smack us for being small business owners, but makes our product that much more expensive for the hard working people that enjoy our brews. We’re going to be pushing this hard at our brewery and encourage everyone else to do the same!

  4. Nick
    April 3, 2013 | 10:09 am

    I’m totally against the tax, but a $0.25 to $0.50 raise in price per pint? That would mean the bars are pulling in an additional $31 to $62 per keg when their cost only went up $15.

    What gives?

  5. Russell
    April 3, 2013 | 10:17 am

    What really irks me is that, due to the quirky way the 21st Amendment allows state regulation of alcohol, Washington could do the exact opposite of this, if the legislature wanted. Unlike in other industries, the state can set up scenarios grossly favoring local brewers at the expense of out of state producers. (Though the Supreme Court tempered this a bit a little while back, recognizing some power under the Dormant Commerce Clause.) The state could set up the tax structure to put WA breweries on a competitive ADVANTAGE against other states, fostering a growing and popular local industry.

    But no, let’s tax small brewers heavily, you know, because a state income tax to fix our systemic tax problem is just silly.

  6. Russell
    April 3, 2013 | 10:19 am

    Standard industry practice Nick. Rule of thumb for bars is take your cost per pint and multiply by 3 to 5 to get your retail price. That’s typically what it takes to keep the lights on and the doors open. :)

  7. dee
    April 3, 2013 | 11:19 am

    @Nick
    Bar owners would pay 11% more per keg,
    Pint of the beer is $5 -increasing price by 25c-50c is still less then 11%…

  8. Sean
    April 3, 2013 | 12:50 pm

    If I read and comprehended correctly, a hypothetical craft keg from WA would cost the bar $150, where as an out of state keg is only $135.

    I think you should have more explicitly stated how this is a competitive disadvantage with interstate breweries.

  9. Nick
    April 3, 2013 | 2:25 pm

    @dee

    I don’t see how slapping a percentage on it explains it away. So what if it is only a 5% increase per pint ($5.25). That still comes out to $651 of revenue for a keg v. $620 of revenue at $5.00 a pint. That’s a $31 increase on what was explained to be a $15 increase per keg. Essentially, it appears to me that bars will be making $16 more per keg if they mark beers up by $0.25. If they merely wanted to cover their increased costs ($15 a keg), they would only have to add about $0.12 per beer.

  10. Kendall Jones
    April 3, 2013 | 2:39 pm

    Everyone is smarter than everyone else. I know. You are right and I am wrong because I am right and you are wrong. If my attempts fail, educate yourself. Just don’t be misinformed.

  11. Kendall Jones
    April 3, 2013 | 3:19 pm

    The idea of it being that kind of a competitive disadvantage is still up in the air. Does this tax proposal impact WA breweries? Yes. For certain. Does it impact out-of-state breweries selling beer in WA? I thought not, but then a very smart person deeply entrenched in the brewing business told me otherwise. I am not prepared to make a statement either way yet. My immediate impression was that YES this only impacts WA brewers and the beer they sell in WA, putting them at a supreme disadvantage on their home turf. I’ve since been told otherwise. I have not discovered the indisputable truth on this part of the issue yet. Like the rest of you, I don’t know everything and I am still learning. But, then again, some of you do know everything. Before you, I bow.

    For now I just hope it is enough to get people talking about the MASSIVE TAX INCREASE the Governor is proposing. We are talking. That is good. We are making noise. Be heard.

  12. Kev
    April 3, 2013 | 8:08 pm

    Any way you look at it this is not good for the industry and if it becomes a removal of the exemption, it will be an extreme hardship on nanos like myself. Everyone please be a squeaky wheel to our legislators.

  13. Doug
    April 4, 2013 | 2:01 pm

    I contacted my elected officials in Whatcom county and they are against extending this tax. :)

  14. Kevin
    April 5, 2013 | 7:50 pm

    Reap what you sow Democrats.

  15. Christopher Collier
    April 6, 2013 | 9:35 am

    Keep up the good work Kendall. The people need information and you’re helping to do so.