comscore Craft distillers, facing lower taxes, invest in themselves | Honolulu Star-Advertiser

Craft distillers, facing lower taxes, invest in themselves


    Allen Katz, a founder of Brooklyn’s New York Distilling Company, above a copper still used to make gin in New York on April 12. The Craft Beverage Modernization and Tax Reform Act, which quietly found its way into the tax bill that President Trump signed into law, lowered an excise tax on alcohol and prompted several craft distillers to invest the anticipated savings in equipment upgrades and expansions.

Small craft distillers across the country have been on a spending spree since the turn of the new year.

St. George Spirits, in Alameda, California, recently invested in more efficient pumps, new lab equipment and an automated bottling line. House Spirits Distillery, in Portland, Oregon, has laid down many more barrels of its Westward single-malt whiskey to meet anticipated future demand.

Few Spirits, in Evanston, Illinois, has hired two new people, plans to hire more, and is in the process of finding an American glass manufacturer to replace its overseas subcontractor. J. Rieger & Co., of Kansas City, Missouri, also hired two new salespeople, a move that afforded a co-founder, Ryan Maybee, the time to introduce the brand in California. Copper & Kings, which makes brandy and gin in Louisville, Kentucky, has taken on more staff and is investing in new warehousing.

The reason for all the spending is not a sales spurt or newly opened markets. It’s the Craft Beverage Modernization and Tax Reform Act, an amendment that quietly found its way into the omnibus tax bill that President Donald Trump signed into law in December. The measure lowers the federal excise tax that producers pay to $2.70 per proof gallon (a gallon of spirits that is 50 percent alcohol), from $13.50, for the first 100,000 gallons of distilled spirits produced or imported annually.

That is a reduction of 80 percent.

“It’s a windfall for every single distiller,” said Lance Winters, master distiller of St. George Spirits.

But the tax cut is having its biggest effect with small craft distillers, most of which turn out less than 100,000 gallons a year and struggle to compete with larger companies. And it is evidence of their growing political clout as distilling becomes a significant source of jobs and tax revenue in every state.

The backing for the move attested to that geographical and political reach. By the time the amendment — introduced by a bipartisan group of lawmakers from Minnesota, Missouri, Oregon and Wisconsin — was adopted in a final version by Sen. Rob Portman, R-Ohio, it had collected 304 co-sponsors in the House and 56 in the Senate.

“This is a tremendous change from where we were in the past, fighting tax increases,” said Frank Coleman, a senior vice president of the Distilled Spirits Council, a trade association representing American producers and marketers. “Up until recently, the efforts on taxes at the federal level were entirely defensive.”

The victory was not achieved without a great deal of legwork. Dozens of distillers joined in a multiyear effort to win over Congress members to the idea. The Distilled Spirits Council estimated it organized thousands of visits to the Hill.

“We encouraged our members small and large to invite their local officials at all levels of government to take a tour,” Coleman said. “Many have done so, in the process learning about how spirits are made, how they fit into the agricultural economy.”

In two visits to Washington, Christian Krogstad, the founder of House Spirits, spoke with several lawmakers during appointments and what he called “drop-ins.”

“I was surprised by how accessible senators and congressmen are,” he said.

The bill brings federal taxes on spirits into line with those for the wine and beer businesses, which won similar reductions. To achieve that, the three industries — normally rivals — combined their lobbying forces.

“This was an unprecedented collaboration by spirits, wine and beer producers,” said Mark Gorman, a senior vice president of the Distilled Spirits Council.

In response, New York Distilling Co., in Brooklyn, has done something just as unusual: lowering prices.

Allen Katz, a founder, wanted to get Perry’s Tot, its “Navy strength” gin, into more bars and consumers’ homes. The tax cut allowed him to reduce the wholesale price, per bottle, to $18 from $29. With by-the-case discounts, the wholesale price drops further, to $14, and some merchants have cut retail prices to as low as $23.

“I would say the reaction from our industry peers has been jaw-dropping,” Katz said. “‘You’re offering it at what price?’” In March, sales of Perry’s Tot doubled. (The company has also hired its first full-time salesman.)

The excise-tax break for spirits is set to expire after two years. Because it may not be renewed, few distillers have gone so far as to lower prices.

“I think that’s reckless,” Winters said. “If the tax break goes away, than the price break goes away.”

Katz doesn’t see it that way.

“The driving force will be increased sales,” he said, “and from that revenue, we will further invest in equipment and other aspects in our business.”

There is a chance, however, that the break will be made permanent. In May, the lobbying campaign will begin anew, with distillers flooding Capitol Hill once more.

“We’re going to go to D.C. to show them all the good stuff we’re doing,” said Paul Hletko, the founder of Few Spirits.

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