North Coast wineries, breweries, distilleries benefit under GOP tax package

Winemaker Erica Stancliff tops off barrels of pinot noir wine at Furthermore Wines in Sebastopol, California, on Monday, June 12, 2017. (Alvin Jornada / The Press Democrat)

BILL SWINDELL ,

A GOP tax package expected to be voted on by Congress this week would help small boutique wineries and craft brewers.

“I have been helping the wine industry for 25 years. I think this is as big of an achievement for the industry as I have been involved with,” said Robert P. “Bobby” Koch, president and chief executive officer of the Wine Institute, which represents California wineries

A winery could receive a maximum tax credit of $451,700 annually under the bill.

Critics contend that lower taxes will lead to greater abuse and more alcohol-related deaths and violence. The Brookings Institution, a centrist Washington, D.C., think tank, estimated it would result in between 280 and 660 more drunk-driving deaths annually and about 1,550 total alcohol-related deaths a year from all causes.

The provisions were from a bill named the Craft Beverage Modernization and Tax Reform Act, which was co-sponsored by Rep. Mike Thompson, D-St. Helena. Sen. Rob Portman, R-Ohio, was key to the victory as he placed the provision in the Senate version that was ultimately accepted by House conferees and added to the tax package, which was released Dec. 15.

Thompson, however, opposes the overall tax package despite his support for the alcohol-related provisions.

“The final tax bill that Republicans have dropped tonight does exactly what we feared it would: give massive tax breaks to the richest Americans and corporate interests while raising taxes on the middle class, and exploding the already sky-high national debt,” Thompson said in a statement Friday night.

Rep. Jared Huffman, D-San Rafael, said he didn’t sign on as a co-sponsor to the alcohol-beverage legislation because he preferred the benefits go to small producers.

“I just felt it was overbroad,” Huffman said in an interview Dec. 15. “I had a hard time justifying an industry-wide tax cut as a standalone at the same time we are running deficits and increasing our debt.”

The alcohol-related tax provisions will only apply for 2018 and 2019 because tax writers had to juggle demands from a vast array of other industries, from big manufacturers to Wall Street. The cost of the alcohol-related provisions will be $4.2 billion, according to congressional tax scorekeepers.

The two-year time frame will force the industries to lobby again soon for renewal before it expires. Koch contends the bill will spark more hiring, allow companies to devote more resources for marketing and development, and spur innovation.

“They will be able to take risk that they maybe aren’t able to do at this time,” he said of wineries.

The federal excise tax on wine was last raised in 1991 from 17 cents to $1.07 per gallon, with tax credits based on the size of the producer. Small domestic wineries that produce up to 250,000 gallons receive a tax credit of 90 cents per gallon on the first 100,000 gallons they produce, with that benefit phasing out between 150,000 gallons and 250,000 gallons. But the benefit doesn’t apply to sparkling wine.

The legislation would provide a new tiered system of tax credits for wineries, offering a $1 credit per gallon for the first 30,000 gallons produced; 90 cents for the next 100,000 gallons; and then 53.5 cents for up to 750,000 gallons, the equivalent of just over 315,000 cases annually. It also applies to imports.

“The primary objective is to do away with penalizing wineries of a certain size,” Koch said.

The legislation would have another major impact by allowing wines with higher alcohol levels to be taxed at the lowest rate. Under current law, wines with 14 percent alcohol or less are taxed at $1.07 per gallon. The tax jumps sharply for wines with higher alcohol levels, up to 21 percent, which are taxed at $1.57 per gallon. The new bill would expand the types of wines that qualify for the lowest tax rate, allowing wines with alcohol levels of up 16 percent to receive the $1.07 rate.

An industry trend toward sweeter wines has led to wines with higher alcohol levels, especially for certain varietals such as zinfandel and cabernet sauvignon, to the chagrin of some critics. In fact, some wineries intentionally reduce alcohol levels to lower their tax bills. For example, ConeTech of Santa Rosa provides a service to wineries to ensure their vintages will result in an alcohol content of around 13.9 percent, helping them avoid the extra 50 cent per gallon tax.

“That’s a huge savings,” said Pat Roney, president of Vintage Wine Estates in Santa Rosa, of that provision.

Sparkling wine producers had been pushing to reduce their tax rate of $3.40 a gallon down to $1.07, but failed. They will, however, have the same tax credit that still wine producers received under the bill.

“We are just happy that sparkling has been included,” said Margie Healy, vice president of communications for F. Korbel and Bros. in Guerneville.

Beer is taxed federally at $18 per barrel, which is about 31 gallons. A small brewer, however, that produces less than 2 million barrels annually pays $7 per barrel on the first 60,000 barrels produced each year.

The new tax provisions would lower the tax on small brewers to $3.50 per barrel. Lagunitas Brewing Company in Sonoma County would qualify as it as on pace to produce slightly more than 1 million barrels this year. The next closest local brewer, Bear Republic Brewing Co. of Cloverdale in Sonoma County as well, produced 80,000 barrels last year. In fact, the vast majority of the largest craft brewers in the country would qualify as small brewers under the tax bill.

“The industry says ‘craft’ and people think of a family woodshop,” Bruce Lee Livingston, CEO and executive director of Alcohol Justice, a nonprofit watchdog group based in Marin County, said in a statement. “But that word means nothing now. Alcohol lobbyists have rewritten it. Look at Sam Adams. They pull down almost a billion dollars a year, but this tax cut babies them.”

The tax would be reduced to $16 per barrel on the first 6 million barrels for all other brewers and importers; and maintain the current taxes on large brewers that produce more than 6 million barrels.

Distillers are expected to gain the most because their industry is the highest taxed in the alcohol sector at $13.50 a gallon. The package would lower the tax rate to $2.70 per gallon for first 100,000 gallons for all distillers. Large multinational companies such as Diageo, Constellation Brands and Brown-Forman dominate the industry, but small providers have emerged in the past decade offering craft spirits that have become popular in Sonoma County as well as across the country.

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.