A recent court decision could dramatically affect the New York state brewing industry, increasing prices of craft beer on store shelves and in bars.
United States Senator Charles E. Schumer, New York state senators Lee Zeldin and Daniel Squadron, and New York state Assemblyman Joe Lentol, joined by representatives from the Brooklyn Brewery and Captain Lawrence Brewery in Westchester, announced a two-step plan to ensure that the loss of a New York State tax credit to local craft breweries doesn't raise the cost of craft brews served at local pubs and sold at New York stores, and doesn't impede the growth of this burgeoning New York industry. Last month, the New York State Supreme Court ruled in favor of an out-of-state brewer and struck down a state excise tax exemption offered to in-state breweries that was designed to help the newly established industry expand and create jobs.
As a result of the court decision, a New York State brew pub that produces 100,000 barrels of beer a year could see a cost increase of close to half a million dollars, that could significantly increase the cost of New York craft beer both at stores and in pubs.
Last month the New York State Supreme Court ruled in Shelton v. NYS Liquor Authority & NYS Department of Taxation and Finance that a state excise tax exemption for New York based small breweries was unconstitutional.
The tax benefit applied to the first 200,000 barrels of beer produced by a New York brewer and provided an exemption from a 14 cent per gallon state tax and an additional 12 cent per gallon tax for beer sold in New York City. Brewers were also exempted from an additional $150 registration fee required for every individual variety of beer brewed and sold in New York.
The loss of this tax break will result in a cost of up to $434,000 for a New York craft brewery that produces 100,000 barrels of beer per year. In order to support the growth of New York's craft brew industry and to ensure that these new costs don't hit consumers, Schumer, Zeldin, Squadron, and Lentol announced a joint federal-state plan to offset the cost increases by reducing the federal excise tax and introducing a production tax credit at the state level.
Schumer is pushing for passage of the federal Brewer's Employment and Excise Tax Relief Act (BEER Act, S 534) that would cut in half the federal tax on small breweries, helping small brewers across New York reinvest in their business, hire new employees and keep the retail cost of New York produced beer down. Currently, brewers pay a $7 federal excise tax for the first 60,000 barrels they brew per year. Under the BEER Act, that rate is slashed to $3.50 per barrel, resulting in potential savings of $210,000 per year for the brewery. The bill also cuts the tax by $2 on the next 1,940,000 barrels produced, resulting in potential savings of $3,880,000 each year. This totals over $4 million in potential annual savings for brewers. Allowing small breweries to reinvest in their companies is good for the surrounding communities, as many build state-of-the-art structures or renovate existing buildings, preventing blight and creating good-paying jobs.
"New York's craft brew industry is not just about good spirits, it's about good jobs," Schumer said. "This legislation will go a long way toward covering the financial impacts of the repeal of this important state tax benefit and will allow small breweries to grow, expand, and serve their brew at a price that is affordable to all New Yorkers. It's something we can all raise a glass to."
At the same time, a bipartisan group of New York lawmakers, including State Senators Lee Zeldin, Daniel Squadron and Assemblyman Joe Lentol are introducing legislation in Albany that would provide state-based tax credits for the production of New York State craft brews in order to offset the financial impact of the loss of the state excise tax exemption. The State Senate and State Assembly bills would provide a 14 cents per gallon production tax credit for up to the first 6,200,000 gallons of beer produced (200,000 barrels) by a New York State licensed brewery in a taxable year.
"The loss of the small brewer tax exemption was a big blow to the Brooklyn Brewery. It will cost us a half million dollars in the next year," Steve Hindy, owner of the Brooklyn Brewery, said. "We greatly appreciate the support of Senator Schumer and our state and city elected officials in trying to find a way to mitigate the impact."
In New York, the beer industry directly supports approximately 8,000 jobs through brewing and distribution, and nearly 60,000 jobs overall when retail sales are factored in. These jobs paid nearly $1.7 billion in wages in 2008, and accounted for almost $5 billion in economic activity.
A Harvard study of the proposal predicts that passage of the federal legislation would increase economic activity in the small brewery sector by over $115 million in the first year, and by over $733 million over the first five years. Every dollar saved by cutting the excise tax would result in nearly $11 dollars in economic activity, providing an immediate and substantial boost to the economy. According to the study, the proposal would generate over 2,700 new jobs in the first year, and an additional 375 jobs per year for the next four years. Schumer has also been pushing an "I Love NY Brew" campaign to market New York's growing craft brewery industry to convenience stores, restaurants, and local pubs throughout the state.