Craft brewers plan to hire and expand, using new federal tax cut savings | McClatchy Washington Bureau

Keil Jansen, the co-founder of Durham’s Ponysaurus Brewing, wasn’t expecting craft brewers like himself to benefit from the massive tax reform bill Congress passed in December.

But, thanks to a provision in the bill, his brewery forecasts that it could save up to $14,000 this year, when he expects the brewery to double its current output of 2,000 barrels a year.

It’s not a game-changing amount, but it’s enough money that he might be able to bring on more part-time workers. More part timers could help relieve some of the workload on his four full-time employees working in beer production.

“A lot of the smaller breweries have a lot of over qualified people” doing less skilled work, he said. “We have to cover a very wide range of labor, so anytime we can bring in part-time workers we can elevate full-time workers to focus (on more skilled work) and that works out well for us.”

The craft-specific measure in the tax reform bill decreases the federal excise by half, from $7 per barrel to $3.50 per barrel for the first 60,000 barrels produced. It’s a measure that craft lobbyists had worked to get passed for years, including groups in North Carolina.

“The craft brewers of North Carolina have been supportive of this federal legislation for years,” said Andrew Lemley, executive director of the N.C. Craft Brewers Guild. “Our brewers have gone to Washington twice a year for the past four years to talk to Congress about their successes and how this adjustment would help them.”

Lemley, a former executive at craft giant New Belgium, which brews in both Colorado and Asheville, said the tax cuts will mean more money for equipment and people.

“This excise tax recalibration means more money staying in North Carolina’s main street breweries,” he said. “In the capital and staff intensive business of brewing it means more resources will be available for equipment and people.”

North Carolina’s craft brewing market is one of the most thriving and diverse in the country. The state has the ninth most breweries in the county, with 200 as of 2016, and is home to both huge craft brewing names, such as Oskar Blues and Sierra Nevada, as well as tiny, experimental brewers.

Most brewers in North Carolina produce fewer than 1,000 barrels a year, Lemley said. A brewery producing 1,000 barrels a year would save $3,500 a year in taxes.

The tax cut is expected to save producers $4.2 billion before the provision sunsets on Dec. 31, 2019 – although the industry is working to make it permanent.

“We are going to begin work immediately to try to educate members and their staffs why we think this provision should be made permanent,” said Bob Pease, the CEO of the Brewers Association, which represents more than 4,200 breweries in the U.S. “We’re not going to rest on our laurels.”

Expanding

Sean Lilly Wilson, the owner of Durham’s Fullsteam Brewery, said the tax cut will help “mid-size craft (breweries) like us,” but the real winners are the largest craft breweries.

For example, New Belgium sold nearly 958,000 barrels of beer in 2016. Had the tax cut been in place that year, the brewery would have saved $3.3 million.

But, it will still help Fullsteam, which produced around 8,000 barrels in 2017, a 40 percent increase from the year prior, Wilson said.

“We’re maxed out at capacity, so the cost savings – around $28,000 annually – will help us in two ways: it’ll help us manage the rising cost of ingredients, and it’ll help us a bit as we eye our future expansion,” he said.

Fullsteam, which currently has 26 full-time employees and 33 part-time workers, is looking to expand its current 12-barrel brewing system to a 30-barrel system and add restaurant space.

The brewery is looking at a range of sites across the Triangle, Wilson added.

Ted Dwyer, the owner of Lynnwood Brewing Concern in Raleigh, also said the tax cut will benefit his brewery as it looks to scale up. The brewery, which produces about 6,000 barrels of beer each year, recently ordered a 60-barrel fermenter – a purchase that it will use its tax savings to cover.

“I think that will allow us to pay higher wages and not have to pass that onto the consumer,” Dwyer said.

Not a game-changing amount

For many of the small breweries in the area, though, the savings won’t amount to much.

“The tax cut won’t be very beneficial to us as we are a small brewery,” said Andrew Scharfenberg, logistic czar at Carrboro’s Steel String Brewery.

Steel String made around 640 barrels last year, which would translate to savings of around $2,240 next year if they produce the same amount, he said. The brewery is likely to just add the money to its operating account.

“Our feeling is that this tax cut won’t impact many breweries significantly enough to make much of a difference job creation wise,” Scharfenberg said. “If a big brewery needed to hire someone additional they would have done it by now anyway.”

Foothills Brewing in Winston-Salem produces about 40,000 barrels per year and is best known for its Hoppyum IPA. The cut in the excise tax amounts to about $140,000 for the brewery.

But those savings likely won’t be used to reduce the price of its beer or add to the 45 or so workers employed at the brewery, Foothills Brewing President Jamie Bartholomaus said. Instead, he said, he’ll use the money for capital expenditures such as equipment, which have been over $1 million each of the last two years.

“We won’t necessarily do anything specific with the money,” he said. “For us, it’ll mainly be equipment and capital expenditures.”

Good for the spirits

For Scott Maitland, owner of Top of the Hill Restaurant and Brewery in Chapel Hill, the bigger impact will come from savings on producing spirits rather than beer. Top of the Hill brews beer for its restaurant and also has a distillery where it makes vodka, gin and other spirits.

Tax rates for liquor decreased more than beer, falling from $13.50 to $2.70 per gallon for the first 100,000 gallons produced.

“This has been a long time coming. Taxes on liquor have never been reduced,” Maitland said. “This may mean the difference between having a successful business or not.”

Maitland – who plans to use the tax savings to fund Top of the Hill’s bonus incentive program and pay for restaurant maintenance – added that the tax decreases could lead to cheaper prices for liquor.

“I am interested to see if this tax cut will lead to race to the bottom in pricing or if distiller will keep them the same and boost margins,” he said. “The tax cut doesn’t move the needle enough on beer to change pricing.”

State tax still hurts

As glad as some of the brewery owners were about the federal tax cut, some said the local taxes are what really hurt.

The state excise tax for a barrel of beer in North Carolina is $19.13 per barrel, according to the Brewers Association.

Jansen of Ponysaurus said that while the brewery is saving money, the local taxes will probably end up being about twice the amount it will save federally.

“That’s the majority of our tax burden,” he said.

Maitland also said the local taxes cost Top of the Hill the most.

“The state tax is killer,” he said. “I have hopes (that it will be lowered one day), but I have zero optimism.”