S. 236 / H.R. 747 Squeezed into Unpopular Republican Tax Bill

So the Republican tax bill squeezed in S. 236 / H.R. 747 the Craft Beverage Modernization and Tax Reform Act of 2017, the tax proposal endorsed by the Brewers Association at the behest of its largest members.

While just about everyone can rejoice that truly small brewers will enjoy a big tax break on their production, the bill also delivers sizable advantages to small breweries’ greatest competitors (besides other small brewers) – large craft. Indeed, a sizable portion of the tax cut was given to just a a few so called “mega-craft” brewers.

Of the projected $126 million annual giveaway to beer manufacturers, $50 million will be claimed by just seven “mega-craft” brewers.

The sociological impacts of the bill, whereby lower income consumers retain a greater tax burden than higher income consumers is also notable. Our segment of better educated, more affluent consumers are having our hobby supported on the backs of less advantaged consumers.

It makes sense that those who pay the most would receive the most benefit. I still cannot recall craft brands controlling distribution chains or engaging in pay to play schemes to keep other craft out.

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This started about 10 years ago according to an industry friend in Southern California who was complaining about larger craft brewers, especially in hotly contested markets, engaging in the same tactics he was rebelling against very loudly in the press. It was only a couple years before I heard from a retailer in Long Beach that this brewer’s sales people too were engaging in the same tactics.

I’ve only recently seen these claims about big beer sales tactics challenged and when they were, no evidence or verifiably untrue evidence emerged and actual cases versus opportunity, a real metric by which one can make a claim, is never established.

That’s exactly what this bill is not doing. Guess which brewers pay the most and are not getting a tax break?

The ostensible idea behind this tiered tax is to remove volume advantages to make small craft breweries more viable. In the actual marketplace, new craft breweries and retailers are often a small brewers greatest competition. After that, large craft is the next biggest challenger for tap handles and shelf space. This bill actually provides significant advantages to large interstate and international craft breweries that are still competing at the same price points and retail spots with small breweries that have little in common with them, and can’t respond to price drops. In this way, the bill is actually making it harder for small brewers to remain viable.

The bill seems designed to help megacraft squash small new craft competition and aid them in their fight against big beer companies and their customers at retail locations like airlines, sports stadia, large retail chains, etc. Competition is fine, but it’s pretty clear that there’s no longer a clear craft/non craft division, and a bill like this is about one side of craft eating the other.

Do we know if the full version of this got into the final bill?

If you take what he said at face value you’re agreeing. The people paying the most are not the lower income people. Even if they had a way higher tax rate 50% of 50k sales is a whole lot less than 25% of 500 million (or whatever Boston Beer is doing now).

Heres the one that was signed

Heres the relevant part to brewers

SEC. 13802. Reduced rate of excise tax on beer.

(a) In general.—Paragraph (1) of section 5051(a) is amended to read as follows:

“(1) IN GENERAL.—
“(A) IMPOSITION OF TAX.—A tax is hereby imposed on all beer brewed or produced, and removed for consumption or sale, within the United States, or imported into the United States. Except as provided in paragraph (2), the rate of such tax shall be the amount determined under this paragraph.
“(B) RATE.—Except as provided in subparagraph ©, the rate of tax shall be $18 for per barrel.
“© SPECIAL RULE.—In the case of beer removed after December 31, 2017, and before January 1, 2020, the rate of tax shall be—
“(i) $16 on the first 6,000,000 barrels of beer—
“(I) brewed by the brewer and removed during the calendar year for consumption or sale, or
“(II) imported by the importer into the United States during the calendar year, and
“(ii) $18 on any barrels of beer to which clause (i) does not apply.
“(D) BARREL.—For purposes of this section, a barrel shall contain not more than 31 gallons of beer, and any tax imposed under this section shall be applied at a like rate for any other quantity or for fractional parts of a barrel.”.
(b) Reduced rate for certain domestic production.—Subparagraph (A) of section 5051(a)(2) is amended—
(1) in the heading, by striking “$7 a barrel”, and
(2) by inserting “($3.50 in the case of beer removed after December 31, 2017, and before January 1, 2020)” after “$7”.
© Application of reduced tax rate for foreign manufacturers and importers.—Subsection (a) of section 5051 is amended—
(1) in subparagraph ©(i)(II) of paragraph (1), as amended by subsection (a), by inserting “but only if the importer is an electing importer under paragraph (4) and the barrels have been assigned to the importer pursuant to such paragraph” after “during the calendar year”, and
(2) by adding at the end the following new paragraph:

“(4) REDUCED TAX RATE FOR FOREIGN MANUFACTURERS AND IMPORTERS.—
“(A) IN GENERAL.—In the case of any barrels of beer which have been brewed or produced outside of the United States and imported into the United States, the rate of tax applicable under clause (i) of paragraph (1)© (referred to in this paragraph as the ‘reduced tax rate’) may be assigned by the brewer (provided that the brewer makes an election described in subparagraph (B)(ii)) to any electing importer of such barrels pursuant to the requirements established by the Secretary under subparagraph (B).
“(B) ASSIGNMENT.—The Secretary shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the reduced tax rate provided under this paragraph, which shall include—
“(i) a limitation to ensure that the number of barrels of beer for which the reduced tax rate has been assigned by a brewer—
“(I) to any importer does not exceed the number of barrels of beer brewed or produced by such brewer during the calendar year which were imported into the United States by such importer, and
“(II) to all importers does not exceed the 6,000,000 barrels to which the reduced tax rate applies,
“(ii) procedures that allow the election of a brewer to assign and an importer to receive the reduced tax rate provided under this paragraph,
“(iii) requirements that the brewer provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and
“(iv) procedures that allow for revocation of eligibility of the brewer and the importer for the reduced tax rate provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such reduced rate.
“© CONTROLLED GROUP.—For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the brewer, as described under paragraph (5).”.
(d) Controlled group and single taxpayer rules.—Subsection (a) of section 5051, as amended by this section, is amended—
(1) in paragraph (2)—
(A) by striking subparagraph (B), and
(B) by redesignating subparagraph © as subparagraph (B), and
(2) by adding at the end the following new paragraph:

“(5) CONTROLLED GROUP AND SINGLE TAXPAYER RULES.—
“(A) IN GENERAL.—Except as provided in subparagraph (B), in the case of a controlled group, the 6,000,000 barrel quantity specified in paragraph (1)©(i) and the 2,000,000 barrel quantity specified in paragraph (2)(A) shall be applied to the controlled group, and the 6,000,000 barrel quantity specified in paragraph (1)©(i) and the 60,000 barrel quantity specified in paragraph (2)(A) shall be apportioned among the brewers who are members of such group in such manner as the Secretary or their delegate shall by regulations prescribe. For purposes of the preceding sentence, the term ‘controlled group’ has the meaning assigned to it by subsection (a) of section 1563, except that for such purposes the phrase ‘more than 50 percent’ shall be substituted for the phrase ‘at least 80 percent’ in each place it appears in such subsection. Under regulations prescribed by the Secretary, principles similar to the principles of the preceding two sentences shall be applied to a group of brewers under common control where one or more of the brewers is not a corporation.
“(B) FOREIGN MANUFACTURERS AND IMPORTERS.—For purposes of paragraph (4), in the case of a controlled group, the 6,000,000 barrel quantity specified in paragraph (1)©(i) shall be applied to the controlled group and apportioned among the members of such group in such manner as the Secretary shall by regulations prescribe. For purposes of the preceding sentence, the term ‘controlled group’ has the meaning given such term under subparagraph (A). Under regulations prescribed by the Secretary, principles similar to the principles of the preceding two sentences shall be applied to a group of brewers under common control where one or more of the brewers is not a corporation.
“© SINGLE TAXPAYER.—Pursuant to rules issued by the Secretary, two or more entities (whether or not under common control) that produce beer marketed under a similar brand, license, franchise, or other arrangement shall be treated as a single taxpayer for purposes of the application of this subsection.”.
(e) Effective date.—The amendments made by this section shall apply to beer removed after December 31, 2017.