OREGON CITY, Ore. (KOIN) — If you enjoy a nice bourbon on the rocks, gin and tonic, or vodka cran, you may be in for a rude awakening come January 1, 2020. The federal tax on distilled spirits will increase five-fold once the year ends.
The Tax Cuts and Jobs Act of 2017 included decreases in the Federal Excise Tax (FET) paid by breweries and wineries. Distilleries, though, saw the most dramatic benefit, since they have always paid a much higher rate than other forms of alcohol.
For 2018 and 2019, the FET dropped from $13.50 per proof gallon, to $2.70 per proof gallon on the first 100,000 proof gallons produced. According to Sara Brennan, co-owner of Trail Distilling in Oregon City, almost all distilleries in Oregon produce less than that 100,000 gallon cutoff.
“It’s a huge savings for us,” Brennan said. “It also puts us on parity with the big boys like Brown-Forman and Diageo, all your wonderful Kentucky distillers who produce a heck of a lot more than we do. And it also made us kind of in line with wine and beer. Spirits has always been the highest taxed and when you’re small, to have that tax lowered makes a huge difference.”
In Oregon, House Spirits Distillery and Hood River Distillers surpass the 100,000 proof gallon threshold, but they still benefit from a slightly reduced rate of $13.34 per proof gallon.
The American Craft Spirits Association credits the tax drop, at least in part, for a more than 15% increase in the number of active craft distillers. Many existing distillers expanded their businesses.
“It allowed us to put that savings back into our distillery,” Brennan said. “It allowed us to hire more people for sales … (and) invest in more equipment so we can distill more product.”
Oregon Senator Ron Wyden was behind the original bill, which got bipartisan support. He tells KOIN 6 he intended for it to be permanent all along, but it slipped into the tax bill as a temporary measure. So this past February, he introduced the Craft Beverage Modernization Act which would make the reduced rates permanent.
Beer is normally taxed at $18 per barrel (31 gallons). According to the proposed reforms, domestic breweries that produce fewer than 2 million barrels each year would pay $3.50 per barrel on the first 60,000 barrels, and $16 per barrel on the next 1,940,000 barrels.
The FET on wine is normally between $1.07 and $3.40 per gallon depending on the alcohol content and how carbonated it is. Hard cider is taxed the same as wine. Some domestic wineries were eligible for a tax credit around $0.90 per gallon on the first 100,000 gallons produced under pre-2018 law according to the . The Act would create a tiered credit system for wine produced in the U.S. or imported: $1.00 for the first 30,000 gallons; $0.90 for the next 100,000 gallons; and $0.535 for the next 620,000 gallons.
Now Wyden hopes the Act won’t end up in the legislative graveyard, a hope Brennan shares.
“I don’t like the customer to have to pay more for products that they’re used to paying a certain price for,” she said. “On average, about 54% of a bottle is the taxes and fees that go into making it. That doesn’t include the bottle, the label, the salary to actually distill it. So I would hate for a price to have to go up, but that’s probably what would happen.”
Hood River Distillers told KOIN 6 the tax reduction puts craft distillers on a more level playing field with the beer and wine industries.
“The savings translate to job creation, capital improvements and research and development opportunities,” CFO Erica Mitchell wrote in an email. “The Oregon Craft sector is growing, and if the Act is not made permanent, it could curtail much of the progress these small businesses have made.”Remember to follow KOIN 6 News on Facebook, Twitter and Instagram. Download our free news and weather apps for the latest headlines and forecast information.