The $900 billion COVID-19 relief package passed by Congress Dec. 21 includes a set of tax breaks that offer substantial relief for Oregon craft brewers, distillers, winemakers and cider makers, who are among the small businesses hit hard during the pandemic.
The Craft Beverage Modernization and Tax Reform Act made permanent federal excise tax rates that were first approved by Congress in 2017 and 2019, and were set to expire Dec. 31. The Oregon Brewers Guild said that allowing them to expire would have caused the excise tax to increase by as much as 100% this year.
Christina LaRue, the guild's executive director, said the state's craft beverage makers already have seen temporary and permanent closures because of COVID-19 restrictions, and a tax increase of that magnitude would have been devastating even during normal times. As an example, a brewery that produces 10,000 barrels a year would jump from paying $35,000 a year to $70,000 a year in excise taxes.
LaRue said America's more than 8,300 breweries, along with beer importers, would have faced a nearly $154 billion annual excise tax increase this year without the reform act.
"We consider the permanency a major win for Oregon craft breweries, as well as breweries across the country," she said.
Since the reduced federal excise tax rates were enacted in early January 2018, they have allowed small and independent craft brewers, distillers, winemakers and cider makers to reinvest in their businesses, hire new employees and grow their facilities.
LaRue pointed to Ninkasi Brewing in Eugene, which was able to use those funds to hire new team members and invest in its first canning line. In Hood River, pFriem Family Brewers was able to purchase much-needed equipment and hire additional staff. Crux Fermentation Project in Bend purchased additional fermentation vessels, adding needed capacity, and Deschutes Brewery invested in its new canning line and additional staffing.
Wyden & Merkley
The Oregon Winegrowers Association (OWA) also applauded approval of the Craft Beverage Modernization and Tax Reform Act and credited Oregon Sen. Ron Wyden for leading the five-year effort to get it passed.
Jana McKamey, OWA's executive director, said wineries that have lost revenue because of COVID-19 restrictions against in-person tastings and sales are mostly small, family-owned businesses. The tax relief will allow them to reinvest in their people and production as well.
With the permanent federal excise tax rates, a winery that produces 10,000 gallons of wine a year will pay $700 compared to $1,700 if the rates had expired. Larger wineries that produce 50,000 gallons a year would have paid $5,500 in excise taxes due to the expiration, and those that produce 100,000 gallons or more can expect to see $10,000 a year in savings with permanence of the rates.
McKamey said a typical Oregon winery produces about 5,000 cases, or 12,000 gallons, of wine each year. The relief package provides a tax credit of $1 on the first 30,000 gallons, a 90-cent credit on production ranging from 30,001 to 130,000 gallons, and a 0.535-cent credit on production from 130,001 to 750,000 gallons. Sparkling wine also qualifies for these credits, which it previously did not.
The 14% solution
The Craft Beverage Modernization and Tax Reform Act also addressed the higher tax rate for wines with alcohol by volume (ABV) of 14%. The new legislation raised that to 16%, benefitting many Willamette Valley vineyards as well as those in other growing regions where climate, production processes and other factors impact the ABV.
"One of the really important things about the permanency of this tax credit is that it provides certainty for these businesses. It's coming at a really good time for the industry and that certainty is really critical for businesses planning for the future," McKamey said. "It also means more employment and more tourism, so it really is an economic development tool for local communities and the entire state."
Taxes and Blosser
In a press release posted by the OWA, Wyden said he is gratified that winegrowers are among the major winners in the tax incentives.
"I've seen firsthand how tax incentives for our state's world-class wine industry generate jobs and small business growth throughout Oregon," Wyden said. "And extending these breaks is especially important now, given how hard the pandemic and wildfires have hit these award-winning small businesses."
The Craft Beverage Modernization and Tax Reform Act also includes $3.5 million for smoke impact research to help winegrowers and winemakers better manage and mitigate the impacts of smoke exposure on grapes, building on $2 million appropriated by Congress last year.
OWA worked with winegrower groups in Washington and California and OWA noted Oregon Sen. Jeff Merkley, ranking member in the Senate Agriculture Appropriations Committee, played a "pivotal role" in securing the funding.
Alex Sokol Blosser, co-president of Sokol Blosser winery and OWA's president, said that as the threat of wildfires increases, understanding how smoke compounds affect wine grape quality has become critically important to wineries and growers.
"We appreciate the support of Oregon's congressional delegation in securing funding to study this issue impacting our viability and making tax credits permanent that provide businesses certainty during a chaotic time," Blosser said in OWA's press release.
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