Facing the Loss of a Tax Exemption, Lawmakers, Brewers Craft a Solution

Written by By Pervaiz Shallwani for The Wall Street Journal

State and federal lawmakers said Sunday they have brewed a way to keep local craft beermakers’ profits from going flat.

(The question being: what is the favorite quaff of a black bear? -PGA)

A March 28 New York state court ruling declared unconstitutional a law that had exempted local brewers from a state excise tax and registration fees. Under the ruling, all distributors now have to pay a 14 cent per gallon in state tax and an additional 12 cents per gallon for beer sold in New York City.

Losing the exemption would mean a $434,000 cost increase for a craft brewer that produces 100,000 barrels of beer a year, said U.S. Senator Charles Schumer during a news conference Sunday.

“That’s a staggering amount that could make it difficult for these burgeoning, wonderful businesses to stay in business,” Mr. Schumer said.

State lawmakers announced Sunday a bill that would partially solve the problem, giving New York’s craft brewers—those that produce less than 6 million barrels a year—a 14 cent per gallon tax credit on the first 200,000 barrels produced.

The bill is backed by Assemblyman Joseph Lentol, a Democrat from Brooklyn, and state Sen. Lee Zeldin, a Long Island Republican. Both have notable craft breweries in their districts.

“We have to take action against” the ruling, Mr. Lentol said.

A spokesman for Assembly Speaker Sheldon Silver said in an email that “different proposals” were being considered to address the court ruling.

“It’s a shame that in state small brewers could be hurt because of this decision,” the spokesman said.

New York brewers would get most of the monetary value of the old exemption back if the state legislation is passed and coupled with a federal proposal introduced in March that would cut federal excise taxes on brewers that make less than 1.9 million barrels a year.

Mr. Schumer is co-sponsoring that bill.

State brewers and bar owners had complained that the court ruling threatened to stunt a booming industry in New York. Bars said it would force them to raise the cost on pints, and brewers said they may move some of their operations to neighboring states.

But the Shelton Brothers, a Massachusetts-based distribution company that brought the lawsuit, had complained the tax exemption and fees were putting out-of-state brewers at an unfair disadvantage.

Shelton Brothers President Daniel Shelton said the move by lawmakers was what he expected. “It’s going to be the same effect, but it’s clear the instate people are supposed to pay the tax the same way we are, but the state has made a decision to give it back to in-state brewers,” he said.

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