[WA State Craft Brewery Tax] Must Be Stopped!

So I needed to resurrect the blog for this one, because the word definitely has to get out there.  I know a fair number of our (admittedly imaginary) readers are big craft brew fans (and a few of us are aspiring brewmasters and brewery owners as well), so I felt it was relevant.  Here’s the rundown:

Governor Jay Inslee announced last week that he has a new goal of expanding funding for early childhood education in the state.  Good.  Great.  Grand.  Wonderful.  Nobody can fault him for that, especially since our school systems have taken a significant hit in the budget-slashing that Olympia has been practicing lately.  However…the money has to come from somewhere, right?  This is where the [Must Be Stopped!] comes into play.  The Governor has proposed “expanding & extending” the 2010 state excise tax on craft breweries that was shoehorned in at the end of the session, behind closed doors and without a public hearing.  The main gist of the law enacted in 2010 was that the craft brewing industry was subject to a new, temporary tax to help balance the state budget during the recession.  There is a clause in the law that exempts breweries that produce less than 60,000 barrels per year, which basically means everyone in the state with the exception of Redhook Brewing Co.  Governor Inslee’s new proposal would make the taxes enacted under RCW 66.24.290 permanent and remove the exemption for breweries under 60K barrels.  So the politicians are spinning like it’s not a new tax (just an “expansion & extension”), but try telling that to the Elk Head Brewery (if you do, watch out for that shillelagh!), Diamond Knot, Elysian, Skagit River Brewery, Airways Brewing, and a whole host of other, excellent craft brewers that aren’t currently paying the tax.  I won’t go into all the reason why this is a terrible idea here, but I did write a letter to the state Senator and the two House Representatives for my district that goes into more detail and which I’ll include below.  Please, if you care at all about this issue, write your legislators and tell them how you feel!  Feel free to copy my letter if you’re disinclined to write one yourself, or plagiarize freely while writing your own, or whatever…just send something!

For more information on the tax and for further ways you may be able to help, check these links here and here.

Here’s my letter:

Dear Senator Eide,

 I am taking the time to write you this letter to inform you of my displeasure with Governor Inslee’s proposed “extension & expansion” of the 2010 state excise tax on craft breweries (Senate Bill 5039).  The tax unfairly increases the operating costs of an already highly-taxed industry, and has the potential to drive important business out-of-state, at the expense of our economy and hard-working citizens.  I understand that the legislature is looking for ways to balance the budget, and while I respect Governor Inslee’s goals of increasing early education resources, there must be better, more balanced ways to accomplish this.  I urge you to please vote a resounding “No” on any bill presented to the State Senate that would increase taxes on our burgeoning craft brewing industry.

            The Washington craft brewing industry is one of the most diverse and exciting industries in the state & country.  As an aspiring small business owner and avid home brewer, I’m currently in the process of building a business model to start my own “nano-brewery” with some friends in an attempt to turn a hobby into a sustainable career.  The expansion of the state excise tax (specifically the omission of the greater-than 60,000 barrels clause in the current law) would greatly increase the operating costs and reduce the profits in an already low-profit-margin industry.  This tax could mean the difference between another self-starting entrepreneur adding a healthy business to the state economy, or never getting the business off the ground.  Particularly alarming is the proposed elimination of the exemption for breweries producing less than 60,000 barrels per year.  This would hit every brewery in the state, with the exception of Redhook, with a tax that they were previously not paying – hardly an “extension of an existing tax” in their eyes, and a difficult burden for small businesses to bear.  In an economy that is still struggling to recover from recession, a tax such as this can and will cause existing small breweries to go out of business, increasing the unemployment rate and taking much-needed capital out of our local economy.

            The current state excise tax on the brewing industry is already one of the highest in the nation, and any increase is sure to cripple what has the potential to become a vibrant and thriving industry and one that brings much needed capital into the state.  As the law stands, craft brewers are paying a little over $8 per barrel produced, which is already more than three times higher than our closest neighbor and biggest rival in the craft brewing industry, the state of Oregon.  With the proposed increase bringing the tax per barrel to almost $24, our local breweries will be severely handicapped in the marketplace and unable to compete with the millions of comparatively low-cost barrels crossing our southern border and undercutting prices.  Our breweries will either have to increase their prices (and effectively price themselves out of the market), or they will have to absorb the cost themselves at the expense of their already low profit margins.  This latter would mean cutting costs elsewhere, which usually comes in the form of layoffs, reductions of employee pay & benefits, and other detrimental actions that could turn an industry of hard-working, happy professionals into one of disgruntled, underpaid, and overworked laborers – much the way competition from Asia adversely affected the American automotive industry in the ‘70s and ‘80s.  If the Governor’s proposal is enacted into law, it will drive businesses out-of-state, and if more and more breweries leave, he will have to find his tax dollars for education elsewhere anyway.  Seems like a no-win situation.  There must be a better way.

            My final point of concern is with the way in which the original 2010 bill was passed, and the timing and presentation of Governor Inslee’s plans to expand the tax and make it permanent.  The fact that the bill was passed in 2010 “behind closed doors” and without public hearings makes it seem like the legislature has little regard for the industry and was attempting to “pull the wool over the eyes” of business owners, brewery professionals and employees, and beer-lovers all over the state.  I understand that when faced with a recession, hard choices must be made to balance the budget, but actively targeting a growing industry because it looks like “easy money” will only serve to handicap the industry in the long run.  Furthermore, the fact that the Governor made his proposal last week while a large part of the industry professionals were attending the Craft Brewing Conference in Washington, D.C. further supports the idea that at least a portion of our elected officials feel they can hoodwink the public by passing a bill into law before any momentum can build to oppose it.  Also, the way the governor attempted to spin the issue by linking it to a completely unrelated one is unconscionable, and just another example of certain (though certainly not all) politicians manipulating our beliefs and emotions to get what they want.  In other words, by increasing and expanding the tax on the brewing industry and using that money to fund early education, he’s effectively created a no-win situation for those of us who support early education but oppose the tax, with the idea that our views on education will trump our support for the brewing industry and force our hand.  The creation of an either/or scenario with these two completely unrelated issues (you either support education or – if you oppose the tax on breweries – you don’t) borders on coercion.  These are hardly the actions of a governing body that is proud of its actions and believes in governmental transparency.  I certainly understand that being a public official must be a difficult and often thankless job, but an approach such as this only serves to further alienate the public from our elected government when we should all be coming together in mutual support and cooperation.

            In closing, let me again urge you to vote “No” on any form of this proposal that is presented to the Senate.  In the interest of not sounding petty, I won’t say that anyone who approves the Governor’s proposed tax increase on breweries will never get my vote, but I can think of some people who would say that, and at any rate I’m sure you understand better than I do the consequences of having constituents who are unhappy with your decisions.  While Governor Inslee’s motives are honorable, I hope you understand why I cannot approve of his methods.  I personally feel that this proposal will only serve to handicap an industry that has done much to bring notoriety, prestige, and much-needed capital to our wonderful state.  I appreciate your time and attention to this matter, as well as everything you do in service of the State of Washington and its citizens.  Thank you, Senator.

Sincerely,

Jon Chouinard

etc., etc….

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