How Minnesota’s breweries fare under new tax rules

A Town Hall Brewery employee rakes out the Mash Tun during a brew day // Photo by Kevin Kramer

A Town Hall Brewery employee rakes out the Mash Tun during a brew day // Photo by Kevin Kramer

Summit Brewing president Mark Stutrud is excited about the new “Craft Beverage Modernization and Tax Reform Act.”

“The tax reform is inclusive and beneficial to all brewers, which is a positive, and we’re eager to put the savings right back into our brewery so our customers can enjoy more Summit beer,” Stutrud says.

The way the bill works is relatively simple. It reduces the excise tax rate (taxes paid by the manufacturer when a product is sold) on the first 60,000 barrels of beer by 50 percent, from $7 to $3.50, for domestic brewers producing less than two million barrels a year. The bill also lowers excise taxes from $18 per barrel to $16 per barrel on the first six million barrels for all other brewers and all beer importers. For spirits, taxes are lowered on the first 100,000 proof gallons from $13.50 to $2.70, and wine sees a cut on the first 30,000 gallons from 17 cents to 7 cents.

The amendments to these excise taxes were included as a part of the overall GOP tax bill signed into law on December 22. While public opinion is still split on the tax bill as a whole, the Brewers Association, a national trade group for craft brewers which have been working to pass the Craft Beverage Modernization and Tax Reform Act for several years, are glad to see the reform to the excise taxes on beverage producers.

“The effort to bring meaningful federal excise tax relief to small brewers has been a primary political objective for the Brewers Association (BA) for almost 10 years,” the group said in a statement upon the passage of the tax bill by Congress. “[…] This bipartisan legislation is a tremendous step forward for America’s small brewers, located in almost every congressional district in the nation.”

Some, like the Brookings Institution, have pointed out that foreign and large-scale macro producers will benefit more than craft breweries and distillers from the new tax break, but breweries and brewpubs in Minnesota seem to find the change to be a beneficial one, even if it may not be as significant for smaller producers.

For Summit, which produced 115,000 barrels of beer in 2017, the new bill will result in a savings of $210,000 on 60,000 barrels of beer. Surly Brewing, which surpassed 60,000 barrels in 2015 will also save $210,000. And August Schell Brewing Co. will also benefit as much as Summit as the largest beer producer in the state at 150,000 barrels.

“Obviously, it puts some money back into our business,” August Schell president Ted Marti says. “And more than likely, what we will do with it is invest in more equipment. I think that’s kind of a no-brainer since the brewing industry is so capital intensive. We constantly have equipment needs. We still have an old plant with old equipment that we would very much like to replace.”

“Obviously, it puts some money back into our business, and, more than likely, what we will do with it is invest in more equipment. 

– Ted Marti, President of August Schell Brewing Company

Some of those dollars might even be used for a marketing boost, and overall, Marti feels like it’s a good boost for smaller breweries, even if the impact isn’t felt as strongly.

As of 2016, eight breweries in Minnesota brewed over 10,000 barrels. Third Street Brewhouse in Cold Spring, Minnesota, brewed roughly 28,000 barrels, which would amount to a tax savings of around $100,000. Bent Paddle Brewing Company in Duluth, which produced 15,600 barrels in 2016, could see a savings of nearly $55,000.

The savings will be much more modest for the bulk of Minnesota breweries producing between 1,000–2,000 barrels, but even so, brewery owners expect the money will make an impact.

“I am happy with the excise tax cut, and it will have a small impact on my brewery,” Tin Whiskers Brewing Company president Jeff Moriarty says. “I have read that it is only a two-year tax cut, which is really disappointing that it isn’t permanent.” (The Brewers Association has noted online in its report of the tax that it hopes to make the tax change permanent when the two years are up.)

In terms of dollars, Tin Whiskers would have about $7,000 more a year, “which won’t affect my business in any big way, but will definitely help with cash flow,” Moriarty explains.

That number is based off of the 2,100 barrels the production brewery produced last year, with Tin Whiskers set to brew about the same amount in 2018.

Town Hall Brewery is another business boasting similar numbers, but because it focuses as much on food as beer production, co-owner and founder Pete Rifakes says that the extra $7,000 can really help.

“I think it’s beneficial for everyone,” he says. “Obviously, the more you brew, the more you save. As a brewpub in Minnesota, we can only brew up to 3,500 barrels.”

To try and put the benefit into perspective, Rifakes used the example of expanding with a new restaurant or expanding into a new market, and what the extra cash would do for Town Hall.

“For us, $7,000 doesn’t sound like a lot, but a new holding tank is between about $7,000 to $10,000,” Rifakes says. “If you’re entering a new market and need to buy new kegs, that’s $100 to $150 per used keg. A few thousand dollars goes a long way.”

On an even smaller scale is Forager Brewery. Head brewer Austin Jevne says the Rochester brewpub produced about 650 barrels last year, so he would be looking at about $2,000 in savings.

For him, the savings are nice, but won’t help him do much of anything of note.

“What we can actually do with that and what that means for our company is […] something, but it’s not significant to make big changes,” Jevne says. “The whole law change, is it good? Maybe. I don’t really know. We’ll see how that money really gets distributed at companies that do get a lot back.”

He says it would be great if that money went back into making a better quality product, reduced prices on shelves, and higher wages for low-tier workers.

Regardless, the consensus seems to be positive among Minnesota brewers, even for smaller breweries.

“The national Brewers Association and Minnesota Craft Brewers Guild really supported this effort,” Rifakes says. “They’ve been trying to get this passed for a long time. It’s certainly something that the majority of the brewers in the U.S. support.”