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Taxes are by far the single most expensive beer "ingredient."

April/May 2003 Cover

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Will Oregon Brewers Be "Nickel and Dimed" to Death?

by Jim Parker

     The slogans sound harmless. It's just a "nickel a drink." It's "time for a dime." With Oregon facing a huge budget deficit and politicians looking for spare change anywhere they can find it, beer excise taxes will once again be dead center in the sights of those looking for sources of funding. And while none of us would hesitate to pony up five to 10 cents each time we tip a pint, these tax proposals would literally "nickel and dime" Oregon's brewers to death.

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     Beer excise taxes are paid by brewers at the point of production, not by consumers at the point of consumption. Right now, Oregon brewers pay $2.60 per 31-gallon barrel in state excise tax. That's on top of the $9 per barrel federal tax on the first 60,000 barrels and $18 per barrel for anything over that. A nickel a drink increase? That's $16.53 additional state tax per barrel. (The tax proposals always refer to "a drink" as 12 ounces.) A dime a bottle? We're talking $33.06 per barrel in added cost to the brewer.

     What would this do to Oregon's brewers? Using year 2000 production figures, a "nickel a drink" tax would cost Alan Sprints of Hair of the Dog an additional $8,265 a year (165,300 nickels). A 10 cent additional tax would pencil out to $16,530. Gary Geist and Alex Stiles of Lucky Lab would have to cough up $17,488.74 more with a nickel a drink tax or $34,977.48 for an additional dime tax. By the time you get to the state's larger breweries, like Full Sail, Deschutes and Widmer, a nickel or dime tax works out to millions of dollars in additional tax burden.

     Those taxes are assessed as soon as the brewer moves his beer from the fermenter into the tax determination tank -- before the beer is sold. Taxes are by far the single most expensive beer "ingredient."

     The pro-tax folks argue that the taxes will "trickle down" to consumers, and they're right. But they won't trickle; they'll pour. Let's follow that nickel or dime from the brewery to the tap. Aside from brewpubs who sell on site, most brewers sell their beer to wholesalers who sell to retailers who sell to the consumer. If each keg were to cost the brewer $9 or $18 more to produce, the cost to the wholesaler would go up proportionately to maintain the brewer's same profit margin. The wholesaler would mark up that keg proportionately to maintain his margin, and the retailer would do the same. With those increases, the keg that once cost a pub owner $100 is likely to run at least $125. That means his cost per pint goes from about 80 cents to just over $1. To maintain his margin, a pub owner selling $3 pints today would have to raise the price to $3.75.

     There has been talk about protecting Oregon brewers by exempting all brewers that produce less than 100,000 or 200,000 barrels per year. But such an exemption would actually hurt Oregon brewers. Why? In Oregon, state excise tax on beer produced out of state is paid by the "importing wholesaler." In other words, the tax on Anheuser-Busch products isn't paid in St. Louis; it's paid here in Oregon by Maletis Beverage, Western Beverage and all of the other A-B wholesalers that also distribute Widmer Brothers beers. Miller taxes are paid by Columbia, which also distributes Deschutes, Full Sail, Hair of the Dog and several other Oregon beers. State taxes on Coors are paid by Mt. Hood Beverage, which also distributes BridgePort and Rogue, among others.

     So let me ask: If a wholesaler's cost of distributing Bud, Miller and Coors increases $10 to $20 a keg, is he likely to pass the entire increase along only on those products? Not when they account for 90 percent of his income. He'll spread the cost increase among all brands, raising the price of Oregon beers along with all the others. That means Oregon brewers will see the wholesale and retail cost of their beers go up -- and will suffer the resulting loss in sales -- without getting any increase in revenue.

     A bill before the Washington state legislature would raise that state's excise tax to $28.44. That would hurt not only Washington brewers but Oregon breweries as well. A difference of more than $25 a barrel in excise taxes would encourage Washington brewers to try to sell more beer in Oregon, where the tax is lower. Meanwhile, Washington excise taxes are paid by the brewers sending their beer into the state, meaning Oregon brewers who sell beer in Washington would get socked with the increased tax. So at the same time they are facing increased competition and a loss of sales locally, Oregon brewers would be hit with increased taxes for beer sent to Washington.

     Simply put, there is no such thing as "safe tax."

Jim Parker is the executive director of the Oregon Brewers Guild.

Copyright 2003, Celebrator No material herein may be reprinted without permission of the Celebrator Distributed On the W3 For personal, non-commercial enjoyment and use only. Cheers!

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