Breweries, distilleries face tax increase if Congress doesn't renew key provision

LOUISVILLE, Ky. (WDRB) -- A federal tax cut that saves breweries and distilleries a lot of money is in jeopardy.

Breweries and distilleries have reaped the benefits of the Craft Beverage Modernization and Tax Reform Act since 2017. It provides a federal tax cut they can use to reinvest money back into their businesses, but it's set to expire Dec. 31.

"On top of the struggles we've already been dealing with through COVID, it would be just be a death blow to a lot of breweries," said Ted Mitzlaff, CEO of Louisville's Goodwood Brewing.

The pandemic has hit the industry hard. Many breweries have been forced to close their taprooms and restaurants several times this year and are still dealing with reduced capacity restrictions. Distribution sales have also declined.

"It would just be this kind of concept, I think, of being kicked while you're down," said Nathaniel Gravely, president and owner of Gravely Brewing in Louisville. "We're definitely down, along with a lot of other businesses in our industry."

The act cuts the federal excise tax per barrel in half for small craft breweries that produce fewer than 2 million barrels a year. The act means they pay $3.50 per barrel on the first 60,000 barrels they produce. That rate would double for breweries if the act isn't renewed or extended.

"In a time like this when it's tight and every dollar counts, it's huge," Mitzlaff said. "In 2019 ... we saved about $40,000 on taxes, which went straight to reinvestment in the company, hiring more people ... so if we lost that the true victims here would be our employees."

Distilleries would also see a major tax increase if the act expires. Under it, the federal excise tax on a distiller's first 100,000 proof gallons is cut from $13.50 cents to $2.70.

"Nobody could've planned 2020 to go the way that it did, obviously, but it really, really needs to be either renewed or extended much further in the future, because the next year is going to be all about recovery," Gravely said.

U.S. Rep. John Yarmuth, D-Ky., said the tax provision has support in Washington.

"There's really not much partisan dispute on this," Yarmuth told WDRB News on Saturday. "Virtually everyone agrees that this was a positive thing to do; we ought to continue it."

But lawmaker's have a lot to tackle in the coming days. If the tax provision isn't renewed, Yarmuth expects it to be done in January as part of a tax extender package.

"I'm confident that provision will be renewed," he said. "It just may not get done before the end of the year."